Mining in 28 Jurisdictions Worldwide 2014 Contributing Editors: Michael Bourassa and John Turner

Mining in 28 jurisdictions worldwide 2014 Contributing editors: Michael Bourassa and John Turner

Published by Getting the Deal Through in association with:

ÆÉLEX Boga & Associates Bowman Gilfillan Bufete Aguirre Soc Civ Chandler & Thong-ek Law Offices Limited Corpus Legal Practitioners Esin Attorney Partnership, a member firm of Baker & McKenzie Fasken Martineau Foyen Advokatfirma Gadens Grata Law Firm Holland & Hart LLP Kalliolaw Asianajotoimisto Oy – Attorneys at Law Kimathi & Partners, Corporate Attorneys Koep & Partners Martelli Abogados Miranda Correia Amendoeira & Associados – Sociedade de Advogados, RL

Myanmar Legal Services Ltd Nuna Law Firm Peña Mancero Abogados Rex Attorneys Rubio Leguia Normand Soemadipradja & Taher SyCip Salazar Hernandez & Gatmaitan Tobar & Bustamante Veirano Advogados CONTENTS

Mining 2014 Global Overview 3 Ecuador 67 Michael Bourassa, Samantha Alfonzo and Cesar Zumarraga and Santiago J Bustamante Contributing editors: Daye Kaba Tobar & Bustamante Michael Bourassa and John Turner Fasken Martineau Fasken Martineau Finland 74 Albania 8 Pekka Holopainen and Panu Skogström Alketa Uruçi and Ilir Limaj Kalliolaw Asianajotoimisto Oy – Boga & Associates Attorneys at Law Getting the Deal Through is delighted to publish the fully revised and updated tenth Angola 14 Ghana 83 edition of Mining, a volume in our series of João Afonso Fialho and Marília Frias Michael Edem Akafia and Kimathi annual reports, which provide international Miranda Correia Amendoeira & Associados Kuenyehia Sr analysis in key areas of law and policy – Sociedade de Advogados, RL Kimathi & Partners, Corporate Attorneys for corporate counsel, cross-border legal practitioners and business people. Argentina 21 Greenland 90 Hugo C Martelli and Lucrecia Frangella Peter Schriver Following the format adopted throughout Saubidet Nuna Law Firm the series, the same key questions are Martelli Abogados answered by leading practitioners in each of the 28 jurisdictions featured. Indonesia 96 Australia 27 Rahmat Soemadipradja, Robert Reid and Every effort has been made to ensure that Kym Livesley Rachel Situmorang matters of concern to readers are covered. Gadens Soemadipradja & Taher However, specific legal advice should always be sought from experienced local advisers. Bolivia 35 Mozambique 106 Getting the Deal Through publications are Fernando Aguirre B João Afonso Fialho and Nuno Cabeçadas updated annually in print. Please ensure Bufete Aguirre Soc Civ Miranda Correia Amendoeira & Associados you are referring to the latest print edition – Sociedade de Advogados, RL or to the online version at Brazil 41 www.gettingthedealthrough.com. Pedro Freitas, Pedro Garcia, Alexandre Myanmar 115 Calmon and Bruno Chedid Daw Khin Cho Kyi Getting the Deal Through gratefully Veirano Advogados Myanmar Legal Services Ltd acknowledges the efforts of all the contributors to this volume, who were Canada 49 Namibia 122 chosen on the basis of their recognised Michael Bourassa and John Turner Peter Frank Koep and Hugo Meyer van expertise. Getting the Deal Through would Fasken Martineau den Berg also like to extend special thanks to Koep & Partners contributing editors Michael Bourassa and John Turner of Fasken Martineau for their Colombia 57 Nigeria 128 assistance with this volume. Gabriela Mancero Peña Mancero Abogados Sina Sipasi, Oluwaseun Akintola and Getting the Deal Through Lionel Ebenibo AE´LEX London June 2014

Publisher The information provided in this publication is Gideon Roberton general and may not apply in a specific situation. [email protected] Legal advice should always be sought before taking any legal action based on the information Subscriptions provided. This information is not intended to Rachel Nurse create, nor does receipt of it constitute, a lawyer– [email protected] client relationship. The publishers and authors Published by accept no responsibility for any acts or omissions Business development managers Law Business Research Ltd contained herein. Although the information George Ingledew 87 Lancaster Road provided is accurate as of June 2014, be advised [email protected] London, W11 1QQ, UK that this is a developing area. Tel: +44 20 7908 1188 Alan Lee Fax: +44 20 7229 6910 Printed and distributed by [email protected] © Law Business Research Ltd 2014 Encompass Print Solutions No photocopying: copyright licences do not apply. Tel: 0844 2480 112 Dan White First published 2004 [email protected] Tenth edition ISSN 1748-3085

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Papua New Guinea 134 Thailand 179 Kym Livesley and Stephen Massa Albert T Chandler, Nuanporn Gadens Wechsuwanarux and Christopher Kalis Chandler & Thong-ek Law Offices Limited Peru 139 Emil Ruppert Turkey 188 Rubio Leguia Normand Türker Yöndem, Batuhan Uzel and Gül I˙ncesulu Esin Attorney Partnership, a member firm of Philippines 148 Baker & McKenzie Hector M de Leon Jr SyCip Salazar Hernandez & Gatmaitan United States 195 Robert A Bassett and David I Stanish South Africa 155 Holland & Hart LLP Claire Tucker Bowman Gilfillan Uzbekistan 201 Bakhodir Jabborov Sweden 166 Grata Law Firm Peter Dyer and Pia Pehrson Foyen Advokatfirma Zambia 208 Charles Mkokweza Tanzania 173 Corpus Legal Practitioners Tabitha Maro Rex Attorneys

2 Getting the Deal Through – Mining 2014 Fasken Martineau GLOBAL OVERVIEW Global Overview

Michael Bourassa, Samantha Alfonzo and Daye Kaba Fasken Martineau

No matter how you look at it, the past year was extremely chal- report attributes the decline to a number of factors, including wors- lenging for the mining and exploration sector. From a dip in metal ening perceptions of labour legislation, availability and disruptions; prices to ongoing uncertainty over regulatory developments in Latin and the location, quantity and quality of its resources and disputed America and resource nationalism challenges across a variety of land claims, to name a few. jurisdictions, turning a profit last year was no easy feat. The survey featured nine additional African jurisdictions this Although it is becoming increasingly difficult to forecast the year. The following countries appeared for the first time: Angola direction of the mining sector, we will explore the trends that are (108th), Eritrea (52nd), Ethiopia (78th), Ivory Coast (105th), Kenya currently affecting the global mining industry in an effort to under- (79th), Liberia (66th), Mozambique (76th), Nigeria (75th) and stand what this year could bring. Sierra Leone (96th). The addition of these countries, however, did not affect the overall score for Africa over the past year. Global mining overview Botswana holds the distinction of being the highest-ranked juris- Mining jurisdictions diction, appearing in 25th place, while Tanzania was most improved, Fraser Institute’s Survey of Mining Companies 2013/2014 meas- rising to 62nd from 74th last year thanks to improved perceptions ured policy factors and geologic and economic considerations to of its political climate, environmental legislation and disputed land determine the most attractive jurisdictions for exploration invest- claims. South Africa appeared just behind Tanzania, in 64th place. ment this year. It is interesting to note that for 2013, not one coun- The survey quotes a vice-president of a mineral production company try emerged as the most attractive jurisdiction for exploration with more than US$50 million in revenue as saying, ‘South Africa is investment across all of the survey’s categories. a good investment destination: one needs to consider that there is a Once again in this year’s survey Scandinavian countries per- transformation process in progress which is attempting to create a formed the best in terms of mining policy perception: Out of 112 stable country in decades to come.’ jurisdictions, Sweden was in the top spot, followed by Finland. Ghana was another improved jurisdiction this year, placed 43rd Canadian jurisdictions again claimed three of the global top 10 on the list, while the Democratic Republic of the Congo, which spots this year, with Alberta remaining in third place globally. appeared among the bottom 10 in 2012/2013, moved up to 85th New Brunswick maintained its second place ranking for Canada place this year. Another success story was Burkina Faso, which cor- but dropped from fourth to seventh worldwide. New this year, rected its PPI and ranking this year, rising to 46th on the list after Newfoundland and Labrador appeared in the ninth spot worldwide. falling to 55th out of 96 jurisdictions last year. The Fraser Institute In the United States, among the top 10 ranked jurisdictions were credits ameliorated impressions of the country’s current mining Nevada, which has consistently appeared in the top 10 for the last legislation and environmental protection policies. five years, and Wyoming. Utah disappeared from the top 10 this year, dropping from ninth to 16th, owing to negative policy percep- Mergers and acquisitions tions of the state’s taxation regime, ambiguity around legislation According to PricewaterhouseCooper’s 2014 Global Mining Deals enforcement and worsening perceptions of the location, quantity Outlook and 2013 Review, last year’s volume of mining industry and quality of its resources. M&A deals was at its lowest in 13 years, while overall value sank Washington was the only other US state with an inferior score to its lowest point since 2004. These low figures were due to a over last year – all other states saw some measure of improvement combination of factors, ranging from falling commodity prices, in the perceptions of their mining policies. difficulty in raising capital, lower revenues and costly writedowns. In Latin America, Chile maintained its position as the highest- The lack of M&A activity in 2013 was felt across the industry. ranked jurisdiction in the region, placing 30th out of 112 spots, In Canada, Australia and the United States, many big players took while Venezuela remained the lowest-ranked Latin American a step back, reassessed their strategies and examined alternative jurisdiction, coming in at the 111th position (from 94 out of 96 capital raising solutions. spots last year). While deal activity slowed in North America, there was a surge in Panama marked the region’s most improved jurisdiction, ris- M&A transactions in emerging markets. Russian billionaire Mikhail ing five positions thanks to improved ratings for its environmental Prokhorov’s US$3.6 billion sale of his 37.8 per cent stake in Polyus legislation and uncertainty concerning regulatory duplication and Gold International to two other Russian billionaires, Zelimkhan overlap. Mutsoyev and Gavril Yushvaev, and the US$2.3 billion purchase of Peru also showed improvement, climbing to 56th position, Eurasian Natural Resources Corp by its three Kazakhstani founders owing to improved perceptions of its labour legislation, availability marked two of the largest transactions of the year. and disruptions. Capstone Mining Corp’s purchase of BHP Billiton Ltd.’s Pinto In Argentina, mining policy perception index (PPI) scores Valley copper mine for US$650 million and Lundin Mining Corp’s across all provinces dropped substantially, with the exception of acquisition of Rio Tinto Group’s Eagle nickel and copper project Jujuy and Salta, which saw improved scores over last year. The www.gettingthedealthrough.com 3 GLOBAL OVERVIEW Fasken Martineau in northern Michigan for US$325 million are two examples of the concessions have been awarded for lengthy periods of time and the changing deal landscape in 2013. cost for holding the land is minimal. The majority of the mining An increase in larger mining companies looking to divest concessions in Chile are currently held by local and global major themselves of non-core assets created some attractive buying mining companies. There is strong opposition to mining conces- opportunities over the last year. sion reforms. It will be interesting to see whether changes, if any are made, end up increasing or decreasing Chile’s PPI score. Mining regulatory and policy developments in Latin America Nevertheless, Bachelet recognises that mining is an important Resource nationalism issue for the nation and a chief concern for the country and spoke of Latin American governments continue to use resource nationalism the importance of regaining its position in the industry by lowering tactics to obtain a larger share of mining revenues from projects power prices and maintaining competitiveness. under their jurisdiction. The commodities boom of the 2000s (the ‘supercycle’) encouraged some Latin American governments to Bolivia and Venezuela introduce legislation whereby the state keeps a bigger piece of the In this year’s Fraser Institute mining survey, Venezuela is again the pie. Some of these reforms have now become law – at a time when lowest-ranked jurisdiction in Latin America, bottoming out at 111 the ‘supercycle’ is waning and the mining industry is suffering. out of 112 countries in 2013 and dropping its PPI score as a result of lower infrastructure ratings. Mexico Bolivia didn’t fare much better, filling the 99th spot; however, Mexico’s new mining tax regime, approved in October and intro- on a positive note, it moved out of the survey’s bottom 10, having duced on 1 January 2014, has provoked the ire of many in the improved its score sufficiently over the past year. mining community. The tax reform includes three new fees that Venezuela’s 2007 expropriation of Conoco and ExxonMobil affect companies with mining activities in Mexico: assets and Bolivia’s 2012 nationalisation of Canadian firm South • a 7.5 per cent mining royalty; American Silver’s Malku Khota mine have earned these countries • an extraordinary mining fee of 0.5 per cent on income derived the reputation of risky mining jurisdictions concerning resource from the sale of gold, silver and platinum; and nationalism. Governmental activities are affecting current and • an additional mining fee based on the number of hectares of future mining investment and the future development of the coun- a mining concession that are not being exploited for certain tries’ resources. periods of time. In the wake of these deliberate expropriations, however, a Political Risk Atlas report published by UK-based risk consultancy Numerous mining companies have challenged some of the aspects Maplecroft warns that countries will resort to more subtle tactics in of this reform as being unconstitutional. The Mexican government the future, including increasing royalties and taxation. In the study, is recognising the importance of its mining industry, and there is Venezuela and Bolivia were both classified as extremely risky mining now talk in Congress about introducing regulations to adjust some jurisdictions for expropriation threats. of the technicalities of the tax reforms to lessen the adverse impact to mining companies. Argentina Argentina’s mining sector continues to struggle as the government’s Brazil efforts to bolster the economy are driving mining companies to re- Another jurisdiction in which the subject of royalties continues to evaluate their exploration plans. play an important role is Brazil, where the mining industry’s legal Legal uncertainty in the Andean nation looms large for miners, framework may be completely changed. The Brazilian government after the government’s 2012 expropriation of Spanish company has been discussing the further regulation of its mining sector for Repsol’s majority stake in Argentina’s energy firm YPF. Mining the past four years. The proposed reforms would increase royalty companies are reticent to invest in the country, despite its vast gold, payments to a new percentage range (up to 4 per cent) that would copper and other resource deposits. be charged on mining companies’ gross sales, versus net sales, as Last year, the Argentine Congress approved legislation revising they are currently. Under the new bill mining companies would the country’s justice system. The new law limits individuals’ ability be required to bid on concessions found in newly created strategic to request injunctions against government policies. Furthermore, areas, and fulfil specific financial and proficiency standards. Congress in the Argentine province of Santa Cruz passed a law Last autumn, widespread protests took place after the pro- that will require mining companies to pay a 1 per cent annual tax posed Mining Code was unveiled and strong criticism from min- on mine resources, regardless of whether a mine is producing or ing companies stalled government and Congress approval of the not. Numerous exploration companies currently operating in the new mining regime. It is anticipated that Congress may re-table province are outraged and have vowed to challenge the decision. the discussion later this year. Ecuador Chile Last June, Ecuador’s Congress passed amendments to their new In the Fraser Institute’s Survey of Mining Companies 2013/2014 mining law which had been enacted in 2009, to encourage the Chile remained in the top spot among Latin American jurisdictions, development of a strong mining sector in a country whose reserves coming in at 30th (of 112 countries) in 2013 and down from 23rd are largely untapped. in 2012/2014, despite a small increase in its PPI score. Ecuador’s new mining law is aimed at attracting small and Only time will tell how the recent election of Chilean former medium-sized mining companies with set royalty minimums: 3 per president Michelle Bachelet will affect Chile’s attractiveness for cent for small mines, 4 per cent for medium-sized mines and 5 per mining companies over the next year. Bachelet has sent a new cent for large-scale mines. corporate tax reform bill to the Chilean congress. While it does The law attempts to reduce bureaucratic delays, permitting not increase royalties for mining companies, such as in the Mexican small and medium-sized miners to proceed with projects by sign- reforms, it raises corporate taxes. The new Chilean Minister of Mines ing more flexible ‘concession’ deals, rather than being required to has also announced that they are looking to introduce changes to the negotiate exploitation contracts with the government. current mining concession regime. For large-scale miners, the new law creates better investment Currently, there is a perception that there is scarce availability terms by ensuring that the 70 per cent windfall tax is only applied of mining lands available for new concessions. Historically, mining once miners’ investments are recovered. Despite these amendments,

4 Getting the Deal Through – Mining 2014 Fasken Martineau GLOBAL OVERVIEW there is no current large-scale mining production in Ecuador – the the market’s most attractive features is that all markets involved government expects that to begin in the next few years. benefit from the growth of the joint market without sacrificing independence or regulatory autonomy. Uruguay Mexico’s recent economic reform, approved by Congress last Last autumn, Uruguay’s Congress enacted new mining legislation November, has paved the way for the BMV, the Mexican stock that imposes hefty taxes and stringent environmental regulations on exchange, to join MILA. The addition of Mexico in 2014 is pre- large-scale mining projects. The new law is aimed at preventing min- dicted to double the size of the integrated market. ing companies from profiting from corporate income tax exemptions. MILA’s current market capitalisation is valued at approximately The new law calls for large-scale mining profits to be taxed at US$650 billion. And with Mexico’s expected addition, market 25 per cent annually and introduces an additional profit tax asso- capitalisation is expected to increase to US$1.1 trillion, almost ciated with international mineral prices of up to 38 per cent. The equal to that of Brazil’s Bovespa. new rules also state that mining firms must present closure plans for their projects once they are exhausted, requiring them to be Mining regulatory and policy developments in Africa used as tourist spaces or as reservoirs. A pragmatic approach to resource nationalism? The trend observed in Latin America with respect to resource Colombia and Peru nationalism played out differently in Africa over the course of Where resource nationalism is trending in a multitude of Latin 2013 as countries attempted to find ‘softer’ ways to assert greater American countries, in Colombia and Peru, the opposite is true. control over the mineral sector in a context of downturn in the In Colombia, the current President Juan Manuel Santos has mining industry. continued to promote investment in the mining sector through his In general, African countries elected not to engage in traditional economic policy. Challenges this year from miners in Colombia have forms of resource nationalism (such as, for example, expropriation), been due to delayed processes in the National Mining Agency and but rather sought more subtle ways to exert their control in myriad the vice-ministry of mines, continued illegal mining, and security ways, including greater requirements with respect to corporate and concerns. social responsibility, increased requirements with respect to local With the country’s upcoming election on 25 May, the mining content, and demands for local beneficiation. community will be watching to find out how any changes to gov- One of the fundamental issues in the mining sector in Africa ernment will affect the industry in Colombia. appears to stem from expectations of host governments and the In Peru, the mining industry continues to thrive. Known for its management of these expectations by mining companies. The fact vast copper reserves which are competitive and cost effective, Peru is that expectations were high as countries enacted more investor- is regarded favourably by miners thanks to straightforward mining friendly mineral codes in the early 2000s, and in many cases, despite laws and multiple mining concessions. Home to the only junior achieving ‘success’, several countries hold the view that the mining market in Latin America, Peru has attracted both small mining sector did not fulfil its promise. In many cases, whereas the mining companies actively exploring across the nation, as well as large- sector represents a significant portion of the government’s exports scale miners engaged in billion-dollar projects. it represents a small fraction of the country’s GDP. Countries are Jorge Merino, Peru’s Minister of Energy and Mines, reports that starting to realise what mining can and cannot do for their econ- copper production is expected to increase by 17 per cent in 2014 omy, and are still struggling to come to grips with this. while gold and silver production is estimated to jump by 10 per cent. The sentiment across the continent seems to be that although the mining sector has not kept all of its promises, now may not The growing relationship between markets in the Americas be a good time to adopt harsh measures that may drive investors Santiago away. It therefore appears that in many cases, most governments are In a move designed to encourage growth of the junior market in either making smaller changes to existing legislation or postponing Chile, Santiago, in partnership with a division of TMX Group Ltd, the revisions to their mining legislation, at least for the time being. will create the Santiago Stock Exchange, Venture, a new junior On the other hand, however, governments such as the Democratic market aimed at raising capital for small and medium-sized mining Republic of Congo and Zimbabwe have elected to pursue resource enterprises. nationalism more aggressively. With mining Chile’s biggest industry, its copper alone consisting of over half of all exports, Santiago has been looking to develop Burkina Faso capital markets to provide funding for junior mining projects. Over the last decade, Burkina Faso has managed to establish itself as The move is mutually beneficial, as small and medium-sized one of the more successful mining jurisdictions in Africa. It is now companies listed on the TSX Venture Exchange (TSX-V) will have Africa’s fourth largest producer of gold. Gold is Burkina Faso’s main the opportunity to list on the Santiago Stock Exchange, Venture. export and accounts for roughly 20 per cent of its GDP. Reasons Meanwhile, the new market is also expected to bring more South behind this success include political stability, a fairly good legal American companies to the TSX-V. system, as well as one of the better mining codes in Africa, which The venture market is anticipated to begin operations in early dates back to 2003. 2015, pending regulatory approvals in Chile. Despite the foregoing, Burkina Faso has been seeking to amend its Mining Code with a view to increasing revenues and promoting Lima the local economy. In fact, in October of 2013, the council of min- The BVL, Peru’s stock exchange, is currently the only exchange in isters of Burkina Faso adopted a draft new Mining Code. Shortly Latin America with a junior mining segment. While it is still small in thereafter, the government of Burkina Faso decided to withdraw its comparison with the TSX Venture and London’s AIM, there is much proposed new Mining Code citing the drop of the price of gold as interest from stakeholders in Latin America to continue to develop the primary reason. this market. Although the new Mining Code was not intended to be an over- haul of the existing regime, and was rather geared toward bringing Latin American Integrated Market (MILA) more clarity, a few things can be noted. The draft code proposed, The integrated markets between Lima, Bogotá and Santiago were among other things: combined in 2011, creating the Latin American Market (MILA), the • increased state participation in the capital of the project com- largest Latin American stock exchange by number of issuers. One of pany, provided however that any participation over the 10 per www.gettingthedealthrough.com 5 GLOBAL OVERVIEW Fasken Martineau

cent free carried interest to which the state is entitled would be from the Revenue Watch Institute, the World Bank Institute and subject to payment; Columbia University. The new database features a collection of all • shorter duration for mining conventions; the country’s current mining contracts – 60 documents describing • a 20 per cent capital gains tax on assignments of licences; a total of 18 mining projects. The online materials include a search- • the creation of a local development mining fund; and able summary of contract terms, allowing non-expert readers to • a reduced period for tax stability. find key sections and to understand the obligations for companies and the government. One can expect that once the price of gold rises, the new Mining The mining contracts review started in mid-2013, and is Code will resurface. expected to conclude in Q3 2014. The government has engaged outside advisers to investigate contracts the country holds with mining Ivory Coast giants including BHP Billiton, Vale and Rio Tinto. Renegotiation of In a bid to entice investors’ interest in its mining sector, the Parliament mining contracts endorsed by former governments is not out of the of the Ivory Coast adopted a new Mining Code on 5 March 2014. question. Mining in the Ivory Coast makes up a mere 1 per cent of its GDP (with agriculture accounting for 30 per cent), but the government Democratic Republic of the Congo aims to change all this over the next two years. The country is hop- It appears that the Democratic Republic of the Congo (DRC) is ing to increase its production of gold to 25 tonnes in 2015, more pursuing resource nationalism plans more aggressively than most than doubling its gold yield from last year. of its counterparts. Discussions with respect to the proposed new The new code appears to satisfy most industry stakeholders, Mining Code are ongoing. Among other things, the DRC wants to including mining companies, government and local communities raise the state’s free carried interest from 5 to 15 per cent, increase alike. Much to the relief of many investors, what the code did not state participation in new mining projects to 35 per cent, triple the include was the controversial windfall tax proposed in 2012 or royalty on copper and cobalt to 6 per cent, and reduce the time for production-sharing agreements. tax stability to five years from 10 years. Some of the new code’s novel provisions include: In addition, the DRC has expressed its intent on having more • a mining convention to be entered into within 60 days of the beneficiation done locally. At this stage it is unclear which of these grant of a mining permit, and which is to include tax stability for proposed changes will make it into the new Mining Code. the duration of the permit; The mining community has been vocal in its opposition to these • the creation of a local community fund; proposals; it is concerned that profitability of projects would be • increased requirements for local content and capacity training; severely affected. and • the creation of a rehabilitation fund. Zimbabwe Mining investment in Zimbabwe continues to be hindered by, Moreover, one of the novelties of the new Mining Code, to be set among other things, the indigenisation policy which became effec- out in one of the application decrees, is expected to be a sliding scale tive on 1 January 2014. royalty for gold whose rate will be based on the spot price of gold. Furthermore, effective 1 January 2014 platinum miners are The application decrees of the new code are yet to be adopted. required to pay a 15 per cent tax on shipments of unrefined platinum, While it is anticipated that the government of the Ivory Coast will in addition to an existing 10 per cent royalty on earned revenues. The fast-track this process, these decrees will have to contend with some local mining body, the Zimbabwe Chamber of Mines, has criticised of the thorny issues, including royalty rates. the tax, calling it a threat to the industry. According to miners, the new tax has significantly increased the cost of doing business. Ghana Moreover, the government stated that it would prioritise bene- A country rich in gold with a skilled mining workforce, Ghana once ficiation this year as enunciated in the budget and its mining policy again toyed with the introduction of a windfall tax at the end of with the objectives of ensuring maximisation of value to the country last year. However, in January, the government announced it would and addressing unemployment. hold off on implementation of the windfall tax, citing concern over mining companies’ threats of job cuts. Niger The windfall tax was proposed as a solution to reduce the In Niger, one of the world’s poorest countries, the government and country’s budget deficit. However, miners argued that the tax rep- Areva, France’s state-owned nuclear company, are currently nego- resented yet another expense in a region where the cost of gold tiating uranium mining contracts for the next decade as a result of mining continues to rise owing to high electricity costs and inad- their recently expired agreement, which was based mainly on Niger’s equate infrastructure. 1993 mining law. The government has put the bill on hold for now, and Ghana’s In an attempt to secure more financial benefit from the country’s Finance Ministry policy adviser says it will not be implemented natural resources and make uranium extraction by multinational before 2015. It is not unlikely that the tax will reappear once gold companies more profitable to Niger, the government adopted a new prices begin to rise. Mining Code in 2006. Niger’s government is looking to apply its 2006 Mining Code to Guinea Areva and has proposed an increase to the company’s royalties from In 2011, the Guinean government passed a new Mining Code that 5.5 per cent of revenues to 12 per cent. generated widespread criticism and backlash. As a result of increasing pressure from the mining community and others, the government South Africa’s Mining Charter Review moved quickly to retract the application of its new legislation and South Africa’s Mining Charter, which companies must comply with amended the new code in 2013, thereby demonstrating pragmatism. to retain or renew their licences, sets out various Black Economic On the other hand, however, the previously announced review Empowerment targets for 2014, among them a goal of 26 per cent process of mining contracts is ongoing. In an unprecedented move black ownership of its mining assets by the end of the year. In addi- towards improved governance and transparency, in February 2013 tion, the Charter stipulates that within mining companies, across all the Guinean government announced the development of a new levels of management there should be a representative 40 per cent website in conjunction with a team of professionals assembled

6 Getting the Deal Through – Mining 2014 Fasken Martineau GLOBAL OVERVIEW employment equity. The Charter also calls for employment, social, The substantial influence of the Association of Mineworkers community and labour commitments by mining companies. and Construction Union (AMCU) in the South African mining sec- While the government and mining companies achieved consen- tor, particularly in the platinum industry, is complicating matters sus on the creation of the current Mining Charter, the industry is for the industry. A tug of war between the AMCU, which has been now contending with increased uncertainty in the wake of changes increasing its membership among platinum miners since last year, to the Mineral and Petroleum Resources Development Act proposed and its rival, the deep-rooted government-affiliated National Union by the Department of Mineral Resources. of Mineworkers (NUM), does not appear to be subsiding. The South African Chamber of Mines, which is a mouthpiece for Labour disruptions and conflict between mining unions have most mining companies, generally supports the proposed changes resulted in violence and even death, as in the 2012 Lonmin plati- to the Mineral and Petroleum Development Act. In a statement num strike in Marikana. In 2013, Lonmin officially recognised the issued by the Chamber on 13 March 2014, the Chamber noted: AMCU as its employees’ official labour organisation, ejecting the ‘Significant progress has been made in finding common ground NUM as the platinum mining company’s former majority union. on key areas of concern, with a focus on improving regulatory Investors continue to monitor wage negotiations in the platinum certainty, promoting investment and transformation and help- sector as concerns mount over the effect of further labour action on ing the mining sector to enhance its contribution to the National the country’s precious metals production, and platinum in particular. Development Plan.’ According to sources, South Africa possesses in excess of 70 per The proposed changes, brought forward as an Amendment cent of global platinum resources, accounting for three-quarters of Bill, include the state acquiring a 20 per cent stake in all new min- global platinum mine output. Unless wage negotiations are resolved ing projects and encourages local beneficiation. The Chamber also quickly, the country’s prolonged labour issues will negatively affect supports the beneficiation initiative. the precious metals sector in the months ahead. Yet something appears to have been lost in translation. Industry participants have criticised the reforms, arguing that they represent The mineral industry: looking forward a clear form of resource nationalism. Conversely, Mineral Resources As it has in the past, the global mining industry will continue to Minister Susan Shabangu, in her 2014 Mining Indaba Opening weather challenges associated with the cost of doing business. In the Address, commended mining companies for their participation short term, the industry will continue to look for innovative ways and support and encouraged them to work with the Department to find capital in an environment where traditional financing has of Mineral Resources to successfully carry out the Charter’s reform been difficult. process. Minimising risk and navigating difficult regulatory waters will On 4 March 2014, Minister Shabangu said that results from continue to characterise operations and cost control will become the Charter’s ongoing review would be revealed by the end of more important than ever as volatile commodity prices and the November. She also stressed that South African mining licences value of gold remain uncertain. were secure once granted and could not be waived by the whimsical Companies will continue to find opportunities in South America stroke of a pen. ‘We have implemented processes for everything, and and Africa, and will be encouraged by new junior exchanges in the outcomes of these processes cannot be pre-empted by anybody.’ Santiago and Lima which may be followed by similar moves in This has given assurance that government has not only become a Africa. regulator but also a concerned participant in the industry who, while Mining regulatory reform and policy developments will con- ensuring legal compliance, also ensures that the industry is not left tinue to evolve in countries across the globe. Emerging jurisdictions with legal uncertainty. with untapped mineral potential will create a healthy level of competitiveness among more established countries – as long as their South Africa’s labour issues appetite for tax revenue is controlled and remains at a level which South Africa’s much publicised labour crisis continued in 2013 as is feasible for mining development and production. This will attract commercial organisations, unions and government officials attempt exploration investment and generate new sources of profit for min- to find solutions to wage demands that are disruptive not only to ing companies, helping the industry to prosper as it moves forward. the mining industry but also to other sectors of the South African economy.

www.gettingthedealthrough.com 7 ALBANIA Boga & Associates Albania

Alketa Uruçi and Ilir Limaj Boga & Associates

Mining industry • chrome ore; • copper; and 1 What is the nature and importance of the mining industry in • iron-nickel and nickel-silicate. your country? The mining industry of Albania has served for the past 50 years as a supporting pillar of industrial growth and economic connections, 3 Which regions are most active? building on underlying chrome resources that, before 1990, made Chrome ore it the world’s third-largest producer of chrome ore, together with There are three main regions where chrome ore is located: nickel, iron and copper. Since 1990 considerable parts of the mining • the north-eastern region (Tropoja and Kukes ultrabasic massifs); sector’s activities appear to have become commercially unviable, or • the central region (Bulqiza and Lura ultrabasic massif); and at best marginal. • the south-eastern region (Shebenik-Pogradec ultrabasic massif). In recent years, the Albanian government has given top priority to this sector, considering it to be a core industry able to stimu- Copper late Albania’s economic development. To this end, the government Copper deposits are located in six districts: Korça, Mirdita, Puka, has undertaken several reforms such as privatisation, adoption of Shkodra, Kukes and Has regions. a legal framework for licensing mining activities, enacting policies Based on the geologic conditions, their morphology, genetic and for foreign investors consisting of incentives regarding the transfer mineralogical components, three main types of copper deposits are of capital and special fiscal treatment aiming to restart production distinguished: and bring the sector back to its economic potential. Therefore, • plutonic type, quartz-sulphur – this type includes deposits mineral exploration, exploitation and processing now constitute located in Nikoliq 1, 2, Golaj, Krume, Gdheshte, Thirre, Shemri, a key component of the Albanian economy, owing to a traditional Eastern Tuç, Kurbnesh, Kabash, Kçire and Turec regions; mining industry that has been a solid foundation of the country’s • volcanogenic type includes deposits such as Perlat, Munelle, economic sector, generating substantial revenues. Lak Rroshi, Tuç, Paluce, Qaf Bari, Gurth 1, 2, 3, Spaç, Kaçinar, Such change in course of action is expressed by the increased Derven, Rehove, Geshtenja Shore, Thick Dushk, etc; and number of investments in both small and large-scale mines, as well • volcanogenic-sedimentary type includes deposits such as Gegjan, as increased output and employment, and the higher capacities of Porave, Palaj, Karma and Rubik. downstream processing of minerals. Up to this date, more than 752 mining permits have been issued in the mining sector by the Ministry Iron-nickel and nickel-silicate of Economy, Trade and Energy (as per the website of the National Iron-nickel and nickel-silicate deposits are mainly located in: Agency for Natural Resources). Of these, 673 were exploitation per- • the north-east region (Kukes): Trull Surroi, Mamez, Nome; mits. The figures of exploitation permits for certain key minerals are: • the east central region (Librazhd-Pogradec): Perrenjas, Skorske, • 211 permits for chrome ore; Xixillas, Bushtrice, Gur i Kuq, Cervenake, Guri i Pergjegjur, • 231 permits for limestone; Hudenisht and Gradisht; • 32 permits for clay; • the west central region includes deposits in Liqeni i Kuq, • 34 permits for iron-nickel and nickel-silicate; Xhumage, Debrove; and • 43 permits for tabulated limestone; and • thesouth-east region (Devoll): Bitincke, Kapshtice, Strane, • 30 permits for massive and flaggy sandstone. Kokogllave, etc.

The rest of the exploitation licences belong to over 10 different kinds Legal and regulatory structure of minerals and rocks. As part of the implementation and harmonisation of Albanian 4 Is the legal system civil or common law-based? legislation with the acquis communautaire, the Albanian parliament Albania is a civil law legal system. has adopted law No. 10,304, dated 15 July 2010 (the Mining Sector Law), which abrogated the old Mining Law (No. 7,796, dated 17 5 How is the mining industry regulated? February 1994). The Mining Sector Law, which entered into force as of 27 August 2010, reflects the provisions of EU Directive 2006/21 of From a historical point of view, all activities in the mining industry 16 March 2006 on management of waste from extractive industries. were conducted under the supervision of the Albanian state (centralised system). The relationship between the Albanian state (represented by the 2 What are the target minerals? Ministry of Energy and Industry (MEI)) and the entities involved in The largest share of minerals produced in Albania is as follows: mining activities is governed by the Mining Sector Law.

8 Getting the Deal Through – Mining 2014 Boga & Associates ALBANIA

Furthermore, the Mining Sector Law allows the stipulation of international criteria based on a market economy. The Albanian ‘incentive agreements’ if the mining activity consists of the exploita- government is making efforts to attract international mining com- tion of minerals of the group of metallic and non-metallic minerals, panies that comply with accepted good practice when implement- cobbles and bitumen, group of construction minerals or group of ing mining activities. In general, these companies are listed on radioactive minerals in a certain area. This agreement is entered into international stock exchanges, and tend to use uniform rules for between the holders of the exploitation permit and the MEI pro- handling resources and reserves calculations and use recognised vided that the mining activity is considered as having a particular reporting codes (for example, CIM or JORC). public interest for the area where such activity will be implemented. This agreement is subject to approval by the Council of Ministers Mining rights and title and the Albanian parliament. 8 To what extent does the state control mining rights in your jurisdiction? Can those rights be granted to private parties and to 6 What are the principal laws that regulate the mining industry? What what extent will they have title to minerals in the ground? Are there are the principal regulatory bodies that administer those laws? large areas where the mining rights are held privately or which belong The principal law governing all mining activities (including under- to the owner of the surface rights? Is there a separate legal regime ground and underwater activities) performed within the territory or process for third parties to obtain mining rights in those areas? of Albania is the Mining Sector Law, which aims to encourage According to the Mining Sector Law the minerals in natural form, the mining activity in the Republic of Albania through ensuring located in Albania, and on the underwater surface, sea floor, under- transparency and fair competition in the sector; maximal growth sea floor, or under the territorial sea, determined under principles of public benefit coming from the mining activity, and protection of international law and international agreements ratified by the of environment and public health from mining and mining waste Republic of Albania belong to the state and are public property. hazard. Specifically, this law gives the classification of minerals, The rights to exploit mineral resources can be granted to private types of permits and the terms and conditions that apply to each domestic or foreign persons upon the grant of mining permits, type of mineral permit. which are awarded in compliance with the procedures provided The procedure and the terms for obtaining the mineral per- by the Mining Sector Law. The mining right is a distinct and inde- mit are defined in the Licensing Law (Law No. 10,081, dated 23 pendent right from the ownership right over the land surface. The February 2009). In principle, a request for obtaining a mineral holder of the mining permit has the legal right of mining servitude permit (or notifying any relevant changes to the existing permits) (mandatory) over the property in the area approved upon the minis subject to filing and notification to the National Licensing ing permit. However, the terms of usage of the servitude should Centre (NLC). This entity conducts a preliminary examination of be regulated through a contract compiled in accordance with the the documents filed and afterwards forwards the file to the MEI, provisions of the Albanian Civil Code. which adopts or issues the final decision. The National Agency for Natural Resources (NANR) has as a scope the development and supervision of the rational exploitation 9 What information and data is publicly available to private parties of natural resources based on government policies, and the monitor- that wish to engage in exploration and other mining activities? Is ing of their post-exploitation in the mining sector. The NANR has, there an agency which collects mineral assessment reports from inter alia, the following tasks and responsibilities: private parties? Must private parties file mineral assessment • consults, suggests to and cooperates with the relevant govern- reports? Does the agency or the government conduct geoscience ment bodies for the development of policies in the area of min- surveys, which become part of the database? Is the database ing, and implements such policies; available online? • negotiates mining agreements and monitors the implementation The NANR and the Albanian Geological Survey (the AGS) are of their development plans; empowered to draw up the maps of mining activities for research, • supervises mining and post-mining activities, and monitors the exploration, exploitation activities and to maintain the relevant exploited areas, mining risks and termination of mining activi- database regarding such maps. Furthermore, the AGS maintains the ties; and archive of existing geological reports and the evaluation of reserves • exclusively manages primary data related to mining and post- for groups of minerals as per their classification of the old Mining mining activities. Law (No. 7,796, dated 17 February 1994). The AGS also prepares relevant geological and geophysical surveys for different regions and mineral types. Private parties that intend to conduct activities 7 What classification system does the mining industry use for of research and planning for the mining sector should be equipped reporting mineral resources and mineral reserves? with the relevant licence from the NLC. Foreign entities engaged The Mining Sector Law classifies the types of minerals in groups. in activities of research and planning for the mining sector in their In addition, mining permits are issued under consideration of the country of origin are required to perform the equivalence of their group of mineral specified in the application or request. Specifically, professional licence issued by the relevant and competent authorities mineral reserves are divided into: in their country of origin. Currently the electronic database regard- • metallic minerals, non-metallic minerals, coal and bitumen; ing mining activities which is published on the Albanian authorities’ • construction minerals; websites appears to have functionality problems and has not been • precious stones and semi-precious stones; and updated. • radioactive minerals.

The Albanian government has approved the decision of the Council 10 What mining rights may private parties acquire? How are these of Ministers No. 479, dated 29 June 2011, of the new Mining acquired? What obligations does the rights holder have? If exploration Strategy of the Republic of Albania for the years 2010 to 2025, or reconnaissance licences are granted, does such tenure give the through which it undertakes to adopt the UN Framework for Fossil holder an automatic or preferential right to acquire a mining licence? Energy and Minerals for the classification of all minerals, aiming What are the requirements to convert to a mining licence? to create an instrument that allows the classification of reserves Under the Mining Sector Law, Albanian or foreign legal entities may and resources of raw minerals on the basis of uniformity with the acquire the right to research, explore, exploit or perform activities www.gettingthedealthrough.com 9 ALBANIA Boga & Associates that consist of the combination of all indicated activities, depending facilitating activities and are transferred along with the mining right on the mineral group. Specifically, for minerals of the metallic miner- or permit. als, non-metallic minerals, coal and bitumen group; the construction minerals group; and the radioactive minerals group a separate and 12 Is there any distinction in law or practice between the mining distinct permit is issued for each of the following activities: research- rights that may be acquired by domestic parties and those that exploration and exploitation. For the precious and semi-precious may be acquired by foreign parties? stones group, mining rights may be granted which include all activities (namely, research-exploration and exploitation). The Mining Sector Law does not provide for any restrictions on The holder of a research exploration permit has a preferential foreigners acquiring mining rights. It should be noted that during right to obtain an exploitation permit, which (right) should be exer- recent years the Albanian government has been adopting policies to cised during the term of the research-exploration permit or within attract foreign investors to invest in the Albanian mining sector. In 60 days after its expiry provided that the holder of the research and practice, foreign investors have entered into joint ventures with local exploration permit has met its financial obligation for the research companies, basically for reasons related to business planning and exploration permit. implementation, aiming to use the knowledge and experience of the Mining rights subject to a bid procedure (namely, if the mining local companies to overcome the challenges and problems that they area is listed as the ‘bid area’ in the Annual Mineral Plan, which is have to face when conducting mining activities in Albania. approved by the MEI) is granted to the winning bidder. Such mining rights may be granted to Albanian or foreign legal entities either 13 How are mining rights protected? Are foreign arbitration awards in accordance with the Public Procurement Law (Law No. 9,643, in respect of domestic mining disputes freely enforceable in your dated 20 November 2006) or under the legal requirements of the jurisdiction? Concession Law (Law No. 125/2013). For the mining areas that Mining rights are protected by the rule of law in Albania. To sim- are classified as ‘opened areas’, the permit is granted on a first-come, plify the relevant litigation procedures and execution of court deci- first-served basis. sions, subject to administrative disputes between both individuals The holder of the mining rights has to comply with the general and juridical persons and public bodies, the Albanian parliament has obligations applicable to any type of mining permit and the specific recently approved the Law on the Organisation and Functioning of obligations pertaining to the relevant type of permit. Specifically, the Administrative Courts and Judgment of Administrative Disputes (No. holder of mining rights shall provide a financial guarantee, which 49/2012), which entered into force on 4 November 2013 with the may serve to guarantee the rehabilitation of the environment, the establishment of administrative courts, and therefore all administrative realisation of the minimal work programme under the research, disputes are expected to be settled in a faster and more efficient way. exploration or research and exploration permit and the realisation Additionally, if the permit is granted within the framework of of the investment obligations under the exploitation permit. The the Public Procurement Law or the Concession Law, disqualified other obligations are related to royalty tax, preparation of the reha- bidders may file administrative appeals with the Albanian Public bilitation plan and the management of mining residues, site security Procurement Commission. The decision of the Public Procurement measures, prevention of contamination, confidentiality, submission Commission constitutes a final administrative decision. Afterwards, of the relevant reports on investments, etc. the claimant may file its claim (should the claimant not be satisfied by the decision) with the administrative court, within 45 days 11 What is the regime for the renewal and transfer of mineral licences? from receipt of the notification of the decision of Public Procurement Pursuant to the Mining Sector Law an exploration permit for the Commission. group of metallic minerals, non-metallic minerals, cobbles and bitu- The Republic of Albania has ratified the Convention on the men is valid for a period of three years. This term may be extended Recognition and Enforcement of Foreign Arbitration Awards only once more, upon request of the permit holder. Such extension (New York, 1958) and consequently foreign arbitration awards are is valid only for one year. The extension will be approved only if the enforceable in Albania. permit holder proves the possibility of discovering a mineral object. On the other hand the exploitation permit for the above-mentioned 14 What surface rights may private parties acquire? How are these group is valid for a period of 25 years, with the possibility of exten- rights acquired? sion only once, for a 10-year period. However, if upon request of The holder of the permit enjoys the right of servitude pertaining to the permit holder an investment plan is presented and the plan is the area indicated in the permit. The right of servitude imposes on deemed in the economic and social interest of the community of the the owner of the land the obligation to allow the holder of the per- respective area, the exploitation permit may be given or extended for mit to use the land, and perform all relevant activities or support- a total validity period of 99 years; such decision is approved by the ing works in pursuance with the type of the permit. The right of Albanian parliament. servitude may be also granted for purposes of having access into the Concerning precious stones and semi-precious stones, their mining site. exploitation permit may not be granted for more than 25 years, with When the mining area is privately owned, the parties shall enter a possibility of a further 10-year extension period. into a servitude agreement. The term of the said agreement is linked With respect to the transferring of a mining right or permit, to the duration of the relevant type of mining permit. Should the only such rights that are obtained under the Mining Law may be owner of the land and the permit holder not strike an agreement transferred. Mining rights which are granted under a competition within 30 days from the request of the latter addressed to the owner, procedure and those for which a facilitating agreement has been the permit holder may approach the court, which will decide in such effectuated are not transferable. regard. Concerning the transfer procedures, the Mining Sector Law provides that the transfer is effectuated upon approval from the Minister responsible for the mining sector. Based on the Law, such 15 Does the government or do state agencies have the right to approval is to be given within 60 calendar days from the submission participate in mining projects? Is there a local listing requirement of the request for transfer. Upon approval, the transfer is registered for the project company? at the National Register of Licences and Permits. Constructions and The participation of government or state agencies in mining projects installations in support of the main operations are considered as is not explicitly regulated.

10 Getting the Deal Through – Mining 2014 Boga & Associates ALBANIA

16 Are there provisions in law dealing with government expropriation 20 Does any legislation provide for tax stabilisation or are there tax of licences? What are the compensation provisions? stabilisation agreements in force? There are no provisions in the law dealing specifically with expro- There is neither any tax stabilisation legislation nor are there any tax priation of licences. The Mining Law only mentions revocation of stabilisation agreements in force. the licence due to any breach by the licence holder, consequently no compensation is provided for. 21 Is the government entitled to a carried interest, or a free carried However, from a general point of view, pursuant to the Law interest in mining projects? on Foreign Investment (No. 7,764, dated 2 November 1993), foreign investments shall not be subject of expropriation in any direct There are no explicit regulations entitling the government to a or indirect way, or any other measure with an equivalent effect, carried interest with respect to mining projects. Pursuant to the with the exception of those cases when such expropriation is in Mining Sector Law, however, the holder of a mining permit for the interest of the public good as defined by law. In such a scenario metallic minerals, non-metallic minerals, coal and bitumen must immediate compensation will follow, equal to the real market spend a specific amount of money for every square kilometre value of the expropriated investment. as declared in the mining permit. If this amount is not spent, any remaining part shall be transferred to the state budget.

17 Are any areas designated as protected areas within your jurisdiction and which are off-limits or specially regulated? 22 Are there any transfer taxes or capital gains imposed regarding the transfer of licences? According to the Law on Protected Areas (No. 8,906, dated 6 June 2002) important or threatened parts of the territory are declared as No. There are no transfer taxes or capital gains imposed regarding protected under the following categories: the transfer of licences. • Category I – strict natural reserve/scientific reserve (mining activities not allowed); 23 Is there any distinction between the duties, royalties and taxes • Category II – national parks (mining activities not allowed); payable by domestic parties and those payable by foreign parties? • Category III – natural monuments (mining activities not The Mining Sector Law does not provide for any distinction between allowed); domestic and foreign parties. • Category IV – managed natural reserves (mining activities not allowed); Business structures • Category V – protected landscape (several activities permitted if provided with environmental permit); and 24 What are the principal business structures used by private parties • Category VI – protected areas of managed resource (several carrying on mining activities? activities permitted if provided with environmental permit). Considering that the Mining Sector Law does not provide for specific rules related to the business organisation form of enti- A list and the relevant map of the protected areas is published on the ties applying for obtaining mining rights, each entity may decide website of the Ministry of Environment. to carry out the business activities in pursuance with the options provided for in the Commercial Companies Law (Law No. 9,901, Duties, royalties and taxes dated 14 April 2008), either by establishing a local company (a lim- 18 What duties, royalties and taxes are payable by private parties carrying ited liability company or a joint-stock company are the most com- on mining activities? Are these revenue-based or profit-based? monly used forms) or branches. In any case, it is advisable that reference be made to the bid documents (for mining rights under a Each permit holder shall pay the mining rent (royalty tax) to the ‘bid area’) in order to verify any requirements in such regard. Albanian state, levied on the minerals sold, under consideration of the type of the mining permit. Beginning with the entry into force of the new amendments to 25 Is there a requirement that a local entity be a party to the the Law on National Taxes (No. 9,975, dated 28 July 2008), the transaction? royalty tax shall be fixed as a percentage of the sale price of minerals. No, there is no requirement that a local entity be a party to the The tax rate depends on the type of minerals, but in any case it does transaction. not exceed 10 per cent; in the case of metallic minerals the tax rate varies between 4 per cent and 10 per cent (depending on the specific metallic mineral), while for non-metallic minerals it is 4 per cent. 26 Are there jurisdictions with favourable bilateral investment treaties Semi-precious stones and precious stones are taxed at 10 per cent or tax treaties with your jurisdiction through which foreign entities of the sale price. Previously, the Law on National Taxes provided for will commonly structure their operations in your jurisdiction? a minimum and maximum rate of royalty tax for each mineral and The Republic of Albania has entered into many bilateral invest- the Council of Ministers was authorised to determine the specific rate ment and double taxation treaties; it is, however, not possible to applicable. determine whether foreign entities commonly use any particular In addition, the mining activity is subject to taxation in accord- treaty to structure their mining operations in Albania. ance with Albanian tax legislation (namely, VAT, profit tax, etc). Financing

19 What tax advantages and incentives are available to private 27 What are the principal sources of financing available to private parties carrying on mining activities? parties carrying on mining activities? What role does the domestic Incentives may be granted based on an ‘incentive agreement’ (see public securities market play in financing the mining industry? question 5). The Mining Sector Law does not specifically refer to the The principal financing sources are self-financing, through either kind of incentives to be granted to the private investors or entities local or foreign financial institutions. To the best of our knowl- engaged in the mining sector. Under the old Mining Law, incentives edge, financing of mining activities does not take place through the were granted to attract foreign investors to export-oriented activities Albanian public securities market. and consisted mainly of tax exemptions. www.gettingthedealthrough.com 11 ALBANIA Boga & Associates

28 Please describe the regime for taking security over mining interests. central authority and, along with the regional agencies, is in charge It would be possible to place a pledge on a mining licence, however of monitoring and adopting measures for the protection of the envi- in practice the enforcement of the pledge over the licence (implying ronment, as well as assessing the impact on the environment of plans a transfer of the licence to the pledgee or a third party) would be and projects submitted from public or private entities and granting subject to approval by the Ministry provided that under the Mining of relevant permits. Apart from the said authorities, the Environment Sector Law, the said transfer is permissible. Inspectorate is the entity in charge of controlling the status of the environment as well as the implementation of the law, being at the Restrictions same time entitled to impose sanctions if the law is infringed.

29 What restrictions are imposed on the importation of machinery 33 What is the environmental review and permitting process for a and equipment or services required in connection with exploration mining project? How long does it normally take to obtain the and extraction? necessary permits? The Mining Sector Law does not specifically address issues related to importation of machinery or equipment necessary for conducting The environmental review and permitting process involves the mining activities. Import of equipment and machinery necessary for Ministry of Environment as well as the regional environmental implementing the mining activity is not subject to any authorisation agencies. Certain projects in the mining sector having a consider- or permit. For the majority of imported equipment and machineries able environmental impact might be subject to an in-depth report there are no customs duties. on environmental impact assessment (and a requirement to obtain VAT (currently at a 20 per cent rate) is payable on equipment and an environmental permit in pursuance of the Law on Environmental machinery imported for investment purposes, but the Law on VAT Impact Assessment). The said law provides no fixed terms for the (No. 7,928, dated 27 April 1995) provides facilities in this regard. assessment procedure. The duration of such procedure depends on Pursuant to the VAT Law the import of machinery and equipments, the volume of the study for the environmental impact of the project. for the purpose of performing an investment contract with a value Those mining activities that do not fall under the in-depth environ- of 50 million leks, is exempted from VAT. Furthermore, when the mental impact assessment are subject to the environmental author- conditions for benefiting the VAT exemption are not met, the VAT isation or consent issued by the local government (municipalities Law provides also for a deferral scheme for equipment and machin- or communes). ery that are imported for the purpose of the economic activity of the taxable person. Accordingly, the payment of VAT is deferred for up 34 What is the closure and remediation process for a mining to 12 months from the import of machinery and equipment. The project? What performance bonds, guarantees and other financial deferral period can exceed 12 months upon approval of the Minister assurances are required? of Finance when the investment period (namely, the period between Pursuant to the Mining Sector Law, abandoned mines might be sub- importation of machinery and commencement date of supplies of ject to closure or conservation. goods or services) will be longer than 12 months. Additionally, upon The process of closure and monitoring of abandoned mines request of the person concerned, the unpaid VAT resulting from the depends on the status of the administrators of these mines. If the above-mentioned scheme may be compensated with reimbursable mines were previously administered by the Albanian state, the VAT incurred from the same project. closure and monitoring is subject to approval by the Council of Ministers, upon a proposal of the MEI. The plan on closure and 30 What restrictions are imposed on the processing, export or sale monitoring is prepared by a specialist approved by the MEI. of minerals? Are there any export quotas, licensing or other Closure and monitoring of mines previously administered by mechanisms that prevent producers from freely exporting their private legal entities, however, is subject to approval by the MEI. In production? such case, closure and monitoring is performed based on the closing There are no provisions imposing quotas, restrictions or limitations and monitoring plan submitted in the permit application. related to the processing, export or sale of metallic minerals. Abandoned mines might fall under the conservation regime, if there is a failure to implement the closure and monitoring plan. The MEI is entitled to call or withdraw the financial guarantee 31 What restrictions are imposed on the import of funds for in the following circumstances: waiver by the holder of the permit exploration and extraction or the use of the proceeds from the from the mining rights, or termination of the activity before expi- export or sale of minerals? ration of the permit term based on a decision of the MEI. The Income deriving from the export or sale of metallic minerals is not amount of this annual guarantee varies according to the term of subject to any restriction or limitation under Albanian legislation. the permit, business plan, etc. Profits resulting from mining activities may be repatriated, after taxation. There is no foreign currency exchange control applicable Health & safety, and labour issues in Albania. 35 What are the principal health and safety, and labour laws applicable to the mining industry? What are the principal Environment regulatory bodies that administer those laws? 32 What are the principal environmental laws applicable to the The Republic of Albania has ratified the ILO Convention C176, mining industry? What are the principal regulatory bodies that concerning safety and health in mines. The domestic labour legisla- administer those laws? tion in Albania is mainly governed by the Law on the Labour Code The principal environmental law having an impact on mining (No. 7,961, dated 12 July 1995) as amended. The Labour Code activities is the Law on Environmental Protection (Law No. 10,431, provides for basic principles that should be complied with in order dated 9 June 2011), the Law on Environment Permits (Law No. to ensure health and safety in workplaces. More specific rules and 10,448, dated 14 July 2011) and the Law on Environmental Impact requirements for the improvement of health protection and safety Assessment (Law No. 10,440, dated 7 July 2011). Based on the at work have been established by the Law on Health and Safety at above-mentioned laws, the National Agency of the Environment Work (No. 10,237, dated 18 February 2010), which was drafted in (formerly the Agency of the Environment and Forestry) acts as the accordance with EU recommendations provided by the Framework

12 Getting the Deal Through – Mining 2014 Boga & Associates ALBANIA

work permit; however, they are required to obtain a Certificate of Update and trends Employment Declaration.

The government is focused on the promotion of incentive policies in Social and community issues order to increase the development of the extracting industries and the benefits of the local community. Recently, the Minister of Energy and 37 What are the principal community engagement or CSR (corporate Industry declared that during 2014 the government will amend the social responsibility) laws applicable to the mining industry? What mining legislation and promote these incentive policies. He considers that the reinforcement of transparency in the extracting industry will are the principal regulatory bodies that administer those laws? bring new investments that will be supported by government through As of December 2011, the Business Advisory Council (an advisory competitive processes. The Ministry of Energy and Industry foresees body of the Council of Ministers for economic policy development the creation of an electronic register which will reflect all the data of the concessions, the mining licences or permits at every stage of the and improvement of the relevant legal framework) approved the implementations process. The creation of this electronic register aims Internal Code of Conduct for Companies in Albania. This code to increase the trust of local and foreign investors in this industry. represents a supporting and guiding document for companies, assisting them to develop an internal management framework. It consists of a model that companies are free to adopt in accordance Directive of the European Commission 89/391/EEC as well as with their needs. the Law on Work Safety in Mining Activity (No. 8,741, dated 15 February 2001). Regulatory competences on the legal framework of labour in Albania are granted to the Ministry of Social Welfare and 38 How do the rights of aboriginal, indigenous or currently or Youth. The entity engaged with the enforcement and monitoring of previously disadvantaged peoples affect the acquisition or the aforementioned legal acts is the State Work Inspectorate. exercise of mining rights? Furthermore, each entity involved in the mining industry shall There is no legislation concerning this matter in this jurisdiction. comply with the requirements of the Decision of the Council of Ministers No. 1109, dated 30 July 2008 on Insurance of the 39 What international treaties, conventions or protocols relating to Employees Engaged in the Mining Sector Regarding Accidents at CSR issues are applicable in your jurisdiction? Work, as well as the secondary legislation issued in pursuance of said decision. Accordingly, each entity shall insure its employees with an There are no international treaties, conventions or protocols relating Albanian insurance company against accidents at work. to CSR issues applicable in Albania. The National Agency for Natural Resources and the Department for Inspection and Recovery of Mines are the authorities engaged Foreign investment in performing periodical technical controls on the safe operation of 40 Are there any foreign ownership restrictions in your jurisdiction mines. relevant to the mining industry? There are no foreign ownership restrictions in Albania relevant to 36 What restrictions and limitations are imposed on the use of the mining industry. domestic and foreign employees in connection with mining activities? International treaties The Mining Sector Law does not impose any limitation or restriction with regard to the personnel engaged in mining activities; rather 41 What international treaties apply to the mining industry or an the Law on Foreigners (No. 108/2013, dated 28 March 2013) gov- investment in the mining industry? erns this matter. According to the Law on Foreigners, foreign per- Albania is a candidate country of the Extractive Industries sonnel engaged in projects implemented in Albania must obtain a Transparency Initiative (EITI), an initiative that aims to strengthen work permit, which is granted under consideration of the devel- governance by improving transparency and accountability in the opments and needs of the Albanian employment market (namely, extractive sector. Implementation of EITI would improve transpar- assessment of whether an unemployed Albanian citizen might have ency and accountability in the Albanian extractive industry sector been engaged in the relevant function or position). EU citizens, citi- and thus will make it easier for the Albanian government to estimate zens of the Schengen Area and the USA, lawfully staying in Albania, its economic contribution. are exempted from this obligation and are not required to obtain a Currently, negotiations for a cooperation agreement in the mining sector between Albania and Kosovo are under way.

Alketa Uruçi [email protected] Ilir Limaj [email protected]

Ibrahim Rugova Street Tel: +355 4 225 1050 PO Box 8264 Fax: +355 4 225 1055 Tirana www.bogalaw.com Albania

www.gettingthedealthrough.com 13 ANGOLA Miranda Correia Amendoeira & Associados – Sociedade de Advogados, RL Angola

João Afonso Fialho and Marília Frias Miranda Correia Amendoeira & Associados – Sociedade de Advogados, RL

Mining industry practice, the detailed operational and economic terms and conditions are often found in the relevant mineral investment contract, 1 What is the nature and importance of the mining industry in whereby mineral rights are granted and in which the conditions for your country? their exercise are defined. Angola has a wide range of valuable natural resources, including diamonds, iron ore, phosphates, copper, gold and manganese. Despite some significant exploration and mining projects, in par- 6 What are the principal laws that regulate the mining industry? What ticular in the diamond subsector, Angola’s true mineral potential are the principal regulatory bodies that administer those laws? has not yet been revealed. The cornerstone of the Angolan mineral regime, governing explo- Angola used to be a significant producer of iron ore, gold and ration and mining activities of all minerals, is the Mining Code. copper. After its independence in 1975, Angola’s mineral develop- This law regulates the activities of exploration, evaluation, recon- ment was halted (with the exception of diamond mining) by almost naissance, mining and marketing of mineral resources in general. 30 years of civil war, which ended in 2002. Since then Angola has In addition to the above statute, other relevant statutory and regu- resumed mineral mining. In 2007, mining activity represented 5 latory acts need to be considered, including: per cent of Angola’s GDP. In 2009 Angola’s government showed its • Order 2/03, of 28 February 2003, of the National Bank of clear intention to diversify its mining base by approving a National Angola, which establishes the foreign exchange regime for Geology Plan (PLANAGEO). This diversification commitment has holders of mineral rights; been repeatedly reiterated by the Angolan authorities supervising • Order 255/14, of 28 January 2014, of the Ministry of Geology the mining industry and was recently elected as a top priority in the and Mines, on monitoring of posting of bonds and payments of National Development Plan 2013–2017. surface fee and royalties under the Mining Code; • Presidential Decree 36/12, of 5 March 2012, on the internal organization and functioning of the Mineral Negotiations 2 What are the target minerals? Committee; and Despite the abundance and variety of Angola’s natural resources, • Law 20/11, of 20 May 2011 (Private Investment Law (PIL)). a very significant portion remains unexplored. At this point, target minerals include diamonds, gold, iron ore, manganese and copper. The main regulatory bodies are the Ministry of Geology and Mines (MGM), the National Private Investment Agency (ANIP), the Ministry of Finance and the Angolan Central Bank (BNA). Recently, 3 Which regions are most active? by means of Presidential Decree 2/14, of 2 January 2014, it was The most active regions, or at least the ones considered to have created the Market Regulation Agency for Gold, whose main pur- mining potential, are Lunda North, Lunda South, Uíge, Huíla, pose is to organise, regulate and supervise of the gold market. Cuanza-North and Malange.

Legal and regulatory structure 7 What classification system does the mining industry use for reporting mineral resources and mineral reserves? 4 Is the legal system civil or common law-based? According to the Mining Code, reserves should be classified in Angola’s legal system is civil law-based. accordance with the Regulations of the Mining Code, though such Regulations are yet to be enacted. Nonetheless, classification of mineral resources and mineral reserves should be made pursuant 5 How is the mining industry regulated? to and in accordance with internationally accepted methods and The mining industry is regulated at state level through the systems, to be approved by the MGM. Constitution of the Republic of Angola, Law 31/11, of 23 September 2011 (Mining Code) and some additional statutory and regulatory Mining rights and title acts. The Mining Code repealed, among others, Law 1/92, of 17 January 1992, also known as the Law on Geological and Mining 8 To what extent does the state control mining rights in your Activities (Mining Law), Law 16/94, of 7 October 1994 (the jurisdiction? Can those rights be granted to private parties and to Diamond Law), and several ancillary regulations that governed the what extent will they have title to minerals in the ground? Are there mining industry for about two decades. large areas where the mining rights are held privately or which belong However, the Angolan mineral regime may be broadly described to the owner of the surface rights? Is there a separate legal regime as a ‘contract system’. While there are statutory and regulatory acts or process for third parties to obtain mining rights in those areas? that govern aspects of the mineral process, many relevant substan- Pursuant to the Angolan Constitution and the Mining Code, min- tive terms and conditions are set forth in contractual instruments. In eral resources are the property of the state. The state sets forth the

14 Getting the Deal Through – Mining 2014 Miranda Correia Amendoeira & Associados – Sociedade de Advogados, RL ANGOLA terms and conditions for their concession, exploration and mining, and obligations covering the three stages are to be set forth in the thereby controlling the granting of mining rights. Under the Mining relevant mineral investment contract. Code, mineral rights for exploration and mining may be granted Under the former legal regime, in addition to spontaneous appli- to and exercised by either state-owned, mixed-ownership or private cations, the state could organise public tenders or issue invitations to companies. submit proposals for the allocation of exploration licences for one or Contrary to what was established in the former Mining Law, in more previously designated areas. However, pursuant to the Mining consideration for the granting of the mineral rights for mining and Code, public tenders are given a central role, being either optional marketing, the state is entitled to participate in mineral production or compulsory, depending on the geological potential of the relevant through a state-owned company holding an equity of at least 10 per area or the mineral in question qualifying as ‘strategic’. cent of the share capital of the company to be set up for the mining Minerals are classified as ‘strategic’ whenever their economic stage or a participation (or both) in kind (of the minerals produced) importance, use for strategic purposes, or specific technical mining in a proportion to be defined (such proportion increasing directly aspects so justifies. The mineral’s rarity, relevant impact on economic with the increase in the internal rate of return of the project). growth, high demand on the international market, significant job The exploration and mining of iron ore is exclusive to Empresa creation, importance for state-of-the-art technology, positive influ- Nacional de Ferro de Angola, EP (Ferrangol), a state-owned com- ence on the balance of payments or importance to the military pany, in its capacity as national concessionaire. However, Ferrangol industry are deemed fundamental factors to be considered for the may associate other partners, nationals or foreign, in its operations purposes of classifying a mineral as strategic. Though competence to through either unincorporated or incorporated joint ventures. classify minerals as strategic lies with the executive, diamonds, gold and radioactive minerals are expressly defined as strategic minerals in the Mining Code. 9 What information and data is publicly available to private parties Whenever a public tender is not required, the mineral rights that wish to engage in exploration and other mining activities? Is for reconnaissance, exploration, evaluation, appraisal and mining there an agency which collects mineral assessment reports from shall be granted to the first applicant, which is basically required to private parties? Must private parties file mineral assessment demonstrate that it possesses the technical and financial capacities reports? Does the agency or the government conduct geoscience required to carry out the mineral activities for which it has applied. surveys, which become part of the database? Is the database Mineral rights are granted by means of issuance of the fol- available online? lowing titles: The concession decrees granting mineral rights are gazetted as • exploration title, for the reconnaissance, exploration, evaluation Presidential Decrees in the Angolan Official Gazette and are, there- and appraisal of mineral resources; fore, publicly available. There is also a public registry for mining • mining title, for the mining of mineral resources; companies. • mineral permit, for the exploration or mining of mineral All data on mineral resources and mineral reserves is produced resources used in civil construction; and and organised by the executive, though in duly justified cases, the • mineral ticket, for artisanal mining. executive may authorise other public or private entities to exercise such activities. MGM has mining data available for consultation by Among several other obligations, holders of mineral rights are private entities considering investing in the mining sector. However, obliged to: there are no official databases available online. • ensure the hiring of Angolan technicians and workers and to In order for the MGM to monitor and inspect mineral activi- provide for training and technical and vocational instruction for ties, holders of exploration licences must periodically supply these employees; reports covering all data and information obtained during the • apply the most appropriate methods for obtaining the greatest course of the programme on production and marketing of min- yield consistent with the economic conditions of the market, the eral substances and mineral activities carried out, being further protection of the environment and the rational exploitation of required to submit an updated work programme and a forecast of the mineral resources, while not carrying out rapacious mining; the minimum expenditures to be made during the subsequent year. • progressively relinquish the initial area covered by the granting In connection with the new statutory requirement that a public of the mineral rights for exploration; tender be launched for the granting of mineral rights over strategic • ensure and promote compliance with the rules on health and minerals (ie, diamonds, gold and radioactive minerals), or in areas of safety at work and the requirements of the environmental high geological potential, the MGM is required to publish, at least impact assessment study; once a year and within the first quarter, a list of the areas that may be • report on the impact of the mineral activities on land occupancy granted through public tender and publish the relevant terms of ref- and environmental characteristics; and erence in the Angolan Official Gazette or in a widely read newspaper. • repair the damage caused to third parties by the exercise of geological–mineral activities. 10 What mining rights may private parties acquire? How are these acquired? What obligations does the rights holder have? If As noted above, under the single-contract model, all mineral rights exploration or reconnaissance licences are granted, does such (from exploration to marketing, and including evaluation, reconnais- tenure give the holder an automatic or preferential right to acquire sance and mining) are formally granted from the outset pursuant to a mining licence? What are the requirements to convert to a the mineral investment contract. However, the holder of the relevant mining licence? mineral rights is required to obtain an exploration title – issued concurrently with the approval and gazetting of the mineral investment The Mining Code adopted a single-contract model under which contract – and a mining title, as a condition for the exercise of the mineral rights are granted, from the outset, for the whole of the min- rights granted to it. The transition of a given mineral project from eral process. Under the former legal framework, mineral projects the exploration stage to the mining stage is basically dependent on were typically subject to two separate contracts, one for exploration, the preparation and approval of a ‘technical, economic and financial evaluation and reconnaissance, and another for mining and market- viability study’. Upon approval of this study (which is to include ing. In contrast, the Mining Code divides the mineral activities into an environmental impact study), the required mining title is issued, three stages (reconnaissance and exploration stage, appraisal stage with the holder of the relevant rights being from then on entitled to and mining stage), although explicitly stating that the rules, rights exercise its mining and marketing rights. www.gettingthedealthrough.com 15 ANGOLA Miranda Correia Amendoeira & Associados – Sociedade de Advogados, RL

11 What is the regime for the renewal and transfer of mineral licences? • the right to recover, from the mining proceeds, the investment Exploration, evaluation and reconnaissance rights are granted ini- expenses incurred during the reconnaissance, exploration, tially for up to five years, and may be extended by successive one-year evaluation and appraisal stage; and periods up to a maximum of seven years. If this seven-year period • the right to receive compensation for such losses that may result proves insufficient to prepare or complete the above-mentioned fea- from any actions limiting the exercise of mineral rights, under sibility study, the holder of the mineral rights may apply for and be the terms of the law or the mineral investment contract. granted an exceptional one-year extension. In turn, mining rights are granted for a period of up to 35 years (including the explora- Moreover, there are also additional provisions on protection of tion and appraisal stage), which period may be extended by one or foreign investment set forth by the PIL, covering matters such as more 10-year periods. Applications for extension must be submitted expropriation. together with the relevant technical, operational and other grounds, In contrast to the former legal framework, which provided that and shall be granted provided that the applicant is not in default of in case of any disagreement which could not be resolved amicably its legal and contractual obligations. the parties should resort to arbitration in Angola, the Mining Code The transfer of mineral rights is allowed, provided that a spe- does not provide for a particular disputes resolution forum. cific authorisation from the MGM or the Head of the Executive, The Mining Code generally refers to the disputes resolution clause as the case may be, is obtained. This authorisation shall only be of the relevant mineral investment contract. More often, an arbitra- granted if the prospective assignee meets the (technical and financial) tion clause is chosen by the contracting parties. Notwithstanding requirements imposed on the original holders of the relevant rights. this, disputes arising from termination of the concession contract Although not expressly addressed in the mining legislation, the or revocation of the concession title must be resolved by national changes of control of the holders of mineral rights or of their parent courts, and disputes on the significance or insignificance of min- companies are typically notified to the MGM. Despite no consent erals extracted during the reconnaissance, exploration, evaluation or authorisation being legally required, it is common practice for and appraisal stage for purpose of assessment of the relevant tax such a courtesy to be extended with a view to maintaining a proper should be settled by the Minister responsible for the mining sector. institutional relationship with the relevant authorities, as well as to Foreign arbitral awards must be confirmed and recognised by avoiding allegations that the relevant change of control resulted in an Angolan court in order to be enforceable in Angola. As Angola is an indirect unauthorised transfer of the mineral rights in question. not a signatory of the New York Convention, the confirmation and recognition process is conducted in accordance with local rules. The scope of the court’s review covers, essentially, formal and procedural 12 Is there any distinction in law or practice between the mining aspects of the award and arbitral procedure. rights that may be acquired by domestic parties and those that The Angolan Constitution provides that the courts are inde- may be acquired by foreign parties? pendent and cannot accept any form of interference from any Except for iron ore exploitation, as detailed above, the mining other public body. Their decisions are final (subject only to the laws and regulations do not require that an Angolan public entity appeal process) and prevail over the decisions of any other entities. be involved in concessions in Angola, either directly or indirectly. Angolan law does not require the existence of local partners in 14 What surface rights may private parties acquire? How are these concessions. Concessions may be granted to a foreign mining com- rights acquired? pany, but local companies (owned by Angolan nationals) are also Holders of exploration licences or mining titles do not acquire sur- engaged in the exploration and mining of minerals. Specifically as face rights in relation to the concession areas. Also, a private party regards diamonds, and although not legally qualifying as (exclusive) owning a surface right over a certain area is not entitled to carry national concessionaire of the mineral rights in connection there- out exploration or mining activity without the relevant exploration with, Empresa Nacional de Diamantes de Angola, EP (Endiama) is licence or mining title. consistently engaged in the projects, both as member of the unincorporated joint ventures set up for the exploration stage and as shareholder of the companies incorporated for the mining stage. 15 Does the government or do state agencies have the right to The state is entitled to participate in mining concessions as a participate in mining projects? Is there a local listing requirement consideration for the granting of the mineral rights for mining and for the project company? marketing. Other than that, there are no industry-specific rules or As mentioned in questions 8 and 12, the state is entitled to partici- restrictions on corporate structures, nor are there mandatory par- pate in the mineral production (either through a minimum 10 per ticipations or ownership interests reserved for national associates. cent shareholding in the company holding the mining rights, through However, in setting up a business partnership, preference is to be a production-sharing mechanism or by means of a combination of given to national partners or companies. these requirements). Endiama is involved in every diamond project, It is also worth mentioning that diamond artisanal mining may either as a member of the relevant unincorporated joint venture or only be carried out by Angolan citizens and exploration and mining as a shareholder of the company holding the relevant mineral rights. rights of civil construction minerals and mining rights of mineral- The project company, as any other company intending to engage medicinal waters may only be granted either to Angolan citizens in activities which require a physical presence in Angola, is required or legal persons which share capital must be two-thirds held by to establish a legal presence in the country (eg, a subsidiary organised Angolan citizens. and run under Angolan law, or a local branch of a foreign company). Given the above requirement for state participation, the possibility of creating a foreign special-purpose vehicle and having that entity 13 How are mining rights protected? Are foreign arbitration awards registering a branch in Angola is, if not legally prohibited, excluded in respect of domestic mining disputes freely enforceable in your in practical terms. jurisdiction? Investors are granted broad legal guarantees such as: • the right to mine the mineral resources discovered during explora- 16 Are there provisions in law dealing with government expropriation tion without any restrictions, except for those expressly resulting of licences? What are the compensation provisions? from the provisions of the Mining Code or ancillary legislation; The Mining Code, in addition to listing the grounds for termination • the right to freely dispose of and market the mining products; of a mineral investment contract and revocation of the concession

16 Getting the Deal Through – Mining 2014 Miranda Correia Amendoeira & Associados – Sociedade de Advogados, RL ANGOLA title, provides that the concession area may be redeemed for rea- 19 What tax advantages and incentives are available to private sons of public utility in the event of discovery of strategic mineral parties carrying on mining activities? resources or minerals subject to a special framework (the mining of Investments in the mining sector are covered by the Mining Code which is of greater interest for the national economy), subject to a and, on a subsidiary basis, the Private Investment Law. Tax advan- fair compensation being paid to the holder of the relevant mineral tages and incentives are negotiated and set out in the individual rights. mineral investment contract. The compensation due in such an event is to be calculated on The mineral investment contract is negotiated between the pri- the basis of: vate investor and a negotiations committee, which is constituted • the amount of the investment made in the exploration, evalua- inter alia by representatives of the MGM, the national concession- tion, reconnaissance and appraisal stage; aire (if applicable), the Ministry of Finance (in the event fiscal and • the unrecovered amount of the investment made in the explora- customs benefits and exemptions are to be negotiated) and a regu- tion, evaluation, reconnaissance and appraisal stage, in case the latory authority (should it be created). project has already transitioned to the mining stage; and The minimum investment amount required under the PIL to be • the value of the assets redeemed (including real estate property eligible for tax incentives is currently US$1 million. The scope of tax acquired for the exercise of the mineral rights), the average esti- and custom incentives depends on various factors, particularly on mated profit for the subsequent 10 years of mining and the out- the development zone of the investment project and the amount of standing debts. the investment. The following benefits may be granted to investment operations approved by ANIP: • temporary corporate income tax (industrial tax) exemption; 17 Are any areas designated as protected areas within your • temporary dividend distribution tax exemption; jurisdiction and which are off-limits or specially regulated? • conveyance tax exemption; and Under the Mining Code, areas in the territorial or maritime domain • temporary exemption from customs duties on importation of under the jurisdiction of the Republic of Angola that have not been equipment (for investments above US$50 million). granted for the carrying out of other activities, or that are not allocated to the same, are deemed available for the purposes of granting Further, tax incentives and benefits may be granted on an extraordi- mineral rights. In addition, the executive may declare as ‘mineral nary basis as a result of negotiations, within the scope of the exclu- reserve areas’ portions of the national territory with considerable sive contractual regime for private investment, notably in the cases mineral potential, and which consequently require their submission of private investment exceeding US$50 million. to restrictions in relation to movement of people and goods. In addition to the above, investors may also benefit from an To date no areas of the Angolan territory have been declared as ‘uplift’ of up to 50 per cent on the capital invested in the mining mineral reserve areas. stage, grace periods on the payment of industrial tax, or any other type of fiscal incentive provided for in law. Duties, royalties and taxes

18 What duties, royalties and taxes are payable by private parties 20 Does any legislation provide for tax stabilisation or are there tax carrying on mining activities? Are these revenue-based or stabilisation agreements in force? profit-based? There is no specific legislation on this matter in Angola, nor are there Industrial tax any tax stabilisation agreements in place. In turn, most (if not all) The Mining Code establishes an industry-specific industrial tax rate mineral investment contracts contain specific provisions on stabil- of 25 per cent, which under the former Mining Law was set at 40 ity and supervening circumstances, which may, to a certain extent, per cent. For purposes of determining the taxable income, costs of protect the investors’ rights and interests in this regard. exploration, evaluation and reconnaissance, contributions to the Mining Development Fund, among others, are considered as tax deductions additional to those provided for in the general tax law. 21 Is the government entitled to a carried interest, or a free carried interest in mining projects? Royalty (tax on the value of mineral resources) Given that state participation in the mining projects is a legal The Tax Regulations state that a royalty is to be levied on the value requirement (notably by means of a shareholding interest in the of extracted mineral resources. The tax rates currently in force are relevant mining companies), no financial commitments on the part as follows: strategic minerals and precious metals and stones – 5 per of the state are to be expected, even in the absence of any specific cent; semi-precious stones – 4 per cent; metallic minerals – 3 per provision on the matter. cent; and construction materials of mining origin and other minerals – 2 per cent. 22 Are there any transfer taxes or capital gains imposed regarding the transfer of licences? Surface fee This fee is related to the concession area granted and is due for the No. Any possible gains resulting from the transfer of mineral rights duration of the exploration phase only. The surface fee value varies will be taken into consideration in assessing the transferor’s liability with the size of the concession area, the type of mineral explored and in terms of industrial tax (corporate income tax). the exploration year in question, ranging from US$2 to US$40 per square kilometre. In the case of extension of the exploration period 23 Is there any distinction between the duties, royalties and taxes such amounts are doubled. payable by domestic parties and those payable by foreign parties? There is no distinction between duties, royalties and taxes payable Contribution to the Mining Development Fund by domestic parties and foreign parties. A contribution to the Mining Development Fund is provided for in the Mining Code. However, no such fund has yet been formally established. In spite of this, Angolan authorities have in a number of cases requested mining companies to pay the said contribution, and some of the companies have in effect made such payments. www.gettingthedealthrough.com 17 ANGOLA Miranda Correia Amendoeira & Associados – Sociedade de Advogados, RL

Business structures 28 Please describe the regime for taking security over mining interests. 24 What are the principal business structures used by private parties The Mining Code expressly provides that mineral rights may be carrying on mining activities? pledged by way of credit security, but only to secure credits con- The main business structures through which mining activities are tracted by the holder of the relevant mineral rights to finance the carried out are locally incorporated companies and branches of activities covered by the concession title. The pledge is created by foreign corporations. Mining concessions (under which the mining means of the delivery to the pledgee of an authentic copy of the title or production phase is developed), however, are usually reserved to and the concession contract for the relevant mineral rights. companies incorporated under the laws of Angola – though such As a result of the creation of the pledge, the holder of the min- companies may be entirely foreign-owned. The concept of a ‘trust’ eral rights does not forfeit either the possession or the exercise of does not exist and is not recognised by the laws of Angola. the mineral rights pledged, and is likewise bound to comply with In general, there is little operating difference between a branch all legal and contractual obligations to which it is subject. Also, the and a subsidiary in Angola. The real differentiating factor between mineral rights pledged may not be transferred by the relevant holder, them is the tax efficiency of repatriation of profits. Dividends dis- nor encumbered again, without the express prior authorisation of tributed by a local company to its shareholders are subject to with- the pledgee. holding tax in Angola, while the repatriation of profits by the local branch of a foreign company is not. Other important differences Restrictions include the following: • A subsidiary is a separate legal entity, while a branch is not a 29 What restrictions are imposed on the importation of machinery legal entity separated from the foreign company that sets it up – and equipment or services required in connection with exploration namely, its head office. and extraction? • The liability of the shareholders of a company is in principle The Mining Code does not impose specific restrictions on the impor- limited to the amount of the company’s share capital, while a tation of machinery and equipment or services required in connec- foreign company is fully responsible for the liabilities arising tion with exploration and mining. from the branch activities. In addition, holders of mineral rights benefit from a customs • At least one other shareholder (or four more, depending on the duties exemption on the importation of goods for exclusive and type of company chosen) is necessary to incorporate an Angolan direct use in carrying out mineral exploration, evaluation, reconnais- company – in the case of a branch of a foreign entity, it is only sance, mining and processing operations, which exemption does not, necessary to appoint a local representative. however, cover stamp tax, statistical tax and miscellaneous service • As the branch and head office are the same legal entity, the com- fees. pany would be governed on corporate matters by one law only: In the interest of protecting local industries, the above exemption the personal law of the company, typically the one where the does not apply if goods of the same or a similar quality (available for company has its registered offices. delivery within a reasonable delay) and at a price not exceeding by • Conversely, corporate documents issued by the foreign company more than 10 per cent the cost of the imported item, are available at the head office level (minutes of shareholders’ meetings, board in Angola. resolutions, powers of attorney, etc) will always be subject to a more cumbersome and expensive procedure, involving translation and several tiers of legalisation. 30 What restrictions are imposed on the processing, export or sale • The costs of registering a branch are broadly similar to those of of minerals? Are there any export quotas, licensing or other incorporating a local company, although the latter are slightly mechanisms that prevent producers from freely exporting their higher. production? Holders of mineral rights are allowed to market the products of mining, in accordance with the conditions set forth in the Mining 25 Is there a requirement that a local entity be a party to the Code and the provisions of the relevant sale and purchase contracts. transaction? The exportation of minerals extracted in Angola is subject to See question 12. licensing by the relevant body of the Ministry of Commerce and to customs clearance by the Customs National Service, with the body 26 Are there jurisdictions with favourable bilateral investment treaties responsible for the mining sector being duly notified. All minerals or tax treaties with your jurisdiction through which foreign entities extracted in and exported from Angola shall have a certificate of will commonly structure their operations in your jurisdiction? origin issued by the relevant entity. The importation of any mineral in the national territory is subject to the prior favourable opinion To date Angola has not concluded any double taxation treaties. The of the body responsible for the mining sector. When allowed, such Angolan National Assembly has approved the following bilateral operation is always subject to standard customs clearance under investment treaties entered into between Angola and the follow- the general terms of the law and to licensing by the Ministry of ing countries: Portugal, Germany, Italy, Namibia, South Africa, Commerce. The body responsible for the mining sector is notified Switzerland, the United States, Cuba and Russia. of the technical and quantitative data of importations of mineral resources as soon as the relevant operations are carried out, for Financing statistical and monitoring purposes. 27 What are the principal sources of financing available to private Specifically as regards strategic minerals, the executive is enti- parties carrying on mining activities? What role does the domestic tled to set up one or more marketing companies, with a view to public securities market play in financing the mining industry? purchasing minerals directly from the producers, in an open market regime. The executive may promote the acquisition of certain Generally, private parties use loans granted by national and foreign types of strategic minerals by the above-mentioned companies if it banks to finance their mining activities in Angola. A stock market is required to do so to create a public reserve, guarantee strategic has been planned but has not been set up yet. stocks, prevent the fall of market prices or for any other reason of public interest. It should also be highlighted that Angola is party to the Kimberley Process Certification Scheme (KPCS), and has thus

18 Getting the Deal Through – Mining 2014 Miranda Correia Amendoeira & Associados – Sociedade de Advogados, RL ANGOLA adopted the international system of certification of diamonds for It should also be noted that the granting of environmental exportation. Under the Mining Code, and for the same reasons licences is subject to the payment of a fee. that led to the adoption of the KPCS for diamonds, including those stated in United Nations General Assembly Resolution 55/56, a 34 What is the closure and remediation process for a mining similar certificate of origin should be issued for other strategic project? What performance bonds, guarantees and other financial minerals that are to be exported. assurances are required? There are also certain specific rules applicable to certain types of minerals. Damage caused by geological and mining activities implies responsibility on the part of the holder of the exploration licence or mining title, who is subject to legal sanctions and to the duty of 31 What restrictions are imposed on the import of funds for compensation, regardless of contractual provisions. exploration and extraction or the use of the proceeds from the Generally, in the mandatory EIA it is already set forth how the export or sale of minerals? closure of the project will be handled from an environmental stand- The foreign exchange regime applicable to mining activities in point. Also, mining titles frequently focus on the actions necessary Angola is set forth in BNA (the Angolan central bank) Order 2/03 for recovery and rehabilitation purposes (for example, dismantling and in certain provisions of the PIL. For all those matters not spe- and removal of facilities and infrastructures, reforestation, social cifically dealt with in said statutes, the general foreign exchange law rehabilitation, watercourse restoration). applies, notably Law 5/97, of 27 June 1997, as well as its ancillary Holders of mineral rights are further required to set up a legal regulations and instructions and orders from BNA. reserve for purposes of mine closing and environmental restoration, Subject to the control of BNA, mineral investment contracts of an amount corresponding to 5 per cent of the investment. approved under the PIL entitle foreign investors to benefit from the right to repatriate dividends, in proportion to the investment, as Health & safety, and labour issues long as the relevant investor has imported the minimum amount of US$1 million. Capital operations and import of funds are equally 35 What are the principal health and safety, and labour laws subject to foreign exchange restrictions, even though the regime applicable to the mining industry? What are the principal applicable to each of them varies. For example, the governor of regulatory bodies that administer those laws? BNA is entitled to make an assessment of whether, in a given The Angolan General Labour Law (Law 2/00, of 11 February 2000) period, the requested transfer of funds would result in difficulties contains the key principles, rules, requirements and procedures appli- in the balance of payments, in which case he or she may impose cable to the employment of labour force. A fairly extensive number conditions or suspend the transfer altogether. of ancillary statutes and regulations need also to be considered. The principal regulatory body is the Ministry of Public Administration, Environment Employment and Social Security.

32 What are the principal environmental laws applicable to the mining industry? What are the principal regulatory bodies that 36 What restrictions and limitations are imposed on the use of administer those laws? domestic and foreign employees in connection with mining activities? Specific environmental requirements may be found, on the one hand, in the Mining Code and, on the other, in a contractual annexe to Holders of mineral rights must give preference to the hiring of exploration licences and mining titles dealing with environmental Angolan individuals over expatriates, with special preference being impact and recovery. The annexe, in particular, covers such areas given to members of local communities. as environmental impact, preservation, recovery and rehabilitation Furthermore, under the PIL, companies incorporated for (the precise regime in each case depending on the scope of the min- purposes of private investment are required to employ Angolan eral rights awarded). The general framework within which such workers, guaranteeing them the necessary vocational training and provisions operate is derived from environmental statutes, most providing them with salary and other employment terms compatible significantly the following: with their qualifications, any type of discrimination being prohib- • the General Environmental Law; ited. In accordance with the laws in force, such companies may also • the Decree on Environmental Impact Assessment; employ qualified foreign workers, while complying with a strict plan • the Decree on Environmental Licensing; and for training or development of Angolan technical staff, or both, with • the Decree on Environmental Audits. a view to the progressive filling of those positions by Angolan workers. The training plan shall be included in the documentation to be The relevant regulatory body is the Ministry of Environment. submitted to the relevant authority for approval of the investment. The general principle under Decree 5/95, of 7 April 1995, is that at least 70 per cent of the workforce of an Angolan or foreign 33 What is the environmental review and permitting process for a employer that employs more than five workers must be Angolan mining project? How long does it normally take to obtain the nationals. This principle is considered by the Angolan authorities as necessary permits? the minimum standard for the structuring of a company’s workforce. Projects that by their nature, dimension or location bear upon the Therefore, only 30 per cent can be foreign, non-resident employees. environmental and social balance and harmony shall be subject to environmental impact assessment (EIA), which shall be made an Social and community issues integral part of the mineral investment contract. Operations in the mining phase are subject to such requirement. 37 What are the principal community engagement or CSR (corporate As regards exploration, evaluation and research activities, much social responsibility) laws applicable to the mining industry? What will depend on the activities in each case. Where such research work are the principal regulatory bodies that administer those laws? includes, for instance, the execution of trenches, pits, holes, drilling There is no specific legislation regulating this matter in Angola. or perforations, and any work associated with it, the impact upon In turn, the Mining Code contains a number of provisions the environment may be such that an EIA may become legally regarding the rights of local communities residing in areas where necessary before the mining phase is reached. mineral activities are to be carried out, including the right to be www.gettingthedealthrough.com 19 ANGOLA Miranda Correia Amendoeira & Associados – Sociedade de Advogados, RL consulted during the preparation of the EIA, and prior to the taking of decisions that might affect their living conditions or rights. Such Update and trends consultation is absolutely mandatory in the event that a mining project is likely to destroy or damage any assets or cultural or histori- According to the media, the Angolan state made available US$405 cal heritage belonging to the local community as a whole. Holders million to finance PLANAGEO. This plan should allow, in a five-year of mineral rights must relocate, at their expense, any local com- period, the construction of a specialised mineral school, resuming certain mineral exploration projects and boosting the artisanal munity that is displaced by reason of the mineral operations, and mining programme. all traditions, customs and practices of local communities must be Since various issues addressed in the Mining Code still lack taken into account in the relocation process. proper regulation, it is expected that new statutes will be approved and published in the Angolan Official Gazette in the near future.

38 How do the rights of aboriginal, indigenous or currently or previously disadvantaged peoples affect the acquisition or exercise of mining rights? those relating to minerals for civil construction or mining rights of There is no specific legislation regulating this matter in Angola. mineral-medicinal waters, which may only be granted to companies organised under Angolan law in which Angolan citizens hold at least two-thirds of the capital. 39 What international treaties, conventions or protocols relating to CSR issues are applicable in your jurisdiction? International treaties There is no specific legislation regulating this matter in Angola. 41 What international treaties apply to the mining industry or an Foreign investment investment in the mining industry? Besides the bilateral investment treaties mentioned in question 26, 40 Are there any foreign ownership restrictions in your jurisdiction bilateral cooperation treaties for the mining sector were entered into relevant to the mining industry? with Mozambique (Resolution 90/09, of 6 October 2009) and South The only restrictions in this regard relate to mineral rights for artisa- Africa (Resolution 33/05, of 5 August 2005). nal production, which may only be granted to Angolan citizens, and

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20 Getting the Deal Through – Mining 2014 Martelli Abogados ARGENTINA Argentina

Hugo C Martelli and Lucrecia Frangella Saubidet Martelli Abogados

Mining industry apply taxes (rates) to compensate the rendering of certain municipal services or enforcement controls. 1 What is the nature and importance of the mining industry in Finally, jurisdiction on matters related to the benefits of the your country? Law on Mining Investments is exercised by the secretary of min- Mining in Argentina is a flourishing industry, in spite of political ing. Occasionally, other entities of the federal government are also and legal uncertainties that, from time to time, affect the local busi- involved in mining-related operations, through regulations on ness environment. High prices of minerals, attractive geological federal transportation, energy supply, trans-jurisdictional environ- characteristics and vast the vast expanses of land in Argentina mental matters and ports, among other matters. have encouraged numerous investments and projects in different regions, for a variety of minerals. 6 What are the principal laws that regulate the mining industry? Argentina’s favourable mining laws make foreign investments in What are the principal regulatory bodies that administer those the mining sector attractive, and it has available an adequate labour laws? force and technology. Investments for exploration and exploitation rose dramati- The principal federal mining laws and regulations are the following: cally from US$4 million in 1989, to US$160 million in 1997 and • the Argentine Mining Code (as amended and approved by the US$3 billion in 2011. Argentine Congress on 21 May 1997) regulates the rights, obligations, and procedures for the exploration, exploitation, and use of mineral substances; 2 What are the target minerals? • Law No. 24,196 on mining investments (as amended, and as Copper, silver, lead, gold, lithium, boron, potassium and zinc are further regulated by Decree No. 2686/93) creates a number of the main minerals currently being targeted by mining companies in incentives for the mining industry; Argentina. • Law No. 24,585 on the environmental protection of mining activities; and 3 Which regions are most active? • Law No. 25,243, the international mining integration treaty between Argentina and Chile. Mining activity is located primarily along the Andes – the world’s largest mountain range – and in the Central Region of the country. Of the mining provinces, Catamarca, Salta, San Juan, La Rioja 7 What classification system does the mining industry use for and Santa Cruz remain the most active. However, there are various reporting mineral resources and mineral reserves? ongoing projects involving the province of Mendoza (concerning the The classification system for the mining industry is as follows: San Jorge copper deposit and the Rio Colorado potassium deposit), • First category minerals: metalliferous substances (gold, silver, which may lead to the province occupying a more significant role in platinum, mercury, copper, iron, lead, zinc, nickel, cobalt, boron, production over the next few years. bismuth, magnesium, aluminium, potassium, lithium, precious stones etc) and non-metalliferous substances (fuels, solid Legal and regulatory structure minerals and endogenous vapours). These are granted under exploration permits or exploitation concessions to the finder. 4 Is the legal system civil or common law-based? The finder has to register the mine before the mining authority The legal system is civil law-based. follows procedures of the Argentine Mining Code. Oil and gas, originally included in such category and regulated by the gen- 5 How is the mining industry regulated? eral provisions of the Argentine Mining Code have their own Argentina is a federal country where natural resources, including and specific set of rules under Hydrocarbons Law No. 17,319, minerals, belong to the provinces. Although there is an Argentine as amended. Mining Code applicable throughout the Argentine territory, each • Second category minerals: metalliferous substances that are not province grants mining rights to individuals and companies. The under the first category such as salt and peat bogs. Such category provincial mining authority intervenes in every aspect related to is granted to the landowner, but if the landowner does not ask the effectiveness of mining rights, the control of mining investment for the concession, it will be granted to the finder, who has to commitments, the granting of easements on surface properties, the register the mine with the mining authority in compliance with registration of assignment of mining rights, etc. Some mining mat- the procedures of the Argentine Mining Code. ters require the intervention of other entities of the provincial gov- • Third category minerals: mines which belong to the landowner ernment, such as environment, water rights, archaeological property, exclusively, including private and public lands (namely quarries, etc. In general, municipalities lack any mining authority, but they including all stone and earth-natured minerals, which are used for construction and ornamental purposes). www.gettingthedealthrough.com 21 ARGENTINA Martelli Abogados

Mining rights and title For third category mines, if the mine is located in fiscal or public lands, the national or provincial state, as may be the case, will allow 8 To what extent does the state control mining rights in your a private party to explore and exploit the mine after registration jurisdiction? Can those rights be granted to private parties and with the mining authority. to what extent will they have title to minerals in the ground? If the third category mine is located in private lands, the explo- Are there large areas where the mining rights are held privately ration or exploitation has to be performed by the landowner; or which belong to the owner of the surface rights? Is there a otherwise, a third party needs to obtain a permit from such land- separate legal regime or process for third parties to obtain mining owner. In both cases, exploration or exploitation has to be regis- rights in those areas? tered with the mining authority. The provinces have the eminent domain of the mines located in their territories and the power to grant mining rights. 11 What is the regime for the renewal and transfer of mineral The state grants exploration permits and legal concessions to licences? individuals. The concessionaire of a mine holds the right to the mine. Such title has a standing similar right to real estate property, and is Mining rights are granted in perpetuity. Mineral rights are trans- subject to a number of requirements to maintain such right. This ferred through public deeds. right is exclusive and has no expiration term. The concessionaire must pay a surface fee for the use of land, and it has the title to the 12 Is there any distinction in law or practice between the mining minerals found in the ground. rights that may be acquired by domestic parties and those that may be acquired by foreign parties? 9 What information and data is publicly available to private parties There is no distinction between the mining rights that may be that wish to engage in exploration and other mining activities? Is acquired by domestic parties and those that may be acquired by there an agency which collects mineral assessment reports from foreign parties. It is neither necessary nor desirable for a foreign private parties? Must private parties file mineral assessment party to have a domestic partner. reports? Does the agency or the government conduct geoscience surveys, which become part of the database? Is the database 13 How are mining rights protected? Are foreign arbitration awards available online? in respect of domestic mining disputes freely enforceable in your The secretary of mining makes available different systems of inte- jurisdiction? grated, geographic and geological information and a public data- Decisions of administrative authorities must follow the rule of law, base of suppliers and procedures through the Argentine Mining and due process is included in the Law No. 19,549 on Administrative and Geological Service. Proceedings and in the relevant administrative laws of each province. Such decisions can be challenged before the same authority 10 What mining rights may private parties acquire? How are these issuing it, or they can be appealed before a superior authority. Any acquired? What obligations does the rights holder have? If final decision made by the administrative authorities may be chal- exploration or reconnaissance licences are granted, does such lenged before the relevant courts. tenure give the holder an automatic or preferential right to acquire Argentina has an independent judicial system which guarantees a mining licence? What are the requirements to convert to a due process. The rulings of relevant courts can be enforced against mining licence? any party. Every mineral in Argentina is susceptible of exploration and exploi- Argentina has signed the Convention on the Recognition tation on a first-come, first-served basis. However, in the case of and Enforcement of Foreign Arbitral Awards (the New York nuclear minerals (uranium and thorium) the federal state has a Convention), which requires the courts of contracting states to preferential purchase right under market conditions. The explo- give effect to private agreements, to arbitrate and to recognise and ration right is obtained through an exploration permit. Each enforce arbitration awards entered in other contracting states. company or individual may obtain an exploration permit of up The Argentine Code of Civil and Commercial Proceedings to 10,000 hectares for a 1,100-day term (with partial restitutions provides for the enforcement of an arbitration award upon a par- after 330 and 730 days). No term-extensions may be obtained or ty’s request. new exploration permits may be granted over the same area once Argentine courts, including the Supreme Court of Justice, have the original term has expired. No more than 20 exploration permits repeatedly sustained the enforcement of arbitral awards and have may be obtained per province (ie, a maximum of 200,000 hectares limited the courts’ actions to verifying whether the award complies per province). with all formal requirements for it to be immediately enforced. A company or individual applying for an exploration permit must pay a fee (some US$90 every 500 hectares) commit itself to 14 What surface rights may private parties acquire? How are these a minimum investment plan, and file an environmental impact rights acquired? assessment. Discovery of a mineral grants the right to obtain a Neither the exploration permit nor the exploitation concession mining concession in perpetuity, subject only to continuing mine transfer surface rights to individuals; they can only undertake work production. Exploitation is subject to an annual fee, which var- or construction at the surface with the permission of the landowner. ies according to the mineral, but which amounts to approximately It is customary for holders of exploration permits or exploita- US$180 per 100 hectares of concession (no payment is required tion concessions to acquire rights to the land in which such inter- during the first three years), and it is also subject to a royalty regu- ests are held as a matter of convenience. lated by the province of about 3 per cent of the mine-head value. The Argentine Mining Code establishes the right to obtain A mining concession may be sold and mortgaged as a security for easements and rights of way relating to the permits and conces- financial operations. The most frequent form of acquisition of min- sions granted under the Code. Companies can, additionally, nego- ing rights in Argentina is the purchase of exploration permits or of tiate private easements with the third parties involved under terms mining concessions through purchase option agreements with pri- and conditions the company may deem advisable. vate individuals and companies. Some provinces have state-owned mining companies from whom mining rights may be acquired in bids, or through association agreements.

22 Getting the Deal Through – Mining 2014 Martelli Abogados ARGENTINA

15 Does the government or do state agencies have the right to Minimum presumptive income tax participate in mining projects? Is there a local listing requirement Such tax applies, at a 1 per cent rate, to assets owned by local for the project company? companies, subsidiaries and foreign companies’ branches. Such tax There are no local listing requirements for the project company. may be compensated with income tax.

Tax on shareholding, quota holding or interest-holding 16 Are there provisions in law dealing with government expropriation Local companies must pay 0.5 per cent annually on the value of of licences? What are the compensation provisions? shares, quotas or interests held by foreign entities, valued at their Section 16 of the Argentine Mining Code provides that mines may proportional net worth as at 31 December of the corresponding be subject to expropriation, but for expropriation purposes, public fiscal year. Argentine companies paying such tax are entitled to benefit provided by the law declaring the above-mentioned expro- recover the amount paid from foreign holders of interest. priation must exceed the public benefit provided for by the Mining Code for every mine. Tax on banking credits and debits Argentine Expropriation Law No. 21,499 provides for the A federal tax is levied on each banking credit and debit at 0.6 per compensation of the property objective value and for direct dam- cent per transaction. ages, but excludes the loss of profits. Import duties The applicable rate depends on the kind of product to be imported. 17 Are any areas designated as protected areas within your jurisdiction and which are off-limits or specially regulated? Export duties Both the federal Law No. 22,351 and the provincial states pro- Depending on the degree of industrialisation of ore, such duties tect areas where mineral exploration and production is limited or range from 5 to 10 per cent. forbidden. In 2010, the Federal Congress passed Law No. 26,639 for the Protection of Glacier and Periglacial Environments, which Provincial taxes could potentially affect most mining operations in the high Andes. Tax on gross income However, the federal law was rejected by the provinces, and has not Such tax applies to the gross income of entities which carry out eco- been enforced by the federal government yet. nomic activities within the territory of a province, ranging between From the point of view of national security, Decree-Law No. 1 and 4 per cent, depending on the activity and the province. Mining 15,385/44 created ‘security zones’ aimed at improving the defence activities are usually taxed at the lower rate of 1 per cent. of the national territory. The decree establishes that real estate and mineral properties located in a security zone, namely, areas within Royalties a certain distance from international borders, should be owned by Provinces with substantial mining activities have accepted a limit of native Argentines. Rights acquired on real estate or mining rights 3 per cent on the mine-head value of the mineral extracted. located in a security zone need the prior approval of the Security Stamp tax Zone National Commission. Stamp tax is payable on documents for agreements either executed Duties, royalties and taxes within the territory of a province or which produce effects in it. Tax rates vary depending on the sort of agreement and the province, but 18 What duties, royalties and taxes are payable by private parties 1 per cent is a general rate on the economic value of such instru- carrying on mining activities? Are these revenue-based or ments. Various Argentine provinces have repealed the application profit-based? of such tax to mining activities. Federal taxes Fee payment Income tax Mining companies are exempted from the payment of fees upon the Argentine entities, either local companies or subsidiaries and registration of the mine and for a three-year period thereafter. branches of foreign companies, are subject to federal income tax at a flat rate of 35 per cent applied on net income. By means of Law No. 26,893, effective as of 23 September 2013, 19 What tax advantages and incentives are available to private an important tax reform was introduced in Argentina. Payment of parties carrying on mining activities? dividends to shareholders are subject to income tax withholding at General benefits a 10 per cent rate, notwithstanding the equalisation tax withhold- Registration with the Argentine Registry of Mining Investments is ing, when applicable (when dividends distributed exceed 35 per required to have access to the following benefits: cent of the levied net income). Tax losses may be carried forward for a five-year term. Income tax benefits Treaties for the avoidance of double taxation are in force Registered investors are awarded the following benefits: with Canada, Australia, the United Kingdom, Sweden, Bolivia, • double deduction for costs related to prospecting, exploration, Germany, Brazil, France, Italy, Spain, Finland, Denmark, Belgium, special studies and other ancillary activities; the Netherlands, Norway, Uruguay and Russia. • accelerated amortisation – 33 per cent during three years for machinery, equipment, vehicles and facilities, and of 60 per cent, Value added tax 20 per cent and 20 per cent during the same term, for equipment VAT applies at a 21 per cent rate to the sale and importation of and works of infrastructure respectively; goods and the rendering of services. In some limited instances there • special environmental allowance – up to a 5 per cent deduction are higher (27 per cent) and lower (10.5 per cent) rates. Exports are of operating costs; and exempted from VAT. • exemption on income (capital gains) for contribution of mining The difference between VAT credits and debits must be paid rights. to the Argentine Tax Bureau monthly. VAT credits may be carried forward without time limit.

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VAT benefits 23 Is there any distinction between the duties, royalties and taxes Anticipated reimbursement of VAT tax credit on imports or pur- payable by domestic parties and those payable by foreign parties? chases of goods and services for prospecting and exploration min- There are no distinctions between duties, royalties and taxes payable ing activities. by domestic parties and those payable by foreign parties.

Import benefits Business structures Companies registered with the Argentine Registry of Mining Investments are fully exempted from paying import duties for the 24 What are the principal business structures used by private parties entering to the country of capital goods, spare parts, accessories and carrying on mining activities? certain supplies. Corporate vehicles used in Argentina include branches or subsidiaries (either corporations or limited liability partnerships). Certain Minimum presumptive income tax US-based companies prefer to have pass-through entities to benefit A full exemption applies to companies registered with the Argentine from ‘tick-box’ rules. Trusts are not commonly used in the mining Registry of Mining Investments. industry. Joint ventures, which are typically framed as a ‘temporary union Tax on gross income of companies’ pursuant to the Companies Law No. 19,550, are used Mining activities are usually taxed at the lower rate of 1 per cent. to convey participations from more than one economic group, and are adapted to suit the needs of the specific project. Royalties In accordance with the regime created by the Law on Mining Investments, all provinces with substantial mining activities have 25 Is there a requirement that a local entity be a party to the accepted a 3 per cent cap to mine-head value of the mineral extracted. transaction? There is no requirement that a local entity be a party to the Stamp tax transaction. Various provinces have created exemptions from the payment of stamp tax for mining-related agreements. 26 Are there jurisdictions with favourable bilateral investment treaties or tax treaties with your jurisdiction through which foreign entities 20 Does any legislation provide for tax stabilisation or are there tax will commonly structure their operations in your jurisdiction? stabilisation agreements in force? Argentina has entered bilateral investment treaties with the United Fiscal stability States, Canada, Australia, New Zealand, Chile, Peru, the United Mining companies registered with the Argentine Registry of Mining Kingdom, Spain and Italy, among others. Investments should file a feasibility study in order to have access to Treaties for the avoidance of double taxation are also in force a 30-year fiscal stability. New projects and the expansion of existing with Canada, Australia, the United Kingdom, Sweden, Bolivia, ones will benefit from the maintenance of their current total federal, Germany, Brazil, France, Italy, Spain, Finland, Denmark, Belgium, provincial and local tax burden, including a very extensive scope of the Netherlands, Norway, Russia and Uruguay. A treaty was also issues (creation of new taxes, rate increases, abrogation of exemp- signed with the United States in 1981, but it has not been ratified yet. tions or deductions, etc). Provinces with substantial mining activity have adhered to such regime. The Argentine secretary of mining Financing shall issue a certificate with all applicable taxes and their rates valid as of the date of filing of the feasibility study, which shall be 27 What are the principal sources of financing available to private sent to the relevant tax authorities. The fiscal stability cannot be parties carrying on mining activities? What role does the domestic regarded as a vested right until the secretary of mining approves in public securities market play in financing the mining industry? writing the feasibility study and grants the relevant certificate. The secretary of mining is working with international organisations Once the certificate is obtained, the fiscal stability shall apply not to develop lines of credit for the financing of mineral production only to the general Argentine tax regime, but to the incentives and and exploration. benefits for the mining industry granted by the Mining Investments Usually, financing is obtained outside Argentina, since local Law. access to credit is relatively restricted after the economic crisis of VAT and social security contributions are excluded from fiscal early 2002. However, it is expected that the markets will eventually stability. recover, and that certain types of bonds, with specific tax advantages, may become available to medium-sized and larger projects. Foreign exchange To the present date Argentina’s securities market has not played a Decree No. 1722/11, enacted in October 2011, imposed a new obli- significant role in financing of mining activities. gation to negotiate the proceeds from mining product exports in the local exchange market. 28 Please describe the regime for taking security over mining interests. Since mines are defined as real estate by the Argentine Mining Code, 21 Is the government entitled to a carried interest, or a free carried any security shall be granted by public deed, which shall so be interest in mining projects? registered with the mining registry. The government is not legally entitled to a carried interest; it is solely entitled to bear a free carried interest if it agrees so with its private Restrictions co-venturer with regard to a deemed mining property. 29 What restrictions are imposed on the importation of machinery and equipment or services required in connection with exploration 22 Are there any transfer taxes or capital gains imposed regarding and extraction? the transfer of licences? According to Resolution No. 13/2012, enacted by the secretary of There are no transfer taxes levied on the transfer of licences. Capital mining, all mining companies who wish to import machinery, sup- gains stemming from the sale of mining rights are levied with income plies, etc must file a ‘supply scheme’ 120 days in advance, detailing tax.

24 Getting the Deal Through – Mining 2014 Martelli Abogados ARGENTINA what goods are to be acquired (capital goods, services, spare parts, The health and safety requirements are those established by Law etc). The scheme must be updated quarterly, and will be subject to No. 19587 on health and safety work, and Decree No. 351/79, as approval by the Mining Technical Evaluation Group. Furthermore amended. The enforcement authority is the Labour Risk Board. an ‘import substitution department’ must be created within each Such enforcement authority may also carry out mine inspections. mining company. Environmental matters are subject to the concurrent jurisdiction However, pursuant to article 21 of Law No. 24196 on Mining of the federal government and the provinces, and each of them has Investments, there is an important tax exemption for the import of its own enforcement authority. goods, machinery and equipment to perform mining activities, with the exclusion of taxes on services. 33 What is the environmental review and permitting process for a A bilateral agreement entered into between Argentina and Chile mining project? How long does it normally take to obtain the creates certain advantages for mining projects located on both sides necessary permits? of the border. The Argentine Mining Code includes a chapter on environmental protection and the provincial mining authority is in charge of its 30 What restrictions are imposed on the processing, export or sale enforcement. of minerals? Are there any export quotas, licensing or other The federal government’s environmental legislation and mechanisms that prevent producers from freely exporting their authorities are not taken into much consideration by the provinces, production? which prefer to enforce their own laws and regulations. There are no processing, sale or export restrictions. The federal government’s role on environmental matters is, in However, pursuant to Resolution No. 13/2012, enacted by the practice, limited to some exclusive federal powers, such as the regu- secretary of mining, all mining companies exporting minerals by sea lation of inter-provincial and international trade (rarely enforced), must give preference to Argentine shipping companies – provided and the ratification of international treaties. that they offer the required shipping service. From time to time, the federal government tries to regulate cer- For exports, metalliferous minerals have a withholding ranging tain environmental matters that the provinces regard as belonging between 5 and 10 per cent of the freight on board (FOB) value, to their own jurisdiction, as happened in 2010 with the Glaciers which is calculated on such price after the percentage is deducted. Law (Law No. 26,639). Theoretically, it is be possible, although not Certain minerals have an incentive to promote export, like silver, likely, that the federal government may impose certain limitations or which has a reimbursement ranging from 2.05 to 2.5 per cent of the penalties resulting from its federal jurisdiction on those companies FOB value depending on the type of silver. which do not comply with the federal environmental laws, such as According to article 210 of the Argentine Mining Code, the the Glaciers Law. export of nuclear minerals (uranium and thorium) requires governmental approval which may be granted only after domestic 34 What is the closure and remediation process for a mining needs are covered. project? What performance bonds, guarantees and other financial assurances are required? 31 What restrictions are imposed on the import of funds for The closure remediation process for a mining project has to be incor- exploration and extraction or the use of the proceeds from the porated within the scope of the environmental review to be filed export or sale of minerals? with the environmental authority before starting any mining activity. In the past, Argentina had foreign exchange controls in force. Insurance coverage for potential damage to the environment is Currently, pursuant to Decree No. 1722/11, foreign currency required for any dangerous activity by section 22 of Law No. 25,675 obtained from the export of goods must be returned to Argentina on Environmental Protection. Under Argentine law, Argentine-based and exchanged into pesos, albeit on the free market. If adequately risks should be covered by local policies. structured, this should be no impediment to the free disposal of In 2008, the Argentine superintendent of insurance enacted proceeds from mining activities in Argentina or abroad. provision No. 108,126 which approved the first mandatory envi- Additionally, Argentina has enacted Decree No. 616/05 in order ronmental insurance policy (tailored to the terms of the General to avoid speculative capital inflows. Such decree requires that if Environmental Law) and Resolution No. 1398/08 enacted by the funds entering Argentina do not constitute a legitimate direct foreign Argentine secretary of environment which established the formula investment, they will be subject to a mandatory deposit of 30 per used to calculate the minimum insurance amount for each mining cent of the overall amount for a year in a local financial institution project. There are only a few insurance companies currently offering in a non-interest-bearing account. this type of insurance. Law No. 25,675 also authorises the creation of an ‘environment Environment restoration fund’ and provides for the taking of remediation actions.

32 What are the principal environmental laws applicable to the Health & safety, and labour issues mining industry? What are the principal regulatory bodies that administer those laws? 35 What are the principal health and safety, and labour laws The key laws and regulations applicable regarding health, safety and applicable to the mining industry? What are the principal environmental issues are the following: regulatory bodies that administer those laws? • article 41 of the Constitution granting inhabitants rights to a The Argentine Constitution and Law No. 20,744 on Employment healthy environment; Agreements set forth general provisions on health and safety in the • Law No. 24,585 on environmental protection of mining activi- working environment. The specific framework is provided by Law ties, incorporated in the Argentine Mining Code; No. 19,587 on Health and Safety at Work, which is completed by • Law No. 25,675 on the minimum standards for the preservation the requirements for the mining industry set in Decree No. 249 and protection of the environment and the applicable penalties; enacted by the federal government in 2007. • Law No. 24,051 on the minimum environmental standards for Other regulations on the matter can be found in Law No. 38/89 activities related to hazardous waste; on the mining industry’s collective bargaining agreement and Law • Law No. 25,612 on the minimum environmental standards for No. 24,557 on Occupational Accidents). activities related to industrial waste. www.gettingthedealthrough.com 25 ARGENTINA Martelli Abogados

There is also Collective Bargaining Agreement No. 38/89 Since the late 1990s several aboriginal communities acquired which regulates the labour activity of the mining sector, and which an active role in the licensing process of mining projects and, in was entered into by the Mining Industry Chamber, the Argentine some cases, made different types of claims to the companies, not Federation of Mining Workers and the Argentine Federation of only based on the impact of the projects on their ancestral land or Mining Managers. Particular projects can negotiate specific col- properties but also including the expectation or demand to become lective bargaining agreements that may better suit the needs of the involved in operating decisions and supplying a labour force. project. Companies implementing business policies which foresee and The main enforcement authority for the above-mentioned provi- contemplate the relationship with the local and aboriginal commu- sions is the Argentine Labour Risk Board and provincial authorities nities, in view of their claims and agreeing upon coexistence policies which also enforce such regulations. and understandings, do not usually suffer restrictions in the development of their operations. 36 What restrictions and limitations are imposed on the use of domestic and foreign employees in connection with mining 39 What international treaties, conventions or protocols relating to activities? CSR issues are applicable in your jurisdiction? There are no restrictions or limitations imposed on the use of Argentina is part of several treaties regarding corporate social domestic and foreign employees in connection with mining activi- responsibility subscribed by international organisations such as the ties. However, some jurisdictions informally require that certain pro- UN, the ILO, etc. Nonetheless, the applicability of policies within jects hire from the local workforce to the greatest extent possible. such treaties is at the discretion of companies.

Social and community issues Foreign investment

41 What international treaties apply to the mining industry or an 38 How do the rights of aboriginal, indigenous or currently or investment in the mining industry? previously disadvantaged peoples affect the acquisition or As mentioned, Argentina has entered into and ratified several trea- exercise of mining rights? ties with several countries for the bilateral protection of investments, The Argentine Constitution, as amended in 1994, acknowledged ‘the which include mining investments. ethnic and cultural pre-existence of the Argentine aboriginal people’, Argentina has signed the International Mining Integration and Argentina is a party to several international treaties which rec- Treaty with Chile, under Law No. 25,243, aiming at promoting min- ognize the ancestral rights of aboriginal communities. ing integration and investments between the parties.

Hugo C Martelli [email protected] Lucrecia Frangella Saubidet [email protected]

Sarmiento 1230 9th and 10th floors Tel: +54 11 4132 4100 C1041AAZ, Buenos Aires Fax: +54 11 4132 4101 Argentina www.martelliabogados.com

26 Getting the Deal Through – Mining 2014 Gadens AUSTRALIA Australia

Kym Livesley Gadens

Mining industry The Commonwealth has the power to make laws under the Australian Constitution. The Commonwealth has power to legislate 1 What is the nature and importance of the mining industry in in areas such as corporations, taxation, native title, overseas trade, your country? trade practices, foreign investment and foreign affairs. At a federal Australia continues to rank as one of the world’s leading mining level, there is a separation of powers amongst the legislative, judicial nations, with substantial identified resources of major minerals. The and executive arms of government. mining industry is one of Australia’s most important export sectors However, using such power, the Commonwealth also legislates and makes a significant economic and social contribution to the on broader issues including environmental issues. Australian economy. The mining industry accounts for approxi- The state and territory governments are given broad legislative mately 8.4 per cent of gross domestic product and 55.4 per cent power under their respective constitutions. Areas such as mining, of exports. roads and traffic, environment, health and criminal law are regu- Australia currently has one of the largest mineral sectors by lated primarily by laws at this level. value of production in the world. The Australian mining industry Local governments are established by state or territory legisla- has recently benefited from a global boom in demand for miner- tion. Local governments typically make and enforce regulations als though the combination of a high Australian dollar, volatile in relation to building and development, town planning, local commodity prices and waning regional demand from China, India amenities, environment and land use within their local government and other parts of Asia has flattened export demand yields. Despite areas. these challenges, Australia remains a world leader in developing and exporting mining equipment, services and technologies. 5 How is the mining industry regulated? Minerals and the mining industry are regulated at the state and 2 What are the target minerals? territory level. Each Australian state and the Northern Territory Australia is the world’s leading producer of bauxite, diamond, has legislation relating to minerals found onshore and offshore ilmenite and zircon, the second largest producer of alumina and within coastal waters. manganese, the third largest producer of brown coal, gold, nickel, Nevertheless, some Commonwealth laws may also affect the zinc and uranium and a substantial producer of lead and tin. mining industry because the Commonwealth legislates over areas such as corporations, competition and trade practices, interstate and overseas trade, taxation, and defence and foreign affairs. 3 Which regions are most active? Mining companies represent approximately one-third of com- Mining activity occurs in all Australian states and territories. The panies listed on the Australian Securities Exchange (ASX) repre- regions of Pilbara, Goldfields in Western Australia, the Hunter senting approximately 20 per cent of total market capitalisation. Valley and Broken Hill regions of New South Wales, the Bowen In addition to state and federal legislation, listed mining companies Basin, Mount Isa and Mount Morgan in Queensland, the Latrobe must also comply with the ASX Listing Rules. The ASX Listing Valley in Victoria and the mid-north of South Australia are active Rules require listed companies to release annual and half-yearly mining regions. reports. There are also specific obligations on listed mining companies to release a quarterly report to the market. Legal and regulatory structure

4 Is the legal system civil or common law-based? 6 What are the principal laws that regulate the mining industry? What The Australian system is common law-based. Its laws are based on a are the principal regulatory bodies that administer those laws? combination of legislation made by parliament and decisions made Each state and the Northern Territory has a Mining Act and Mining by an independent judicial system that adheres to the rule of law Regulations (or equivalent) that regulates the ownership of minerals and due process. and operation of mining activities in that state. The states have other Laws are made and regulated by three tiers of government – laws dealing with areas such as mine operation, mine inspection, federal, state and territory, and local government. The federal gov- occupational health and safety, environment, and planning. The ernment (the Commonwealth) represents a federation of the six government department administering mining laws in each state Australian states (New South Wales, South Australia, Queensland, administers and sets out guidelines and policy statements relating Tasmania, Victoria and Western Australia) and two territories (the to state mining legislation. Northern Territory and Australian Capital Territory). Broadly, the Australian legal system is modelled on the Westminster model which includes both federal and state constitutions.

www.gettingthedealthrough.com 27 AUSTRALIA Gadens

7 What classification system does the mining industry use for 9 What information and data is publicly available to private parties reporting mineral resources and mineral reserves? that wish to engage in exploration and other mining activities? Is The Australian mining industry uses the Australasian Code for there an agency which collects mineral assessment reports from Reporting of Exploration Results, Mineral Resources and Ore private parties? Must private parties file mineral assessment Reserves (the JORC Code) for public reporting (for example, annual reports? Does the agency or the government conduct geoscience reports and analyst reports). The JORC Code is published by the surveys, which become part of the database? Is the database Australasian Institute of Mining and Metallurgy, Australian Institute available online? of Geoscientists and Minerals Council of Australia. The JORC Code A wide range of information is made available by the respec- is internationally recognised and has proved to be highly effective tive state and territory government departments responsible for and central to the fundraising success of the mining industry. The the administration of mineral exploration and production titles JORC Code has been substantially revised and the JORC Code 2012 (state government departments). Such information is commonly is now in effect, with significantly increased reporting obligations to contained in an online, searchable format. Available information ASX listed companies. often includes open file company data, company drillcore results The JORC Code is applicable to all solid minerals, including and current and historic exploration tenement information as well diamonds, other gemstones, industrial minerals and coal. The JORC as geophysical and geochemical data. There is also closed file data Code requires reporting on the company’s mineral resources under provided to the government departments, which remain confidential quantities known as ‘mineral resources’ or ‘ore reserves’. The clas- for a period of time. sification of the mineral resource depends upon the quantity, dis- Holders of exploration and mining titles are required to file tribution and quality of data available and the level of confidence various reports in digital format, including annual reports (which that attaches to such data. include a summary of activities conducted) and geophysical survey A ‘mineral resource’ is an occurrence of a mineral material of reports. National, uniform guidelines apply to the structure of tech- intrinsic economic interest that has reasonable prospects for even- nical reports and the submission of reports in digital format. The tual economic extraction. The location, quantity, grade, geological respective state government departments assume the responsibility characteristics and continuity of a mineral resource must be known, for acquiring, storing and distributing this information. estimated or interpreted from specific geological evidence and State and territory governments are committed to promoting knowledge. Mineral resources are subdivided, in order of increasing exploration in previously under explored areas. Accordingly, the geological confidence, into inferred, indicated and measured mineral states and the Northern Territory conduct geological surveys with resources. programmes, which can include the acquisition of deep seismic, An ‘ore reserve’ is the economically mineable part of a meas- teleseismic, gravity and airborne magnetic and radiometric data. ured or indicated mineral resource and is subdivided, in order of geological confidence, into a ‘probable ore reserve’ or a ‘proved 10 What mining rights may private parties acquire? How are these ore reserve’. acquired? What obligations does the rights holder have? If Although the JORC Code applies to the reporting of mineral exploration or reconnaissance licences are granted, does such resources and ore reserves by all public companies, the ASX Listing tenure give the holder an automatic or preferential right to acquire Rules also expressly require any report by an ASX-listed company a mining licence? What are the requirements to convert to a on its exploration results, mineral resources or mineral reserves to mining licence? comply with the JORC Code. A miner may obtain rights to conduct mining activities on unre- Mining rights and title served Crown land or on private land where the permission of the landowner has been granted. The specific mining rights that miners 8 To what extent does the state control mining rights in your may acquire differ slightly in each state or territory, but the rights jurisdiction? Can those rights be granted to private parties and are based upon the three basic stages of development of a mine: to what extent will they have title to minerals in the ground? initial exploration, further detailed exploration and assessment, and Are there large areas where the mining rights are held privately production. or which belong to the owner of the surface rights? Is there a Holders of mining rights may also have ancillary rights that separate legal regime or process for third parties to obtain mining relate to those mining activities, such as public road access, access rights in those areas? to water, and setting up crushing, sizing and grading facilities on the Unlike many other common law jurisdictions, ownership of miner- land surface. als in Australia are generally reserved to the Crown and vested Mining rights may be acquired from the applicable state depart- in the government of the state or territory in which they occur. ment generally through an application process on a first-come, Accordingly, ownership of minerals does not pass with the grant first-served basis, or in some instances, a tender-based process. of freehold title to the land. For historical reasons, in various states Mining rights may also be acquired by entering into a contractual of Australia there remain very small and isolated pockets of land arrangement with the holder of the mining right. Rights to access in which the owner of the surface rights has retained ownership the surface are regulated both by legislation and by private con- of the minerals occurring on their land. However, in New South tract with landowners. Wales, all prospecting and mining for minerals, whether privately Mining rightholders will generally have obligations such as pay- or publicly owned, requires authorisation under the NSW Mining ment of rent and royalties, compliance with work programmes, Act. mine rehabilitation and reporting requirements (for example, Each state and the Northern Territory operates under its own exploration activities and mining expenditure). legislation, which permits third parties to explore for and produce Holders of an exploration or retention licence generally, depend- minerals. Generally speaking, ownership in the resource passes to ing on the state or territory legislation, will have a priority right the third party at the point of extraction (in accordance with rel- to acquire a mining licence. Typically, the identification of a min- evant state or territory Mining Act). eral resource is a precondition for the grant of a mining licence. However, each state and the Northern Territory have different formal requirements. Generally, applicants need to prepare and submit a mineralisation report and an environmental impact

28 Getting the Deal Through – Mining 2014 Gadens AUSTRALIA statement. In some jurisdictions, a mining licence is called a mining by means of purchases, leases, easements, etc. The general laws of lease and entitles the holder to carry out mining related activities. contract apply between private parties. Mining legislation may also set out requirements for certain terms relating to access and compensation arrangements with landholders. 11 What is the regime for the renewal and transfer of mineral licences? Each Australian State, and the Northern Territory, has a separate, 15 Does the government or do state agencies have the right to though comparable, regime with respect to the process for renewal participate in mining projects? Is there a local listing requirement and transfer of mineral licences. for the project company? In respect of a renewal of a mineral licence, the licence holder is In Australia there is no entitlement ‘as of right’ for either government required to apply to the state or territory department, within certain or state agencies to participate in mining projects. Furthermore, there prescribed time frames. An application fee will also be payable. The is no requirement that the project company be listed in Australia or state or territory department has discretion as to whether to renew elsewhere. the application or refuse the application. For exploration licences or permits, compulsory relinquishment of part of the tenement may 16 Are there provisions in law dealing with government expropriation apply to a licence renewal. of licences? What are the compensation provisions? Generally speaking, the holder of a mineral licence may apply to the relevant state or territory department for a transfer of a mineral In Australia, where a licence is expropriated by government it would licence, or an interest in it, to a third party. The third party must pro- be done so with just compensation. The Australian Constitution vide its consent to such a transfer and certain fees will be payable. provides that the Commonwealth has power to make laws for the The state or territory department has discretion as to whether to acquisition of property on just terms from any state or person for approve or refuse the transfer. In approving a transfer, the relevant any purpose in respect of which the Parliament has power to make state or territory department also has the power to vary the appli- laws. cable licence conditions. Once a transfer has been approved, it Each Australian state (and the Northern Territory) also has leg- must then be registered. islation which provides for the acquisition of land (and interests in land which include mining tenements) by compulsory process. The amount of compensation that is payable is determined by valuation. 12 Is there any distinction in law or practice between the mining rights that may be acquired by domestic parties and those that may be acquired by foreign parties? 17 Are any areas designated as protected areas within your jurisdiction and which are off-limits or specially regulated? No. However, a major acquisition of assets by a foreign company may require the approval of the Australian treasurer, through the Generally speaking, mining is restricted within national parks, Foreign Investment Review Board. The Foreign Investment Review wilderness protection areas and areas reserved for preservation of Board has the power to block proposals that are required to be tourism or heritage interests. notified to it and that are determined to be ‘contrary to the national Areas subject to native title or Aboriginal cultural heritage interest’. (discussed below) are also specially regulated.

Duties, royalties and taxes 13 How are mining rights protected? Are foreign arbitration awards in respect of domestic mining disputes freely enforceable in your 18 What duties, royalties and taxes are payable by private parties jurisdiction? carrying on mining activities? Are these duties, royalties and taxes The legislation of each state prohibits prospecting or mining miner- revenue-based or profit-based? als otherwise than in accordance with the terms of a valid mining First, royalties are payable to the Crown on extraction of the miner- tenement. As a general rule, mining rights may not be granted to als. The amount and calculation of such royalties vary from state to third parties over land that is subject to an existing mining tenement, state and may include, for example, flat-rate royalties (for example, unless the holder of the existing mining right gives consent. These on a ‘cost per tonne’ basis), ad valorem royalties (based on a per- and other mining rights can be protected or enforced through an centage of the total value of minerals recovered, ranging from 2.5 independent judicial system. A mining court or tribunal has been set to 8.2 per cent) and profit-based royalties (applied in some states up in each state or territory, and is given the jurisdiction to determine to all minerals, such as Tasmania and the Northern Territory, and all suits concerning mining tenements and may exercise any other applied in some states to only certain minerals, such as diamonds). jurisdiction vested by the particular state and territory regulation. The level and nature of royalties also varies depending on the type Mining rights obtained through contractual arrangements are of commodity and its location within Australia. A number of state also protected under contract law. governments (including Queensland and New South Wales) charge Australia has implemented the New York Convention on the mining companies higher freight rates to carry minerals compared Enforcement and Recognition of Foreign Arbitral Awards through with other commodities. In these cases, mining freight subsidises the the International Arbitration Act 1974 (Cth). operation of government railways. Second, private royalties may be payable, for example, in circumstances where the mining rights have been transferred between 14 What surface rights may private parties acquire? How are these private parties subject to the payment of an ongoing private royalty. rights acquired? Third, general duties and taxes are payable in the same manner A holder of mineral rights is generally given rights on the land as any other business within Australia, such as local government surface to carry out mining purposes. These rights may depend rates and fees, stamp duty, goods and services tax, capital gains tax upon the stage of the mining operation, and may include rights to or income tax. access water and public roads; construct, maintain and use build- Additionally, in 2012, a mineral resources rent tax and a carbon ings, plants, roads and railways; and conduct primary treatment tax regime was implemented. Please refer to ‘Update and trends’ for operations and other acts ancillary to mining. further details. Where the holder is seeking to engage in these ancillary activities on private land, rights must be obtained from the private landowners www.gettingthedealthrough.com 29 AUSTRALIA Gadens

19 What tax advantages and incentives are available to private per cent of the assets of the company or trust represent land-related parties carrying on mining activities? assets. Foreign residents should take care when valuing or allocating A broad-based goods and services tax (GST) applied at the rate of any sale price between land-related assets and non-land assets. Non- 10 per cent has been in operation since 1 July 2000. land assets may include, for example, mining information. The GST regime benefits industry, as GST-registered enterprises are typically able to recover the GST paid on their business inputs. 23 Is there any distinction between the duties, royalties and taxes Mining enterprises are not required to charge GST on goods they payable by domestic parties and those payable by foreign parties? export to overseas customers (which account for the bulk of industry sales). However, careful consideration is required where the Although there is no obvious distinction between specific mining enterprise supplies or receives certain financial supplies, including, taxes such as duties and royalties paid by domestic parties compared among others, forward contracts, options to buy or sell foreign to those paid by foreign parties, parties must consider more general currency, commodity derivatives and security lending arrange- taxation matters such as withholding taxes, thin capitalisation rules, ments as these transactions can give rise to restrictions on recovery double tax agreements and foreign tax credits. of GST on associated business inputs. There are also special GST rules for domestic sales of precious metals. Business structures Fuel tax credits commenced on 1 July 2006 as part of the gov- 24 What are the principal business structures used by private parties ernment’s major programme of reform to modernise and simplify carrying on mining activities? the fuel taxation system. The previous system of fuel grants, rebates and remissions has been substantially replaced with a single fuel Mining activities can be conducted by corporations, partnerships or tax credit, claimable via a business activity statement. by way of joint venture; however, mining projects are most com- The Enhanced Project By-Law Scheme provides tariff duty con- monly structured as joint ventures. The joint venture can either cessions on eligible goods for major products in the mining and be incorporated or unincorporated. An incorporated joint venture resource processing industries. Only eligible goods integral to the uses a company as the project vehicle, and as such, is governed by project may be eligible for a tariff duty concession. its constituent documents. The typical unincorporated joint venture The major form of government assistance provided to the minis governed by a joint venture agreement. ing industry is in the form of research and development via the CSIRO Institute of Minerals, Energy and Construction. In addi- 25 Is there a requirement that a local entity be a party to the tion, the Australian Geographical Survey Organisation (part of transaction? the Department of Resources, Energy and Tourism) is undertaking Although this requirement is common in some Asian and African national geoscientific mapping aimed at encouraging the sustainable sovereign states, there is no requirement that a local entity be a party management and development of Australia’s natural resources. to a transaction in Australia. However, acquisitions of interests Direct assistance in the form of export assistance and subsidies by foreign parties in some exploration titles and most production is minimal. titles (or an acquisition of shares in the company that holds these titles) will require the approval of the federal treasurer, through the 20 Does any legislation provide for tax stabilisation or are there Foreign Investment Review Board. tax stabilisation agreements in force (ie, provisions preventing Further, currently, foreign investment approval will be required governments from excessive increases in taxes or the imposition where a foreign party acquires an interest in an operational mine of new taxes on mining operations)? valued at over A$54 million or more (A$1,078 million for US No. There is no tax stabilisation legislation and there are no tax investors). stablisation agreements in force in Australia. Additionally, direct investments by foreign governments and their related entities (such as sovereign wealth funds) will require foreign investment approval, regardless of the value of the transaction. 21 Is the government entitled to a carried interest, or a free carried interest in mining projects? 26 Are there jurisdictions with favourable bilateral investment treaties No. The government is not entitled ‘as of right’ to a carried interest, or tax treaties with your jurisdiction through which foreign entities or a free carried interest in mining projects. However, state-based will commonly structure their operations in your jurisdiction? royalties and other taxes apply. Australia is a party to a wide range of bilateral investment treaties and tax treaties. However, in practice these treaties have not influ- 22 Are there any transfer taxes or capital gains imposed regarding enced the way in which foreign entities structure their operations the transfer of licences? in Australia. Each Australian state and territory has its own stamp duty regime and imposes duties on a range of different transactions. Most juris- Financing dictions do not charge duty on the initial grant of a mining lease or tenement, but transfers and other dealings with existing mining 27 What are the principal sources of financing available to private leases and tenements would typically be subject to transfer duty. parties carrying on mining activities? What role does the domestic Capital gains made on the transfer or disposal of assets are public securities market play in financing the mining industry? included in a taxpayer’s taxable income. A mining lease or tenement Financing is one of the principal barriers to entry in mining, which granted by an Australian government is an asset and any dealings is a highly capital-intensive enterprise. Large sums of money are with that asset will have capital gains tax consequences. required to construct mines and production facilities, and to sustain However, foreign residents are only taxed on capital gains the exploration and development needed to replenish reserves. derived from interests in land-related assets in Australia. This Project finance is extensively used in Australia for mining- and includes mining leases and tenements and also includes certain exploration-related projects. indirect interests in land-related assets, such as non-portfolio shares The domestic public securities market, by way of the ASX, lists or units (ie, greater than 10 per cent) held in companies and trusts many publicly listed mining companies. Such listed companies seek that own land or mining leases and tenements, where more than 50

30 Getting the Deal Through – Mining 2014 Gadens AUSTRALIA to raise the capital required to fund various mining activities through and land use. The environmental aspects of the mining industry their shareholders by undertaking capital raisings. are generally administered by the relevant state and territory environmental protection agency, the resources department and local government. Most mining tenements will only be granted after the 28 Please describe the regime for taking security over mining relevant state department assesses the environmental impacts of any interests? proposed or potential mining activity. Commonwealth laws will also A new securities regime, the Personal Property Securities Act 2009 apply to mining activities that will impact on Commonwealth lands (Cth) (PPSA) commenced in Australia on 30 January 2012. The or national matters (for example, national heritage-listed land or the PPSA changed Australia’s established common law principles regard- Environment Protection and Biodiversity Conservation Act 1999, ing ownership of personal property. While most mining tenements which provides a planning regime for obtaining consent for a pro- will fall outside the scope of the PPSA, interests arising under joint ject if it affects certain Commonwealth land or threatened species). venture agreements, joint operating agreements, shareholders agree- Many Australian mining companies also adhere to international ments, farm-in arrangements and royalty streams (to name a few) standards such as ISO 14001 for Environmental Management will require registration on the Personal Property Securities register. Systems. The Commonwealth Department of Resources, Energy and Tourism has also published a set of guidelines on Best Practice Restrictions on Environmental Management in Mining and a guide to Leading Practice Sustainable Development in Mining. 29 What restrictions are imposed on the importation of machinery and equipment or services required in connection with exploration and extraction? 33 What is the environmental review and permitting process for a An import permit is required to import used agricultural, earthmov- mining project? How long does it normally take to obtain the ing and mining machinery and can be assessed by the regional necessary permits? offices of the Australian Quarantine and Inspection Service. Also, The mining company will prepare a proposal for mining operations, all machinery imported into Australia requires a cleanliness decla- along with the potential environmental impacts and how they will ration, which states that the machinery is clean and free of all soil be managed. The relevant government departments will then decide and plant and animal debris. whether the project is environmentally significant and the extent of There are occupational health and safety laws in each state and environmental assessment necessary (if at all) before giving approval territory of relevance to the use of plant and equipment. for the proposal. Assessment may involve public environmental reports, environmental impact statements, community consultation and public inquiries. The time it takes to obtain the necessary per- 30 What restrictions are imposed on the processing, export or sale of mits will depend on whether the project is complex or controver- minerals? Are there any export quotas, licensing or other mechanisms sial. Mining tenements are ordinarily granted within six months. that prevent producers from freely exporting their production? If public consultation is needed then the time taken will increase, Other than export controls that exist for the sale of uranium, related with some projects taking several years for the necessary permits nuclear materials (including tantalum and mineral sands containing to be obtained. monazite) and rough diamonds, there are no general restrictions or limitations imposed on the processing, exporting or selling of metallic minerals. 34 What is the closure and remediation process for a mining Export controls, which apply to uranium and related nuclear project? What performance bonds, guarantees and other financial materials, are in place to ensure compliance with Australia’s non assurances are required? proliferation policy. Export permits in respect of such material can Mine operators must submit to the relevant department a detailed be obtained from the government. remediation plan associated with its mining operations. In many Rough diamonds are only permitted to be exported to coun- cases such plans must be submitted within one to two years of tries participating in the Kimberley Process Certification Scheme (an commencing operations, and in some cases prior to commencing international effort to eliminate trade in conflict diamonds). operations. Obligations under these plans upon closure of a mining plant are incorporated into the terms and conditions of the mining tenement. 31 What restrictions are imposed on the import of funds for The mine operator will generally be required to lodge a secu- exploration and extraction or the use of the proceeds from the rity deposit with the department to guarantee the fulfilment of their export or sale of minerals? remediation obligations. The size of this deposit is determined by the Generally, foreign and Australian currency can be transferred in and department and will depend on the size of the proposed operation out of Australia without restriction. Virtually all exchange controls and the likely costs of remediation. in Australia have been removed. To detect tax evasion and other criminal activities, the Financial Health & safety, and labour issues Transaction Reports Act 1988 (Cth) requires cash dealers to report significant cash transactions to the Australian Transaction Reports 35 What are the principal health and safety, and labour laws and Analysis Centre. applicable to the mining industry? What are the principal There are no general restrictions or limitations in relation to the regulatory bodies that administer those laws? use of the proceeds from the export or sale of metallic minerals. The principal health and safety laws applicable to the mining industry are the occupational health and safety laws of each state that Environment apply to all industries. On 1 January 2012, the Work Health and Safety Act 2011 (Cth) (WHS) commenced. The WHS was designed 32 What are the principal environmental laws applicable to the to harmonise work health and safety laws with each jurisdiction mining industry? What are the principal regulatory bodies that being expected to enact mirror legislation. Such legislation has been administer those laws? introduced in all territories and states except Western Australia and Each state and territory has a detailed legislative and regulatory Victoria. States that have not introduced the model legislation con- regime relating to environmental conservation, assessment, planning tinue to operate under their existing health and safety legislation. www.gettingthedealthrough.com 31 AUSTRALIA Gadens

Update and trends

There have been a number of significant trends and developments combination of depressed valuation and commodity price slippage may in the mining industry at both a macroeconomic and microeconomic prove to be a stimulator for larger mining players and foreign investors. level. Microeconomic Macroeconomic Domestically, share prices for many miners have decoupled from Globally, the mining industry has suffered from a softening of demand underlying commodity values as a consequence of prevailing in conjunction with increased costs of doing business and ongoing macroeconomic conditions. While in 2010 the mining industry commodity price volatility. contributed to approximately 9.6 per cent of Australian GDP, well above In contradistinction to historical trends, the recent volatility of the global benchmark of 6.4 per cent, this contribution waned over commodity prices has been unable to support the increased weight of 2012/13 as firms placed stops on production in the face of capital costs associated with mining, placing profit margins on capital projects increases. For example, in 2012 BHP Billiton placed a halt on its under strain. Nikki Williams, CEO of the Australian Coal Association, notes $20 billion Olympic Dam project blaming weak commodity prices and that ‘in just five years [Australia has become] the highest cost producer in rising costs. More broadly, firms have continued to narrow their focus the world at $176 a tonne compared to the rest of the world at $106.’ To on projects capable of delivering demonstrable return on the back of further compound the problem, despite interest rate cuts by the Reserve growing shareholder demands for more immediate and larger returns Bank of Australia, the Australian dollar has continued to appreciate above market. against the US dollar causing inflated domestic prices for equipment, In addition, while there has been a slowdown in production easing materials and labour. the immediate pressure on labour, the Minerals Council of Australia Rising costs and price volatility have also coincided with increased forecasts the need for an additional 86,000 mining professionals and demand uncertainty. In particular, an increased supply of natural gas in skilled mine workers by 2020. There are a number of fundamental the United States has softened domestic demand for coal resulting in explanations for the labour shortage, not least of which is the requirement increased export levels of US coal, which compete directly with Australian for mining professionals and labourers to relocate to remote mine sites coal in the international market. in Australia’s north, south and west. While miners are often compensated The success of Australia’s mining industry in the short term is financially, a high Australian dollar coupled with weak commodity prices linked to the prevailing market appetite throughout the Asia-Pacific region means that continued wage increases are unsustainable for larger miners – an appetite that is waning. 2012 and 2013 indicators demonstrate and unobtainable for junior miners. that China’s rate of economic growth is slowing with residual effects Both the Mineral Resources Rent Tax (MRRT) and Carbon Pricing on Australian commodity prices and corporate investment decisions. Scheme commenced on 1 July 2012. In brief, the MRRT places a tax on Officially Bloomberg has raised estimates for China’s growth rate following upstream benefits derived by Australian iron ore and coal miners at an on from a strong start in the first quarter of 2013 though forecasts effective rate of 22.5 per cent. The Carbon Pricing Scheme imposes a expect momentum to fade in the second half. China’s statistics chief price per tonne of carbon produced in Australia by natural gas retailers has cautioned that China’s brief economic rebound in the first quarter and operators of facilities with emissions greater than 25,000 tonnes of is unlikely to indicate a return to the double-digit growth enjoyed in the carbon per annum. The Carbon Pricing Scheme has been released with past two decades. Despite a disjunction between actual and forecast two pricing tranches including a fixed $23/tonne from 1 July 2012 until growth, China remains publicly committed to its five-year plan to spend 30 June 2015 and a flexible emissions trading scheme thereafter. approximately 10 billion renminbi by 2015. At the Federal Election in late 2013, a new (Liberal) government Despite the above adverse macroeconomic factors, analysts are came into power. Election promises of the new government included the predicting an increase in unconventional deal volume. As firms within the repeal of both the Carbon Pricing Scheme and the MRRT. The Federal mining industry continue to battle for debt and equity funding, deal activity Government introduced bills to repeal the Carbon Pricing Scheme and has shifted to capital projects. Firms are beginning to demonstrate an MRRT in late 2013, however these party election promises are proving increased reliance on non-traditional forms of financing such as joint hard to keep as both bills were rejected by the Senate. The Federal ventures, off-take arrangements and the sale of commodity streams Government will take the bills back to the Lower House to try again to or royalty interests. In the context of capital project acquisitions, the have the bills passed.

However, it is expected that Western Australia will introduce the Social and community issues model legislation in the near future. In addition, states may have supplementary legislation dealing specifically with mining; for 37 What are the principal community engagement or CSR laws example, mine inspection procedures and emergency manage- applicable to the mining industry? What are the principal ment systems. These laws are administered by the state department regulatory bodies that administer those laws? for occupational health and safety together with the resources The states and territories are responsible for minerals located within department. their respective jurisdictions; thus the states and territories determine Various state mine-safety advisory councils provide recom- how mining activities may be undertaken within their respective mendations to the government to promote issues surrounding jurisdictions, including laws mandating community engagement. occupational health and safety in mines. Except for Victoria, where the relevant mining legislation Relevantly, some Australian state and territory jurisdictions imposes a duty to consult with the community on exploration and impose personal liability on directors of companies for breach of mining licence holders during all phases of a project (namely, explo- work health and safety obligations. ration, production and rehabilitation) and to prepare community engagement plans, community consultation is required in connection with securing environmental or planning approvals. 36 What restrictions and limitations are imposed on the use of The community consultation requirements (except for Victoria) domestic and foreign employees in connection with mining are usually only triggered if a mining development requires the sub- activities? mission of an environmental impact statement (EIS). As part of the There are no general restrictions or limitations as to the use of EIS procedure, a proponent must usually consult with the commu- domestic employees. Foreign employees, however, must comply with nity. This would include not only local landholders and councils, but the visa restrictions imposed by the federal government. also local community groups. Then, if considered important, terms As many mines are located in regional and low-population mandating community consultation will be included in the environ- areas, employers can be provided with special assistance so as to be mental permit granted to operate the mine. able to attract employees with an adequate set of skills. It is worth noting that in NSW, all operational mines are required to establish a community consultative committee, whose purpose is to provide a forum for open discussion between representatives of

32 Getting the Deal Through – Mining 2014 Gadens AUSTRALIA the miner, the council and other stakeholders and to provide input If an ‘act’ is done that ‘affects’ Native Title rights, such as the on the land use at mine closure. grant of a mineral tenement, it may be invalid unless the provisions Regarding CSR laws, there are no CSR-specific laws applicable of the NTA have been complied with. to the mining industry. The NTA requires that in a ‘right to negotiate’ process, the appli- However, the Corporations Act 2001 (Cth) contains sections cant applying for the grant and the state (or territory) must negotiate that deal with company reporting that relates to CSR. For exam- in good faith with the registered applicants for Native Title in an ple, section 299(1)(f) requires companies to include in their annual attempt to resolve whether or not the relevant permit or licence may directors’ report details of the company’s performance in relation be granted, and if so, on what conditions. to environmental regulation. In addition, section 299A requires Additionally, the Commonwealth, states and Northern Territory listed companies to provide an operating and financial review to be have implemented Aboriginal heritage protection legislation. The included in an annual report and requires the disclosure of infor- Commonwealth, state and Northern Territory regimes aim to pro- mation that shareholders would reasonably require to make an tect any places, objects and folklore that are of particular signifi- informed assessment of the operations of the company, its financial cance to Aboriginals, in accordance with Aboriginal traditions. position and the business strategies and prospects for future finan- It is unlawful to prospect or mine on lands in Australia on cial years. While section 299A does not specifically refer to social or which Aboriginal objects or Aboriginal places are situated, unless environmental issues, the explanatory parliamentary material to sec- authorised by legislation, authority, permit, lease or licence, or oth- tion 299A refers to the G100’s Guide to Review of Operations and erwise approved by the applicable state government department or Financial Conditions, which states the relevance of non-financial Commonwealth government. issues in assessing corporate performance. The ASX provides guidance for publicly listed companies in their 39 What international treaties, conventions or protocols relating to corporate governance practices through its Corporate Governance CSR issues are applicable in your jurisdiction? Principles and Recommendations. While the recommendations are not prescriptive and companies are not obliged to adopt them, com- There are many international guidelines, codes, standards and ini- panies are required to explain to ASX and investors if and why they tiatives that promote CSR, including: have departed from the recommendations. Of relevance to CSR • the OECD’s Guidelines for Multinational Enterprises; include recommendations to promote ethical and responsible deci- • the UN Global Compact; sion-making and to recognise and manage risk. • the UN Norms on the Responsibilities of Transnational Beyond corporate law, there are laws imposing additional obli- Corporations and Other Business Enterprises; gations on companies and their directors that cover CSR-related • the UN Principles for Responsible Investment; topics such as employment, occupational health and safety, the • the ILO Tripartite Declaration; environment, equal opportunity and non-discrimination. • the Global Sullivan Principles; and • the Global Reporting Initiative.

38 How do the rights of aboriginal, indigenous or currently or However, commitment to the above initiatives is voluntary. The previously disadvantaged peoples affect the acquisition or practices supported by such initiatives are not mandatory domesti- exercise of mining rights? cally without enacting legislation. The decision of the High Court of Australia in Mabo and Others v The State of Queensland (No. 2) in 1992 recognised that the con- Foreign investment cept of Aboriginal native title (Native Title) to land had survived the Crown’s acquisition of sovereignty. Native Title is the term given 40 Are there any foreign ownership restrictions in your jurisdiction to the collection of rights held by certain Aboriginal peoples to relevant to the mining industry? use lands according to their traditional customs, laws and beliefs. Foreign investment in Australia is principally regulated by the Following this decision, the Native Title Act 1993 (Cth) and com- Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) and plementary state and territory Native Title legislation (together, the the government’s foreign investment policy (Policy). The FATA NTA) was implemented. allows the government to review investment proposals to determine Mineral tenements granted after 23 December 1996 are permis- whether they are contrary to the national interest. In accordance sible ‘future acts’ under the terms of the NTA and are subject to with the Policy, in most cases, foreign persons will need to apply to the future act regime. Under this regime, relevant parties must be the federal treasurer to buy or acquire an interest in prospecting, provided with appropriate notification and the ‘right to negotiate’ exploration, mining or production tenements. process must be complied with before a proposed future act, which has the potential to affect Native Title, can proceed.

Kym Livesley [email protected]

77 Castlereagh Street Tel: +61 2 9931 4894 Sydney, 2000 Fax: +61 2 9931 4888 Australia www.gadens.com

www.gettingthedealthrough.com 33 AUSTRALIA Gadens

At a corporate level, the acquisition of an interest in a com- International treaties pany which has mining interests (or other interests in land) will also require notification where its ‘urban land assets’ exceed 50 per cent 41 What international treaties apply to the mining industry or an of its total assets. investment in the mining industry? In all cases, foreign government investors will be required to Australia has established free trade agreements with New Zealand, notify the federal treasurer of a proposed acquisition of an interest Singapore, Thailand, the United States, the Association of South- in a prospecting, exploration, mining or production tenement. East Asian Nations (ASEAN) and Chile that have relevance to the mining industry, and is negotiating similar agreements with China, Japan, Malaysia, Korea, Indonesia, the Gulf Cooperation Council, Pacific countries ((PACER) Plus) and India. Australia also has double tax treaties with over 40 countries.

34 Getting the Deal Through – Mining 2014 Bufete Aguirre Soc Civ BOLIVIA Bolivia

Fernando Aguirre B Bufete Aguirre Soc Civ

Mining industry 5 How is the mining industry regulated? Bolivia has a central system of government, though since the new 1 What is the nature and importance of the mining industry in Constitution enacted in 2009 it has also introduced a complex your country? system of autonomous entities. Each of the nine regions is an Bolivia has been known as a mining country for centuries. Its wealth autonomous territorial entity, as are municipalities. Regional and of minerals of many sorts has been exploited since the Spanish indigenous peoples’ autonomies may be created. Control, adminis- conquest, with the Spanish conquerors exploiting and exporting tration and regulation of the mining sector remain under the cen- mainly silver from the so-called Cerro Rico in Potosi, which con- tral government control, though it can delegate certain powers to tinues as a source of mining activity. Mining exports (concentrates autonomous entities. The new Mining Law (previously the Mining and refined products) have been, and continue to be, among the Code) to be approved by Congress, referred to below, will maintain main sources of foreign income, together with oil and gas and other such centralised power with little delegation to autonomous entities. products, including manufactures. The national Bolivian Legislative Assembly is to approve the law. Export values for 2013 (largely from the private sector – 63 Autonomous governments could exercise certain secondary pow- per cent) reached about US$3 billion (21 per cent less than in ers, particularly in the area of industrialisation using minerals. 2012), with 54 per cent exported to the US, Japan and Korea, closely followed by China. Seventeen countries imported minerals from Bolivia. 6 What are the principal laws that regulate the mining industry? State and private mining companies employ about 20,000 What are the principal regulatory bodies that administer people, while a very active sector of mining cooperatives (around those laws? 1,600) involves about 160,000 people in mining activity. There During the period of economic liberalisation, Law No. 1777 of are numerous other informal small miners active in a country of 17 March 1997 introduced a more flexible and liberal legal min- approximately 10 million inhabitants over a large territory of ing regime to facilitate and promote investment, especially by the about 1.2 million km2. private sector (national and international). It characterised mining concessions as real estate property, title to which could be retained only by payment of annual patents, making them freely transferable 2 What are the target minerals? by all available legal means and mortgageable. During the past few years zinc, silver, tin and gold deposits have The role of the state mining company, COMIBOL (which was generated the most activity, followed by others such as lead and created to take over mining rights nationalised from the three so- tungsten. A total of 26 varieties are accounted for. Development of called ‘tin barons’ who controlled the industry after a nationalistic the rich and large salt lakes have made lithium and other related revolution in 1952), was reduced to only operating by means of joint components a target of activity by the state. Exploitation of iron ore venture agreements or leases. It was authorised to transfer those of its is also important, though a joint venture contract for the exploitation mining concessions which were not part of the nationalised groups. of the world’s largest iron ore reserves (Mutún) has been cancelled Under these rules COMIBOL signed a large number of joint venture and exploitation is on a relatively small scale. The state continues to agreements or leases, the former mainly with private companies and look for new partners for this very important project. Rare earths the latter with mining cooperatives that in some important cases in deposits might be present, though their scale and commercial value turn signed joint venture agreements with private companies. are yet to be determined. Relatively small amounts of radioactive The wave of privatisation in the 1990s included main refining materials have been reserved for exploration and probable develop- or foundry activities previously run by the state, more particularly ment by the state. Detritus, especially from rivers, actively feeds the the traditional Vinto tin foundry, which years later returned to state cement industry. control by nationalisation or otherwise as part of the policies of recovering previously privatised assets of the state, a central feature 3 Which regions are most active? of the nationalistic administration inaugurated in 2006 when cur- The more traditional western region surrounded by the two unique rent President Evo Morales was elected by a large majority vote. parallel ranges of the Andean mountains and the highlands between Following such a ‘policy of recovery’, certain mining rights under them are very active. The valleys and the eastern region are also contract were cancelled or modified by decrees of the executive active, mainly in gold and precious stones. branch. A conflict with the peasant communities triggered the return of a mining concession previously held by a Canadian venture back Legal and regulatory structure to state ownership. This has led to (as in other cases of nationalisation) disputes with the state for settlement or resolution by arbi- 4 Is the legal system civil or common law-based? tration under international bilateral investment treaties (BITs) to Civil law. which Bolivia has been a party. www.gettingthedealthrough.com 35 BOLIVIA Bufete Aguirre Soc Civ

By a ruling of the Constitutional Court of 10 May 2006 the Law No. 403 of 18 September 2013 (and its regulatory Decree) articles of the Mining Code classifying mining concessions as real has mandated the cancellation of mining rights under concessions estate property were declared contrary to the Constitution. Since or contracts when absence of activity is demonstrated. The Mining then concessions cannot be transferred (sold, bartered, contributed Ministry and the regulatory authority have been processing verifi- as asset to a company), nor can they be transmitted by inheritance cations and inspections resulting in cancellations in certain cases, or mortgaged. The constitutional validity of joint venture agree- some still pending. Under the new Mining Law pending procedures ments and leases was recognised. will continue, to be cancelled by prior filing and acceptance by the After a Constitutional Assembly held during the first mandate regulatory authority of the substitution of the concessions’ system of President Morales, on 7 February 2009 a new Constitution was by the new administrative mining contracts. approved, containing many rules relating to natural resources, the pre-eminent role of the state in the economy, within an economic 7 What classification system does the mining industry use for system described as a ‘plural economy’, which recognises roles by reporting mineral resources and mineral reserves? the state, cooperatives, community enterprises, the private sector and cooperatives. A significant change has been the introduction of There is no system in place. There are only general accounting rules numerous rights for indigenous people and peasant communities, referred to the lifespan of the mine for purposes of depreciation which include their participation in the benefits of non-renewable among other things. For estimating reserves for internal purposes some international companies follow the CIM Standards (Canada), natural resources and the right to prior consultation when their col- particularly National Instrument 43-101 (NI 43-101). lective rights may be affected by economic activities of development and exploitation of such natural resources. Mining rights and title A specific chapter deals with mining and metallurgy and recognises the role of three productive ‘actors’ in the mining sector: the 8 To what extent does the state control mining rights in your state, cooperatives and private companies, within a certain frame- jurisdiction? Can those rights be granted to private parties and to work of rules and principles. Two interim provisions mandated what extent will they have title to minerals in the ground? Are there that within certain periods of one year all concessions (not only large areas where the mining rights are held privately or which belong mining) had to be adapted to the new ‘legal regime’, respecting to the owner of the surface rights? Is there a separate legal regime or acquired rights. More particularly, the mining concessions of pri- process for third parties to obtain mining rights in those areas? vate companies had to be moved to a system of mining contracts. For free areas applications can be filed with the mining regulatory Such mandate was not accomplished and on 6 December 2010 authority. These can be only for exploration (maximum five years), Supreme Decree No. 726 determined that concessions were to be in which case a licence is granted incorporating a preferential right ‘transitory special authorisations’ until the enactment of new sub- to file for an administrative mining contract covering all or parts stitute legislation, respecting acquired rights. of the areas under licence. Such contracts (subject to compliance Difficulties in defining a draft new mining law at the govern- with certain conditions and a number of regulations) are granted mental level motivated the decision of the government to invite a for a period of 30 years, which can be extended for an additional negotiating committee to deal with the matter. Meetings started 30-year period. The main condition to be met is the presentation in March of 2011 and complex and at times controversial and and implementation of a working and investment plan (for private conflicting negotiations and situations gathered representatives of companies), which can be flexible and subject to periodic changes the Ministry of Mines, the state mining company COMIBOL, the depending on its implementation. The reasonability of plans is to jurisdictional (regulatory) mining authority, the National Federation be determined by the authority, which also exercises control over of Mining Cooperatives, the National Union of Mining Workers, implementation. The contracting party receives the right to explore, the National Chamber of Mining (small miners) and the National develop, exploit and dispose of the minerals of the area but no title Association of Medium-Sized Miners (major private compa- whatsoever to the minerals in the ground while unexploited, which nies), which finally produced a draft general Law of Mining and remains an exclusive right of the state (the People). Metallurgy delivered to President Morales in March 2014, after Privately held large mining areas do exist (provided they have three years of negotiations. not been not cancelled owing to lack of activity) subject to substitu- The draft law was sent to Congress where it encountered dif- tion by administrative contracts with their corresponding plans. ficulties gaining approval. After some changes the Chamber of Contracts for new areas cannot be granted for more than 250 Representatives approved the draft law (25 April 2014), which cuadriculas (equivalent to hectares). Exploration licences can cover was sent to the Senate for further processing under legislative pro- up to 500 cuadriculas. Where mining activity is to be conducted on cedures. This situation triggered a conflict with the mining coop- the ground, an agreement with the holders of the surface rights is eratives, which felt their rights were affected by the new version. needed, absent which the authority can grant after following due A strike and blockades stopped the law being processed and nego- process (which includes compensation payments). However, prior to tiations between cooperatives and government only were resumed the authority signing contracts for new areas, a consultation with the (see ‘Update and trends’). indigenous people and peasant communities of the area is required In the meantime, other interim laws and regulations have been pursuant to agreements providing for reparation and compensation enacted expressly for the mining sector. Law No. 368 of 1 May 2013 procedures. Contracts for free areas also require prior approval by authorised the mining regulatory authority to receive applications the Bolivian Congress. and grant new areas by means of an interim administrative mining contract and conclude pending applications with COMIBOL for leases in so-called fiscal areas (all the territory was declared 9 What information and data is publicly available to private parties fiscal reserve via Supreme Decree No. 29117 of 1 May 2007 with that wish to engage in exploration and other mining activities? Is subsequent changes and regulations) authorising COMIBOL so there an agency which collects mineral assessment reports from sign leases with mining cooperatives and private operators). About private parties? Must private parties file mineral assessment 1,200 contracts are estimated to fall under this process. Under the reports? Does the agency or the government conduct geoscience new mining law leases are to be converted into final administra- surveys, which become part of the database? Is the database tive mining contracts with the regulatory authority. A regulatory available online? Decree related to Law 368 establishes the procedures and condi- Under the currently appointed authority and the reformed regulations for processing such applications. tory authority a complete database is available to the public. This

36 Getting the Deal Through – Mining 2014 Bufete Aguirre Soc Civ BOLIVIA is an official registry of mining areas as measured by cuadriculas There is no restriction on the direct or indirect transfer of equity and shows the country’s entire territory with the corresponding shares in a private company holder of a licence or an administrative full divisions by mined cuadriculas and also incorporating mining contract. There is also no reporting obligation provided for. rights granted under a system of pertenencias (ownership rights) (under legislation in effect prior to the 1997 Mining Code) previ- 12 Is there any distinction in law or practice between the mining ously in effect. The database system means free areas can be iden- rights that may be acquired by domestic parties and those that tified after completion of certain procedures with the authority. may be acquired by foreign parties? Separately, a specialised state entity or the same Ministry of Mines respectively collects reports on mining activities. These are There is only one restriction arising from the Constitution: no for- not necessarily complete or current assessment reports. Under the eign person, company or entity can acquire mining rights within 50 new law contracting parties need to present internal reports on the kilometres of the international borders, unless expressly authorised by a special law of Congress. But Bolivian mining rights holders implementation of plans for contractual purposes. These are like- within those areas could also sign association agreements with for wise not necessarily complete assessment reports and are not for - publication. Holders of exploration licences must deliver to the eign mining companies, subject to a similar approval, should this authority final and complete reports should they decide not to possibility be finally recognised by the new law. exercise their option to sign an administrative mining contract. Otherwise the information is protected. 13 How are mining rights protected? Are foreign arbitration awards Such specialised agency does and will conduct geoscience and in respect of domestic mining disputes freely enforceable in your other surveys and studies. These may be available, but are not jurisdiction? incorporated in a database, at least not in the database of the offi- The mining regulatory authority exercises control over compliance cial registry of mining areas as measured by cuadriculas. Interested of specific mining matters and obligations arising from licences or mining parties will be able to contract services with the agency. contracts. Other matters (eg, environment, tax, labour, social security and similar) are subject to control by other authorities. The 10 What mining rights may private parties acquire? How are these mining authority decides by way of resolutions that can be chal- acquired? What obligations does the rights holder have? If lenged by way of administrative proceedings as determined by the exploration or reconnaissance licences are granted, does such Law of Administrative Procedures. A final decision of the adminis- tenure give the holder an automatic or preferential right to acquire trative authority may be challenged before the Bolivian courts, as a mining licence? What are the requirements to convert to a part of the judicial review of administrative acts. Procedures are mining licence? established as part of due process requirements. The independence of powers between the executive branch and the judicial branch is Rights may be acquired on free areas (see question 8). This is a sys- constitutionally protected. tem of first come, first served if in compliance with the requirements By nature a licence by, or an administrative mining contract and conditions. To continue holding rights in case of an administra- with, the regulatory authority cannot contain an arbitration clause. tive contract the holder must meet two conditions: regular payment Administrative procedures as aforementioned apply. Association of annual patents and conduct activity understood by initiating agreements can in turn contain arbitration clauses. In the case of activities under its plan within a year and not abandoning the area contracts with state mining companies, national arbitration only for more than six months, in both cases absent force majeure (as is allowed. A recently approved new Investment Law has mandated defined in the law). Other breaches of the contract or plan could be that there be a new Law of Conciliation and Arbitration, the scope subject to pecuniary sanctions. of which is yet to be seen and likely to be approved in 2014. Holders of exploration licences will have the main obligation to present a plan, conduct activity accordingly and regularly file reports to the authority. A special air exploration licence can also be 14 What surface rights may private parties acquire? How are these obtained. Breaches can cause the revocation of the licence. rights acquired? COMIBOL (as with other state mining companies) can exe- Commonly by way of lease or purchase agreements negotiated cute association agreements (similar to joint venture agreements) with the title holders to the extent not restricted by laws relating to with private parties in respect of its own current mining rights agrarian or territorial rights. Collective land rights recognised for and any new rights it may acquire as any other participant in the certain peasant communities could create certain difficulties. See industry. By government Decree, to be recognised in the new law, other comments in question 8. COMIBOL has also reserved for itself 40 important and large mining areas it is obliged to develop. Fostering association agreements 15 Does the government or do state agencies have the right to for such areas is a main feature of the government’s policy. One participate in mining projects? Is there a local listing requirement important feature of such agreements is the requirement that the for the project company? state mining company hold a share of at least 55 per cent of the net profits of the association. See question 10. When a state mining company decides to implement Whether association agreements as between private parties an association agreement with private parties a public bidding pro- (or between cooperatives) are to be allowed is pending a decision cedure will be required under the new law (not currently in effect). under the new law. Associations between private parties on areas If the project incorporates an exploration phase, a competitive of the mining cooperatives will not be allowed. The treatment of bidding procedure by direct invitation could apply. Requirements pre-existing contracts between private companies and coopera- are fixed on a case-by-case basis, though there are general rules tives is also pending a decision. governing procurement by state entities that might need to be considered, depending on the scope of a project.

11 What is the regime for the renewal and transfer of mineral licences? 16 Are there provisions in law dealing with government expropriation Transfers or assignment of contractual rights or exploration licences of licences? What are the compensation provisions? are strictly forbidden. An exploration licence is not renewable. To renew a contract for a second 30-year period the contracting party Exploration licences under the new law will be subject to revocation must demonstrate and justify before the authority a real need for in the case of certain breaches. If under due process revocation does continuity of ongoing plans. not constitute expropriation. Challenges are possible, as explained www.gettingthedealthrough.com 37 BOLIVIA Bufete Aguirre Soc Civ under question 13. Termination of administrative contracts by the 23 Is there any distinction between the duties, royalties and taxes mining authority is subject to the same rules. payable by domestic parties and those payable by foreign parties? No. 17 Are any areas designated as protected areas within your Business structures jurisdiction and which are off-limits or specially regulated? Protected areas for reasons of preservation or conservation (envi- 24 What are the principal business structures used by private parties ronmental protection) have been, and can be, created by specific carrying on mining activities? legislation. A good number exist throughout the territory. The new These are defined by reference to the Commercial Code. It is possible law is likely to authorise conduct of mining activities subject to the to: establish a Bolivian subsidiary, which most commonly is a stock special condition that the purpose of the protection is not affected, company or a limited liability company or an actual branch, in either which depends on the specific plans or projects to be implemented case to be registered with the Commercial Registry. Only a locally for review and confirmation by the authority. registered company or branch can then apply for mining rights or enter into any sort of contracts, including association agreements. Duties, royalties and taxes

18 What duties, royalties and taxes are payable by private parties 25 Is there a requirement that a local entity be a party to the carrying on mining activities? Are these revenue-based or transaction? profit-based? Not in the sense of a compulsory local partner. A local corporation As with all corporate entities, a 25 per cent tax on net profits applies, of the forms mentioned under question 24 can be fully owned by plus an additional special mining tax of 12.5 per cent, thus totalling foreign participants. There is no restriction on branches. 37.5 per cent on net profits. For very a high income a surtax may also apply, always based on net profits. Income or profit remit- 26 Are there jurisdictions with favourable bilateral investment treaties ted abroad to a foreign beneficiary without domicile in Bolivia is or tax treaties with your jurisdiction through which foreign entities subject to a 12.5 per cent remittance tax. Royalties are paid to will commonly structure their operations in your jurisdiction? the state calculated on the gross value of sales, which results from multiplying the weight of fine content or metal by the official quo- Bolivia had been a party to 22 BITs signed during the 1980s and tation from the London Metal Exchange. A percentage is applied 1990s. Following a mandate under the new Constitution, the gov- depending on the particular mineral or metal. These range between ernment has denounced, or is in the process of denouncing (prob- 2.5 per cent and 7 per cent. Royalties are subject to final payment ably in some cases accompanied by negotiation of new treaties), upon exports. An annual patent is also payable as a requirement all of the treaties that remain in effect under their terms (if not to continue holding rights. The amount depends on whether the elapsed) in respect of investments existing to the date of effectiveness right is only for an exploration licence or for an administrative of denunciation. Bolivia has also denounced the ICSID Washington contract for mining development. It is also calculated on the size Convention to which it is no longer a party. of the area under licence or contract. It is calculated for each cuad- There are double taxation treaties with various countries with ricula. Other indirect taxes and social security contributions also varying scope and effect. In terms of a tax advantage relating to apply. The final government share for concessions (contracts) may the remittance of profits abroad (currently 12.5 per cent by way range between 50 per cent and 65 per cent. This is independent of of retention), the treaty with Sweden is the most advantageous (no the state mining company’s interest when a private company has an tax), followed by the treaty with Spain (10 per cent tax). Other association agreement with a state mining company. tax advantages should be assessed on a case-by-case basis. Treaties A general and complete tax reform is likely to be approved by should also be taken into account to determine exceptions on 2015. profit remittance or distribution based on the concept of taxing only in one country (origin or recipient).

19 What tax advantages and incentives are available to private Financing parties carrying on mining activities? None in general terms. Under the Investment Law specific tax or 27 What are the principal sources of financing available to private other incentives may be determined on a case-by-case basis for parties carrying on mining activities? What role does the domestic special mining projects under the law authorised by the state fol- public securities market play in financing the mining industry? lowing a special procedure. Apart from foreign sources that may be available, and depending on the purpose, local banking financing is commonly used. A form 20 Does any legislation provide for tax stabilisation or are there tax of project financing might be possible. Under a new Banking Law stabilisation agreements in force? enacted in 2013 banks are to look to monitor solvency, cash flow projections and guarantees. Restrictions on available amounts may Not particularly. It could be granted under the Investment Law case apply depending on the specific bank’s lending ratios. As regards by case. security interest, see question 28. The Constitution expressly forbids that a holder of mining rights 21 Is the government entitled to a carried interest, or a free carried register the underlying mineral reserves (in their natural condition) interest in mining projects? with any stock market, whether national or international. Licences None, except for the required 55 per cent participation on net profits or contracts do not grant any title whatsoever on such reserves. where a state mining company signs an association agreement with Registration with stock exchanges is an exclusive right of the state. a private company. However, the new Mining Law is to clarify and provide that such restriction does not prevent the rights holder using only the information it may acquire after studies and evaluations on the existing 22 Are there any transfer taxes or capital gains imposed regarding reserves it intends to exploit, without implying any title thereon, the transfer of licences? for financing purposes. Licences and rights under contract are not directly transferable.

38 Getting the Deal Through – Mining 2014 Bufete Aguirre Soc Civ BOLIVIA

28 Please describe the regime for taking security over mining study. The simplest licence is for exploration activities. The compe- interests. tent authorities regularly conduct environmental audits. Changes No security can be created on the mineral reserves or on any of the upon implementation require the licence to be updated. licensed or contractual rights. Title is acquired only on the actual production when extracted. Such production can be subject to 34 What is the closure and remediation process for a mining security for example, via a pledge or a floating pledge. A promise project? What performance bonds, guarantees and other financial to pledge would have no effect as actual security. assurances are required?

Restrictions This is to be technically described and established depending on each operation as part of the environmental impact study and 29 What restrictions are imposed on the importation of machinery updates that form part of the licence. A reserve for remediation is and equipment or services required in connection with exploration to be reflected in a company’s accounts and books (financial state- and extraction? ments). No specific bonds or guarantees are required. There are no restrictions. Health & safety, and labour issues

30 What restrictions are imposed on the processing, export or sale 35 What are the principal health and safety, and labour laws of minerals? Are there any export quotas, licensing or other applicable to the mining industry? What are the principal mechanisms that prevent producers from freely exporting their regulatory bodies that administer those laws? production? As with all other or similar activities there are other health, safety At present there is a free right to dispose of and export production. and labour laws and regulations that can be counted in their thou- However, the new law will determine that all producers of concen- sands, generating a very complex set of rules. The main labour law trates must first offer their production for sale, under international is the General Labour Law of Bolivia of 8 December 1942 (Supreme standards, to state refineries or foundries or, absent those, to private Decree of 24 May 1939 made into law) and its Regulatory Decree ones. If these do not exist, or cannot reach agreement after proper No. 224 of 23 August 1943. The Political Constitution provides processing of the obligation to offer, the producer is free to dispose a wide range of labour and social security rights. A compulsory of or export the production. social security is in place based on the Social Security Code of 14 December 1956, again with numerous regulations. Short-term social security is serviced by authorised autonomous entities (social 31 What restrictions are imposed on the import of funds for security banks) and long-term social security by authorised private exploration and extraction or the use of the proceeds from the pension fund administrators in the process of transferring to state export or sale of minerals? control prior to a state entity being created to administer them. No restrictions. A pending issue under the new Constitution or legislation is the determination of a certain compulsory reinvest- ment obligation. 36 What restrictions and limitations are imposed on the use of domestic and foreign employees in connection with mining Environment activities? General labour rules provide that no company can have more than 32 What are the principal environmental laws applicable to the 15 per cent of its overall workforce of foreign extraction, and that mining industry? What are the principal regulatory bodies that these have to be of a professional or technical level. administer those laws? These are numerous. Bolivia has a complete set of rules, based on Social and community issues a general Environmental Law No. 1,333 of 27 February 1992. A special regulation applies to mining activities. The new Mining Law 37 What are the principal community engagement or CSR (corporate will incorporate rules taking as a basis existing regulations, with social responsibility) laws applicable to the mining industry? What some adjustments. There are three levels of regulatory or controlling are the principal regulatory bodies that administer those laws? authorities: the Ministry of the Environment and Water, departmen- Guidelines for CSR have been issued by Fundempresa (the entity tal governments, and municipal governments through specialised charged with maintaining the Commercial Registry). Compliance entities with specific powers. with any and all commercial laws and regulations is controlled by a Two other general rules relate to environmental protection: Law regulatory and supervisory authority (the Authority of Supervision No. 71 of 16 October 2012 (Mother Earth Law) and Framework and Social Control of Enterprises) with a wide range of powers to Mother Earth Law No. 300 of 15 October 2012. A further regula- sanction companies for breach. tion is pending. This is a complex set of rules with its main purpose being to ‘establish the vision and foundations for integral develop- 38 How do the rights of aboriginal, indigenous or currently or ment in harmony and balance with Mother Earth’ to guarantee previously disadvantaged peoples affect the acquisition or continuity of the capacity of regeneration of the components and exercise of mining rights? systems of life. One of its many features, as regards mining, is This is a key and a difficult issue for mining activities. Among the the obligation to restore said systems after completion of a mining numerous rights of indigenous peoples and peasant communities project or operation. recognised by the 2009 constitution (in a country with a large majority of such peoples and communities) the right of prior con- 33 What is the environmental review and permitting process for a sultation (ILO Resolution 169 and UN Declaration on the Rights mining project? How long does it normally take to obtain the of Indigenous Peoples – made a law in Bolivia) is fully recognised, necessary permits? as will be provided for more specifically in two laws currently A first step is to obtain a certification of category, of which there being revised for enactment by Congress: the new Mining Law are many. The greater the environmental impact, the more require- itself and a so-called Framework Law of Prior Consultation. The ments there are, depending on the category. A full licence may take environmental regulations are also applicable. The new Mining between one and two years and requires an environmental impact Law will provide two stages of consultation: one, prior to granting www.gettingthedealthrough.com 39 BOLIVIA Bufete Aguirre Soc Civ

Update and trends

The need to adapt all legislation to the 2009 Constitution has Commercial Code, which has not fully clarified whether or not a implications for many areas, including mining and investment. form of association as therein regulated will not be allowed, this Numerous new laws have been introduced. Others are in progress and being a key subject matter pending further clarification; still others yet to be discussed. Among other things, a new Water Law • adjusted rules relating to procedures to be followed for adapting will replace current legislation and will have a major impact on mining existing lease and joint venture agreements to the new law, which activities. All these new laws reflect the nationalistic policies of the are imprecise in scope; current administration. • certain types of existing agreements to be adapted must still be On 28 May 2014 the new Law of Mining and Metallurgy (Law No. fully considered; 535) was finally enacted by the President of the State, after approval • legislative approval by Congress will not be required only by Congress. By comparison with the draft law originally delivered to for administrative contracts resulting from the processes of Congress, some important changes have been introduced, namely: adaptation to the new law; • on association agreements, an express prohibition for such • modified rules, some imprecise in scope, have been re-introduced agreements between mining cooperatives and private mining on the chapter on Water Rights as a consequence of the political companies has been introduced as a result of the debate and conflict which triggered a separate negotiation between the political conflict; government and certain water producers; and • a new article has been inserted allowing for contracts between • the so-called Mother Earth laws have been expressly referenced private mining companies but under the rules of the Bolivian as part of the legal regime for mining. mining rights under the new system of administrative contracts the International treaties mining regulatory authority is to open a process of consultation to consider, deal and decide on collective rights that may be affected 41 What international treaties apply to the mining industry or an by the terms of the contract. Once the contract is in effect, a sec- investment in the mining industry? ond stage will apply (as is currently the case) at the time the min- For BITs see question 26. International arbitration generally is at ing company or entity reaches the stage (with a final project and stake. Two rules under the 2009 Constitution: specific prohibition environmental impact study) of implementing a specific implemen- to incorporate international arbitration clauses in contracts between tation exploitation activity. This will be subject to consultation with the state oil and gas company (YPFB) and foreign service companies the population that may be affected by the project (which may also and general rule providing that foreign investment is subject to the include indigenous people and peasant communities). laws, authorities and jurisdiction (which includes arbitral jurisdiction) of Bolivia. Under the mandate of the new Investment Law, a new Law of Conciliation and Arbitration is to be enacted, replac- 39 What international treaties, conventions or protocols relating to ing Arbitration Law No. 1,770 of 3 March 1997, which is still in CSR issues are applicable in your jurisdiction? effect and which followed the UNCITRAL Model Law at the time. See question 38.

Foreign investment

40 Are there any foreign ownership restrictions in your jurisdiction relevant to the mining industry? See question 12.

Fernando Aguirre B [email protected]

Av. Los Álamos 322 Tel: +591 2 278 6528 La Florida, La Paz Fax: +591 2 211 4222 Bolivia www.bufeteaguirre-lawfirm.com

40 Getting the Deal Through – Mining 2014 Veirano Advogados BRAZIL Brazil

Pedro Freitas, Pedro Garcia, Alexandre Calmon and Bruno Chedid Veirano Advogados

Mining industry branch and is reliable, as it does not discriminate against foreigners or capital. 1 What is the nature and importance of the mining industry in your country? The mining industry plays a very significant role in the Brazilian 5 How is the mining industry regulated? economy. Apart from positively influencing the country’s foreign The mining industry is primarily regulated at the federal level by the trade balance (due to the high levels of ore exports), the mining Federal Constitution and mining laws, which are supplemented by industry accounts for approximately 5 per cent of the Brazilian state and municipal regulations mainly regarding specific local taxes, GDP. Investments of approximately US$53 billion are expected in environmental matters and soil usage matters. The exploration and the mining industry up to 2018. exploitation works of mining companies are subject to licences and In 2013, mining investments in Brazil have been affected by concessions by the federal government. uncertainties in the worldwide economic scenario and by the launching of a bill of law by the government to introduce new mining 6 What are the principal laws that regulate the mining industry? What regulations, as further described below. On the other hand, it was are the principal regulatory bodies that administer those laws? clear that various companies are looking for economic efficiencies through joint ventures and consolidation of assets. Brazil plays host The principal laws are the Federal Constitution, the Mining Code to important mining companies, such as Vale, Usiminas and CSN, (and its Regulations) and the environmental legislation. Several besides various international conglomerates. The mining sector is other rulings issued by the mining authorities also have a significant well established and well regarded in general. role in the regulation of the Brazilian mining industry. The National Department of Mineral Production (DNPM), the Ministry of Mines and Energy and the environmental protection authorities (especially 2 What are the target minerals? the Brazilian Environmental and Renewable Resources Institute Brazil has a wide variety of metallic and non-metallic minerals, being (IBAMA) and the federal Environmental Protection Agency (EPA) the largest world producer of niobium (97 per cent of world pro- are the main mining regulatory bodies. duction) and tantalite (18.4 per cent of world production); second- largest producer of magnesite (7.7 per cent of world production); 7 What classification system does the mining industry use for and third largest producer of iron ore (14.2 per cent of world reporting mineral resources and mineral reserves? production) and aluminium (14.3 per cent of world production). Gold, manganese, nickel, copper and phosphate are also common Brazil does not have its own classification system for reporting targets of exploration companies. mineral resources and mineral reserves. In fact, Brazilian mining regulation does not distinguish between resources and reserves, as certain other jurisdictions do. The Brazilian mining legislation sets 3 Which regions are most active? forth the following standards for determining the different levels of The most important mining initiatives occur in the states of Pará, certainty on the existence of a deposit. Amapá and Tocantins, located in the northern part of Brazil and in the states of Minas Gerais and Mato Grosso do Sul, in the south-east Measured reserve and central regions of the country, respectively. Recently, the state of A measured reserve is the tonnage of ore calculated by the dimen- Bahia in the north-eastern region of Brazil has also attracted various sions verified in surface geological mapping, underground trenches, mining initiatives. galleries, underground work and drillings, and in which the amount is determined by the results of detailed sampling. The inspection, Legal and regulatory structure sampling and measurement must be as thorough as possible and the geological characteristics well defined in order to ensure that the 4 Is the legal system civil or common law-based? geological features (dimension, form and grade of the deposit) can The Brazilian legal system is based on a civil law tradition. The heart be accurately determined. The tonnage and grade must be rigorously of the Brazilian legal system is the Federal Constitution, in force since defined within the limits established with a margin of error of no 5 October 1988; it is the supreme rule of the country, characterised more than 20 per cent. by its written form. Under the Federal Constitution the country is organised as a federative republic, formed by a union of the states Indicated reserve and municipalities and of the Federal District (Brasilia, the capital). An indicated reserve is the tonnage and the grade of ore partially Brazilian states have powers to adopt their own constitutions and measured based on specific samples or production data and partially laws; their autonomy, however, is limited by the principles estab- by estimates based on geological evidence at a reasonable distance lished in the Federal Constitution. The judiciary is an independent from the actual sampling. www.gettingthedealthrough.com 41 BRAZIL Veirano Advogados

Inferred reserve concessions, which may be granted to holders of exploration licences An inferred reserve is an estimate made based on the knowledge of that, among other conditions: the geological characteristics of the mineral deposit, with little or no • successfully conclude the exploration programme of the mineral exploration work carried out. reserves; These standards must be used for reporting to the DNPM. • prove the economic feasibility of the exploitation of the explored However, Brazilian mining companies seeking investments through reserves; the capital markets use other classification systems to assess their • prove they have the financial capacity to conduct such exploita- local resources and reserves. tion; and • produce the required environmental licences. Mining rights and title Exploration licences can be granted for one to three years, which can 8 To what extent does the state control mining rights in your be extended upon request of the licence holder. Under Brazilian laws, jurisdiction? Can those rights be granted to private parties and exploration consists of a preliminary stage where the licensee must to what extent will they have title to minerals in the ground? conduct exploration work and, if successful, provide evidence to the Are there large areas where the mining rights are held privately DNPM on the existence of mineral reserves in the licensed area. Title or which belong to the owner of the surface rights? Is there a holders must comply with the following obligations to: separate legal regime or process for third parties to obtain mining • start exploration works within 60 days of the date of publica- rights in those areas? tion of the licence or obtaining access to the relevant properties; Under the Federal Constitution, the Union (ie, the Brazilian federal • refrain from interrupting exploration without justification for state) has ownership over all mineral resources, including metallic more than three consecutive months or for more than 120 non- minerals, existing either in the soil or subsoil. Therefore, explora- consecutive days during the term of the licence; tion of mineral resources requires the granting of an authorisation • notify the DNPM of the discovery of ores not included in the by the federal government through the DNPM. Mineral exploita- authorisation; tion, on the other hand, requires a concession by the Ministry of • not remove substances extracted from the licence area for anal- Mines and Energy. Once exploited, mining products belong to the ysis and industrial experiments without prior authorisation of concessionaire. the DNPM (ie, an extraction permit); • compensate the surface owner or possessor for occupation of the land and for any loss or damage caused by the exploration 9 What information and data is publicly available to private parties works; that wish to engage in exploration and other mining activities? Is • present a final exploration report to the DNPM; and there an agency which collects mineral assessment reports from • pay the relevant fees. private parties? Must private parties file mineral assessment reports? Does the agency or the government conduct geoscience Should exploration prove successful, the licence holder has the right surveys, which become part of the database? Is the database to apply for a mining concession. In fact, on approval of the final available online? exploration report by the DNPM, the holder of the exploration The DNPM provides general information related to the Brazilian licence has one year to apply for the corresponding mining conces- mining sector, statistics on mining activities in Brazil and general sion. This one-year term may be extended for one additional year, commercial information for mining investors and new players with justification. Application for granting a mining concession interested in engaging in mining activities in Brazil. is made to the Ministry of Mines and Energy and must contain Preliminary information on existing exploration licences and detailed geological and geophysical information on the licence mining concessions along with maps containing the geographic areas in question, including: coor-dinates of mining titles and information on titleholders are • a description of the mineral deposits to be exploited; publicly available and can be accessed through the DNPM’s internet • a description of the mining field’s topographical location and database. Although mineral assessment reports are mandatory for indication of neighbouring concession areas; holders of exploration licences, which are collected by the DNPM, • a map of the area to be mined, indicating its boundaries and such reports are not publicly released. properties affected by the proposed mining, with the names of Basic geological information, databases, georeferenced informa- the respective surface landholders; tion, documents, charts, maps and images can also be obtained from • reference to any easements that may be required; the Brazilian Geological Survey Company (CPRM), a publicly held • a working plan for exploitation including a description of the company subordinated to the Ministry of Mines and Energy that mining method, scale of production and processing facilities; and performs geological studies and evaluates natural resources in Brazil. • proof of sources and availability of sufficient funds to work the Some of the CPRM studies, surveys and mineral evaluations can be mine. obtained from the CPRM’s internet database. Mining concessions permit the exploitation of the ores contained 10 What mining rights may private parties acquire? How are these in the concession area and are valid until depletion of such mineral acquired? What obligations does the rights holder have? If deposits. Holders of mining concessions have a range of obligations exploration or reconnaissance licences are granted, does such including to: tenure give the holder an automatic or preferential right to acquire • start mining works within six months of the date of publication a mining licence? What are the requirements to convert to a of the concession in the Official Gazette of the Union; mining licence? • execute the works in accordance with the Plan of Economic Development of the deposit as approved by the DNPM; There are two main types of mining rights that can be obtained by • extract only the substance indicated in the concession or any mining companies: exploration licences, which can be applied for addendum thereto; on a first come, first served basis and give licence holders the right • communicate to the DNPM the discovery of any mineral sub- to have access to the properties and perform exploration activities stance not included in the concession; (under agreements with surface owners if necessary); and mining • carry out mining activities in accordance with the applicable legislation;

42 Getting the Deal Through – Mining 2014 Veirano Advogados BRAZIL

• appoint a duly qualified person to supervise the work; 13 How are mining rights protected? Are foreign arbitration awards • refrain from intentionally obstructing or hampering the future in respect of domestic mining disputes freely enforceable in your development of the deposit; jurisdiction? • be liable for any loss or damage caused to third parties resulting Brazil has an independent and sophisticated judicial system organ- from the mining works; ised under the rule of law and based on constitutional principles • not cause air or water pollution as a result of the mining works; such as the due process of law and full defence. The rulings of the • protect and preserve water sources as well as using them in courts can be enforced against any party in any part of the Brazilian accordance with the technical instructions and requirements; territory. • refrain from suspending the mining works for more than six Arbitration procedures are accepted in the Brazilian judicial months without the prior consent of the DNPM; system and are provided for in Brazilian law. Domestic arbitration • keep the mine in good condition during any suspension period; awards are freely enforceable in Brazil, different from foreign arbi- • rehabilitate the areas degraded by mining; and tration awards, which must be ratified by the superior courts. This • pay royalties to the government and the landowner. ratification process constitutes an examination of the due process of law and validity of the arbitration procedure. The Superior Courts Although mining companies cannot be granted prospecting permits, cannot modify the award’s decision, only ratify. such permits may coexist with projects carried out by mining com- On the administrative level, authorities must also follow the rule panies that hold exploration licences or mining concessions under of law and the due process as provided in the applicable legisla- formal authorisation by the prospecting permit holder. Prospecting tion. Administrative decisions can be challenged or appealed before permits are only granted by the DNPM for prospecting mineral a superior authority. Any final decision of the administration can be substances that can be found without systematic exploration work challenged with the competent judicial courts. and can be extracted by way of rudimentary mining practices by Brazilian individuals or by cooperatives formed by such individuals. Brazilian law also provides for mine-digging reserves, which 14 What surface rights may private parties acquire? How are these are sites preferentially designated for mining activities. These rights acquired? prospecting permits may be valid and in force for five years and Title over mining rights does not entail ownership or possession may be successively renewed with approval from the DNPM. rights in connection with the land underlying those mining rights. According to Brazilian law, mining rights holders have the right to use and access the areas to be explored and exploited, rights of way 11 What is the regime for the renewal and transfer of mineral and easements over private and public lands. The surface rights are licences? usually acquired by mutual agreements entered into by the miners On the renewal of exploration licences, see question 10. Mining with the surface rights holders in return for a compensation fee for concessions are not subject to renewal. As regards transfers of min- occupying the area and an indemnification for the damages caused ing rights, generally, exploration licences and mining concessions to the lands. If an amicable understanding with the surface rights may be entirely or partially transferred to individuals or companies holder is not achieved, the miner may resort to legal action in local that meet the requirements laid down in law and in the applicable courts, with the courts establishing any compensation fee to be paid regulations for the grant of such entitlements. Transfers of mining to the surface rights holder. In any case, a compensation fee for the rights are subject to the DNPM’s prior approval, which is usually occupation of the area and any damages caused to the property by granted as a matter of course. The transfer of control of a licence the conduction of mining activities must be paid by the miner to the or a concession holder or its parent company is not subject to surface rights holder. In general, courts grant reasonable amounts, government consent as long as the mining rights are not located consistent with local market prices. within the border zone, which is defined as area within 150km of In August 2010, the federal government imposed some limita- the border of the country. Applications for mining rights are not tions on the acquisition and lease of rural lands in Brazil by foreign- transferable in Brazil. ers and legal entities controlled by foreigners. The limitations should be reviewed on a case-by-case basis and are based on the size of the land and in some cases require prior approval by the government. 12 Is there any distinction in law or practice between the mining rights that may be acquired by domestic parties and those that may be acquired by foreign parties? 15 Does the government or do state agencies have the right to Although, from a formalistic standpoint, only domestic individuals participate in mining projects? Is there a local listing requirement or companies may apply for or acquire mining rights in Brazil, there for the project company? is no restriction on foreign ownership of Brazilian companies active No, neither the government nor state agencies have the right to in the mining sector. In that sense foreign parties may hold up to participate in mining projects in Brazil. 100 per cent of a company applying for or acquiring mining rights as long as such company is duly incorporated and headquartered in Brazil and has resident management. The only exception to the 16 Are there provisions in law dealing with government expropriation above rule refers to the border zone of the country, which is defined of licences? What are the compensation provisions? as the area within 150km from the border of the country. Under the No, there are no provisions in Brazilian law dealing with govern- border zone regulations, where a company is carrying out mining ment expropriation of mining rights. operations in the border zone, that entity must be controlled and managed predominantly by Brazilian individuals (at least 51 per 17 Are any areas designated as protected areas within your cent). Corporate documentation of the entity, or the entire economic jurisdiction and which are off-limits or specially regulated? group where applicable, must be provided to the National Defence Council to prove that the entity is predominantly controlled and Current regulations determine that 20 per cent of every rural prop- managed by Brazilian individuals. erty that is not located in the Cerrado or in Amazon Forest regions must be demarcated and registered before the Real Estate Registry as environmental legal reserve by the landowner. For rural properties located in the Amazon Forest or in the Cerrado regions, the legal

www.gettingthedealthrough.com 43 BRAZIL Veirano Advogados reserve is extended to 35 per cent and 80 per cent respectively. The Fiscalisation taxes on mining resources legal reserve must be duly forested, or be under a reforestation plan, This is a tax enacted by the states of Pará, Minas Gerais, Mato with native vegetation and cannot be used for developing industrial Grosso and Amapá, four of the main mining regions in Brazil. It activities. Unless specifically authorised by the local EPA, in cases is imposed on mining activities, levied at amounts of up to roughly such as where the company proposes to change the location of the US$3 per tonne of exploited ore payable by mining companies to the reserve – once reforested or while under reforestation, the refor- state where the ore is exploited. The legality of such laws, in view of ested vegetation cannot be cut down within the legal reserve. the Federal Constitution, is being challenged by mining companies Another limitation occurs whenever a property contains caves and associations in court. and archeological sites. In this case, such caves and sites must be mapped and a study to assess their importance must be submitted Corporate income tax (IRPJ) to the EPA. Based on these studies, the EPA will decide whether or The basic income tax rate for the calculation of the IRPJ is 15 per not the cave and sites must be preserved and if compensation is cent and it is verified based on yearly or quarterly ‘adjusted actual necessary. profits’. An additional 10 per cent rate on top of the basic 15 per Also, Law No. 9,985/2000 regulates the national conserva- cent rate applies to taxable income that exceeds 240,000 reais yearly tion units system. The formal conservation unit consists of an area or 60,000 reais quarterly. so declared by the government with relevant environmental features and resources with the aim of conservation and sustainable Social contribution on profits development. Brazilian companies are also subject to another profits tax, cal- There are two types of conservation units: full protection and culated in a way very similar to the IRPJ, the social contribution sustainable use. Full protection conservation units have the goal of on profits. Currently, the applicable rate is 9 per cent on yearly or preserving nature and only the indirect use of the natural resources quarterly adjusted book profits, for all companies (an exception is is allowed therein. The purpose of sustainable use conservation units made for financial institutions). is to make nature conservation compatible with the sustainable use of part of the natural resources. Import duty Finally, it is worth mentioning that in areas where Atlantic Unless an exemption is available, all products imported into Brazil Forest regeneration is being carried out, the cutting down of vege- are subject to import duty, which is levied on the ‘customs value’ tation may be a prohibitive obstacle to the environmental licensing. pursuant to GATT rules and calculated on the cost, insurance and freight value. The import duty rate is selective and depends on the Duties, royalties and taxes product’s tariff classification. In general, heavy mining equipment enjoys import tax incentives or full exemption. 18 What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these revenue-based or profit- Excise tax (IPI) based? The IPI is a value-added tax paid upon the importation or sale or In general, the taxes, duties and contributions levied on mining com- other transfer of industrialised and certain partially industrialised panies in Brazil are as follows. products. The IPI rate varies according to the type of product.

Annual fee per hectare (TAH) Social integration plan (PIS) and social welfare tax (COFINS) Exploration targets are subject to the TAH, which is a fee owed The PIS is a social contribution tax levied at the rates of 0.65 per for the occupation and use of the area. The annual fee is 2.36 reais cent or 1.65 per cent (this higher rate applies to companies that pay per hectare covered by a licence for mining exploration, increasing the tax on a non-cumulative basis) on the company’s gross revenues. to 3.58 reais per hectare, if the licence term previously granted is COFINS is another social contribution levied at the rates of 3 per extended. cent or 7.6 per cent (this higher rate applies to companies that pay the tax on a non-cumulative basis) on the company’s gross revenues. Financial compensation for the exploitation of mineral resources (CFEM) State VAT (ICMS) The CFEM is a royalty payment akin to a tax, created by the Federal The ICMS tax is similar to a value added sales tax and is levied Constitution as a compensation to the states and municipalities for on the distribution of goods, intercity and interstate transportation the economic use of mineral resources in their territory. and communications services. It is payable at all stages of sale of a It is owed by legal entities in the mining business that exploit product. Therefore, the ICMS is due and payable not only by the or extract mineral resources and is payable upon sale of the mining producer, but also by the consumer. product from the mine or other mining deposit or beneficiation of the mining product or its consumption by the mining entity. CFEM Property tax varies between 0.2 per cent and 3 per cent of net revenue from the In general, properties might trigger two different types of tax: urban sale of mineral products depending on the type of product. For most building and property tax and rural land tax (ITR), depending on minerals, the rate is 2 per cent. Transport, sales tax and insurance the location and utilisation of the real estate. For mining activities, costs are deducted when calculating the CFEM. usually, there is a levy of ITR, for which the triggering event is the property, usage and possession of real estate located outside the Payment due in connection with surface rights urban area (rural real estate). The rate imposed depends on the Under Brazilian mining law, the surface rights holder where the extent of the utilisation of the land, ranging over 0.03 to 20 per mine is located is also entitled to a statutory royalty equal to half the cent, and is calculated on the value of the property alone, without CFEM, the severance fee due on mineral substances extracted from its improvements. the mine area, ranging from 0.2 per cent to 3 per cent. In practical terms, the surface rights holder’s statutory royalty is equivalent to a Municipal service tax (ISS) royalty on net sales revenue. The ISS is imposed on any kind of services performed by companies In addition to the above, mining companies are also subject to or self-employed professionals. The maximum rate is 5 per cent and the following taxes levied on all economic activities in Brazil. the base for its assessment is the price of the services. The ISS is also

44 Getting the Deal Through – Mining 2014 Veirano Advogados BRAZIL assessed on services provided by non-residents, either individuals or 22 Are there any transfer taxes or capital gains imposed regarding business entities, to Brazilian residents (import of services). the transfer of licences? There are no transfer taxes regarding the transfer of licences. Capital Financial transactions tax (IOF) gains tax is levied as a withholding tax over the positive difference The IOF is levied at variable rates on certain financial transactions between the total investment made in connection with a mining (certain credit transactions and open-market currency exchange licence and the amount obtained with the sale of said licence. transactions, among others). The basic IOF rate is 0.38 per cent. Brazilian companies pay capital gains at a 34 per cent rate and foreign companies at a 15 per cent or 25 per cent rate depending Payroll taxes on the jurisdiction where they are headquartered. Brazilian companies have to pay certain taxes and contributions to the benefit of their employees levied on the total value of the remuneration paid or credited, to wit social security contributions and 23 Is there any distinction between the duties, royalties and taxes severance funds (FGTS). Together with the social security contribu- payable by domestic parties and those payable by foreign parties? tion and the FGTS, these payroll taxes may increase payroll costs by There is no distinction between the duties, royalties and taxes pay- approximately 28 per cent to 35 per cent of gross wages. able by domestic parties and companies that are partially or entirely In addition, mining companies should agree on an environ- held by foreign entities. mental compensation bond with the local EPAs during the environmental licensing of the project. Business structures

24 What are the principal business structures used by private parties 19 What tax advantages and incentives are available to private carrying on mining activities? parties carrying on mining activities? The development of a mineral project in Brazil can be based on At the federal level Brazilian authorities are entitled to grant tax several types of contractual frameworks. Companies either operate benefits and incentives that may be applicable to private parties as stand-alone structures or work in association with one or more carrying on mining activities. Benefits and taxpayer’s incentive pro- foreign or local partners. Apart from such stand-alone structures, grammes in Brazil include: enterprises would be typically based on: • the Amazon Development Programme offered by the Amazon • joint ventures; Development Agency for mining projects located in the Amazon • partnership and risk-sharing agreements; region; • option agreements; or • the North-east Development Programme for projects in the • equity stake acquisitions. north-east of the country; • the Special Regime for the Acquisition of Equipment and As only local companies having their head offices and management Machinery by Exporters; in Brazil can hold mining rights, the incorporation of a local sub- • tax-related programmes to enhance Brazilian exports (eg, the sidiary is required in the case of stand-alone initiatives. For such special customs regime of the drawback programme and the purposes, mining entities would usually prefer limited liability com- internal drawback programme); and panies (LLCs) for initial stages of exploration. Such companies must • a regime allowing the reduction of import duties on machin- be held by at least two shareholders, which can be either corpo- ery and equipment not available in Brazil (the special customs rations or individuals, who will execute the company’s articles of regime of Ex-Tarifário). incorporation and corporate charter. In an LLC, each shareholder is liable for the payment in full of the equity it holds in the capital stock At the state level the most common tax benefits are related to ICMS of the company but all shareholders are jointly and severally liable (state VAT) exemption, deferral, assumed credits and suspension for any amount of capital that has not been paid in. Managers of an or reduction of the assessment basis. State governments are also LLC should be residents in Brazil, either being Brazilians or holders entitled to grant incentives to mining operations either through a of permanent visas. LLCs cannot be listed in the stock exchange as reduction in the taxable base of the ICMS or through deferral. they do not issue shares, being contractual companies. Other tax benefits may be obtained by mining companies on Alternatively, mining companies may prefer to incorporate a a case-by-case basis through direct negotiations with the local tax more complex type of company, more similar to a corporation. Such authorities. companies are called SAs. The capital of an SA is divided into shares and the company may raise capital by public or private subscription. 20 Does any legislation provide for tax stabilisation or are there tax A shareholder’s liability is limited to the value of the shares it has stabilisation agreements in force? subscribed for or acquired. SAs that raised their capital by public subscription may offer their shares to the public through the stock No, there is no legislation providing for tax stabilisation mechanisms market and must be duly registered before the Brazilian Securities in Brazil, including tax stabilisation agreements. As far as taxation is and Exchange Commission. Their shares can be traded on the stock concerned, the types of protection given to mining investors are the exchange or on the over-the-counter market. SAs that are not listed same as those contained in Brazilian law for any Brazilian taxpayer on the stock exchange may not only sell their shares on the stock and are connected with the limitations imposed on governments by exchange and can only be privately traded. the Federal Constitution and Brazilian laws on their power to tax. The management of an SA will consist of a board of directors and a board of officers. 21 Is the government entitled to a carried interest, or a free carried The board of directors must have at least three directors. While interest in mining projects? a director does not have to be a Brazilian resident, he or she must be No, the government is not entitled to any carried interest, or free a shareholder of the SA. carried interest in mining projects in Brazil. The board of officers is the executive body of the SA. Its members represent the company before third parties, performing all the necessary actions for the day-to-day running of the company. The board of officers must have at least two officers, who may not be

www.gettingthedealthrough.com 45 BRAZIL Veirano Advogados shareholders but must be Brazilian residents. Their term of office 30 What restrictions are imposed on the processing, export or sale must not exceed three years. of minerals? Are there any export quotas, licensing or other mechanisms that prevent producers from freely exporting their production? 25 Is there a requirement that a local entity be a party to the There are no restrictions or limitations imposed on the processing, transaction? export or sale of metallic minerals. The minerals extracted can be As mentioned in question 12 above, the only case where mining freely processed or sold domestically or abroad. Exporters of man- companies must have local partners occurs when mining activities ufactured products may enjoy some tax benefits and incentives to are developed at the border zone of the country. In that case, the export. There are no export quotas, licensing or any other kind of mining company must be controlled and managed predominantly mechanisms to limit the exportation of mining production. by Brazilian individuals (at least 51 per cent).

31 What restrictions are imposed on the import of funds for 26 Are there jurisdictions with favourable bilateral investment treaties exploration and extraction or the use of the proceeds from the or tax treaties with your jurisdiction through which foreign entities export or sale of minerals? will commonly structure their operations in your jurisdiction? No limitations on the import of funds or the use of the proceeds Brazil has entered into 29 treaties to avoid double taxation with from the export or sale of metallic minerals are imposed. In fact, different countries, namely: Argentina, Austria, Belgium, Canada, Brazilian legislation allows that the totality of the proceeds of export Chile, China, the Czech Republic, Denmark, Ecuador, Finland, transactions be kept abroad, which has been particularly useful in France, Hungary, India, Israel, Italy, Japan, Korea, Luxembourg, pre-export financing. Mexico, the Netherlands, Norway, Peru, the Philippines, Portugal, Brazil exercises certain controls on cross-border currency trans- Slovakia, South Africa, Spain, Sweden and Ukraine. In general, such actions, which are governed by the National Monetary Council and treaties provide tax relief in the form of a reduction, or elimina- implemented by the Brazilian Central Bank, which authorises pri- tion, of taxes withheld on dividends, royalties and interest payments vate commercial banks to operate and conduct transactions with remitted abroad. The treaties also generally stipulate that corporate foreign currency. Controls are exercised on foreign-currency trans- taxes paid in other countries through foreign subsidiaries operating actions, including transfers of capital, dividends, repatriation of in Brazil may be used to offset income taxes paid in Brazil. capital, interest, royalties, payment for imports and exports, etc. All foreign-exchange transaction must be made through an authorised Financing bank with the participation of a registered broker at the commercial exchange rate, except for certain transactions that are authorised at 27 What are the principal sources of financing available to private the tourist exchange rate. parties carrying on mining activities? What role does the domestic public securities market play in financing the mining industry? Environment The main financing sources for mining activities in Brazil are: • the banking system; 32 What are the principal environmental laws applicable to the • the securities market through the São Paulo Stock Exchange; mining industry? What are the principal regulatory bodies that • the international capital markets; and administer those laws? • the international finance markets. The federal union, the states and municipalities are all entitled to supervise environmental law compliance and impose administrative Banking finance is the most common form used to obtain funds for sanctions such as fines, interdictions, losses or restrictions on activi- mining activities and is mostly represented in Brazil by the Brazilian ties, tax incentives and benefits. The state environmental agencies Development Bank responsible for a significant share of the dis- and IBAMA (covering interstate projects or activities with a high bursements made to finance local mining companies. This notwith- potential for environmental impact) are responsible for environ- standing, international investment banks and private equity have mental licensing of mining activities. The environmental legislation been gradually increasing their investments in mining activities in is laid down throughout numerous legal instruments, with some Brazil. inconsistencies, but the main principles and rules are provided in the The securities market is also an option to secure funds for min- Federal Constitution, the Forestry Code, Federal Laws Nos. 6938/81 ing investments. Although a more restricted option, as it is usually and 7805/89; Federal Decrees Nos. 98812/90 and 97632/89 and accessible only to sizeable mining companies, there are currently 15 Resolutions from the Environmental National Council (CONAMA) mining and iron and steel companies listed on the São Paulo Stock Nos. 01/86, 23/86, 09/90 and 10/90. Exchange.

33 What is the environmental review and permitting process for a 28 Please describe the regime for taking security over mining mining project? How long does it normally take to obtain the interests. necessary permits? The Mining Code allows mining companies holding a concession The environmental review and permitting process are obligations to encumber their rights. Any liens on a concession (pledge, leases, imposed by Brazilian law for the assessment and prevention of usufructs, etc) must be registered with the DNPM in order to be potential risks caused to the environment by any activities. The valid. licensing process is usually conducted by the state EPA and is divided into three stages: the preliminary licence; the installation licence; and Restrictions the operation licence. The preliminary licence must be obtained prior to the build- 29 What restrictions are imposed on the importation of machinery ing stage, when an environmental impact study and report (EIA/ and equipment or services required in connection with exploration RIMA) must be submitted to the environmental agency. The instal- and extraction? lation licence is required prior to the commencement of construc- There are no restrictions or limitations imposed on the importation tion and may only be obtained after the environmental control, of machinery and equipment required for mining activities. reclamation and decommissioning plans have been approved by

46 Getting the Deal Through – Mining 2014 Veirano Advogados BRAZIL

Update and trends

In the past year, the Brazilian government has been discussing a a hybrid system in which it is possible to have areas subject to bid major reform to the Brazilian mining sector. In June 2013, Bill of rounds and areas subject to the current first-come first-served system. Law 5807/2013, still under revision, was unveiled by president In addition, changes regarding the following matters are being hotly Dilma Roussef and suggests the establishment of a new regulatory debated: minimum investments for the exploration phase, clearer framework for mining activities in Brazil. The bill proposes an terms for exploration activities (maximum of six years) and mining institutional reorganisation of the mining regulators by creating a concessions (40 years, renewable for a 20-year period), inclusion new body linked to the president called the National Council on of tender rules and the execution of a concession contract, among Mineral Policy and the replacement of the National Department of others. One of the most debated proposals is the changes related Mineral Production by a new regulatory agency called the National to the CFEM. As suggested initially, the CFEM would range from 0.5 Mining Agency. Also, certain relevant changes are being examined per cent to 4 per cent, although the rates for each mineral would be in the granting of mineral rights and the validity term of mining previously established by presidential decree, and calculation would concessions by the introduction of a single title combining the be based on gross revenue less taxes paid levied on the sale of the rights and obligations pertaining to exploration and exploitation minerals. However, changes and many debates on those percentages under a concession contract. Up until now many changes have been and on the calculation of CFEM are still expected to take place during suggested to the bill of law, and a preliminary substitute proposes this year. the environmental agency. Mining can only take place after the Health & safety, and labour issues issuance of the operation licence, which presupposes the implementation of the measures listed in the environmental control plan. 35 What are the principal health and safety, and labour laws Other permits may be necessary for certain activities and applicable to the mining industry? What are the principal products use, such as: regulatory bodies that administer those laws? • controlled products (issued by Federal Police, Ministry of the The DNPM and the Ministry of Labour are responsible for super- Army and State Civil Police) if there is use, transportation, stor- vising health, safety and labour regulations compliance and impos- age, trade or manufacture of certain chemicals and explosives; ing administrative sanctions. Specific health and safety regulation • chainsaw use; on the mining industry is provided for in Mining Regulation No. • co-processing, final disposal or transportation of residues; 22, issued under DNPM Ordinance No. 237/2001, which estab- • reuse, recycling and selling of residues; lishes work health and safety rules that should be observed by • use of residues in the rehabilitation of degraded areas; mining companies. Such rules establish standards for work pro- • wastewater discharge; and cedures and safety conditions, emergency operations and personnel • deforestation, among others. training, among others. Mining companies must also comply with or implement certain work health and safety programmes regulated by the Consolidation 34 What is the closure and remediation process for a mining of the Labour Laws, including an occupational health control pro- project? What performance bonds, guarantees and other financial gramme, prevention programme for environmental risks, in-house assurances are required? commission for prevention of accidents in mining activities, social For the issuance of the installation licence, mining companies have security professional profile and risk-management programme. to present a series of studies contemplating mitigation and compensation measures. Two of these studies relate to the reclamation and decommissioning of the areas that have been mined. These plans 36 What restrictions and limitations are imposed on the use of contain several requirements that will be implemented throughout domestic and foreign employees in connection with mining the mining process and also at its end aiming at preventing severe activities? degradation and minimising impacts on the environment. Foreign individuals are admitted, but work or residence visas are In addition, the company has to file the decommissioning plan required. The law also requires that two-thirds of the employees of with the DNPM, which shall evaluate it and may make specific a Brazilian company must be Brazilian citizens and two-thirds of the requirements thereupon. Such reports will be part of an applica- payroll must serve to pay Brazilian employees. Expatriates are also tion to the Ministry of Mines and Energy to close the mine. Such permitted to occupy managerial positions, subject to obtaining a application must contain, inter alia: permanent visa. For a permanent visa, an investment in the Brazilian • a report on the work so performed; subsidiary of or above US$200,000 is required for each manager • characterisation of the remaining resources; (such an amount may be reduced if jobs are being created in Brazil). • a topographic and landscape report considering stability, erosion control and drainage aspects; and Social and community issues • a work and financial chronogram of the proposed decommissioning activities. 37 What are the principal community engagement or CSR (corporate social responsibility) laws applicable to the mining industry? What Approval shall only be granted if the decommissioning plan has clear are the principal regulatory bodies that administer those laws? evidence of the compliance with the environmental conditions and There are no specific corporate social responsibility laws or obliga- the possibility of the area being used for other economic activities. tions to the mining industry, except for those related to environmental issues or liabilities regarding damage to the community, as described in question 31.

www.gettingthedealthrough.com 47 BRAZIL Veirano Advogados

38 How do the rights of aboriginal, indigenous or currently or occupied by the indigenous population and the natural resources previously disadvantaged peoples affect the acquisition or pertaining to that land. exercise of mining rights? Current legislation does not allow mining activities in areas reserved Foreign investment for indigenous populations. The Federal Constitution sets forth that any mining activities in indigenous areas shall require prior approval 40 Are there any foreign ownership restrictions in your jurisdiction of the Brazilian National Congress and the indigenous communi- relevant to the mining industry? ties shall have the right to receive royalties from the exploitation of Except in the case of mining activities to be carried out within the any deposits located in such regions. However, this requires further border zone of the country, which is defined as the zone 150km regulations to be implemented. from the border of the country and where mining companies must In addition to indigenous communities there are also com- be controlled and managed predominantly by Brazilian individu- munities called Quilombolas. The Quilombolas are communities als; and the existing limitations on the acquisition and lease of comprising the descendants of slaves who escaped from slave rural lands by foreigners and legal entities controlled by foreigners, owners before the abolition of slavery. According to the Federal there are no foreign ownership restrictions in Brazil relevant to the Constitution, Quilombolas are in essence entitled to obtain title mining industry. deeds and the ultimate ownership of the land they occupy. Mining activities in those areas are not prohibited, but such communities International treaties may have compensation rights. 41 What international treaties apply to the mining industry or an investment in the mining industry? 39 What international treaties, conventions or protocols relating to Brazil is one of the founding members of Mercosul (also called the CSR issues are applicable in your jurisdiction? Southern Common Market) together with Argentina, Paraguay, The International Labour Organization Convention (ILO) No. 169, Uruguay and Venezuela. Its purpose is to promote regional trade, dated 27 June 1989, is applicable in Brazil. This convention, also convergence of regional economic policies and open movement of known as ILO Indigenous and Tribal Peoples Convention, makes goods, people and currency. Bolivia, Chile, Ecuador and Peru are reference to the rights of ownership and possession over lands also part of Mercosul acting as associate members only.

Pedro Freitas [email protected] Pedro Garcia [email protected] Alexandre Calmon [email protected] Bruno Chedid [email protected]

Av Presidente Wilson, No. 231, 23rd floor Tel: +55 21 3824 4747 Centro, Rio de Janeiro Fax: +55 21 2262 4247 20030-021 www.veirano.com.br Brazil

48 Getting the Deal Through – Mining 2014 Fasken Martineau CANADA Canada

Michael Bourassa and John Turner* Fasken Martineau

Mining industry 5 How is the mining industry regulated? Canada’s legal, regulatory and policy environment promotes min- 1 What is the nature and importance of the mining industry in eral exploration, mining operations and investment. Mining law is your country? divided between the federal and provincial governments. Ownership Mining accounts for a significant portion of Canada’s economy. of lands and minerals generally belongs to the province in which Natural Resources Canada pegged domestic mineral production at they are situated. The provinces have jurisdiction over mineral C$45.9 billion in 2012, with production value declining 5 per cent exploration, development, conservation and management. The to C$43.6 billion in 2013. federal government shares jurisdiction with the provinces on some The Canadian mining industry employs more than 387,000 related matters (for example, taxation and the environment) and has people in mineral extraction and related support activities, smelting, exclusive jurisdiction over areas such as exports, foreign investment fabrication and manufacturing. It also accounts for more than half controls and nuclear matters. of Canada’s rail freight revenues and high portions of the country’s The exception is uranium, which is a strategic mineral regulated port and marine revenues. by federal laws. Exploration is a provincial matter, but the federal Canada’s mining and exploration companies are also domi- government regulates all downstream aspects, including mining and nant players in the global mining industry. Canadian companies milling, processing, transporting and export of uranium. have interests in over 9,000 properties in more than 100 countries, including projects held domestically and those in locations such as the USA, South America, Africa, Australasia and Europe. 6 What are the principal laws that regulate the mining industry? What Canadian mining companies’ assets abroad total an unprecedented are the principal regulatory bodies that administer those laws? C$148.7 billion. Federal and provincial legislation affecting mining operations tends Close to 60 per cent of the world’s public mining companies are to fall into two main categories. The first relates to the essentially listed on the Toronto Stock Exchange (TSX) and the TSX-Venture private matters of title and taxation, while the second concerns Exchange (TSX-Venture), with 73 new mining listings in 2013. In economic, social and environmental policies. Significant decision- the last five years (2009 to 2013) 44 per cent of global mining equity making powers are delegated to subordinate bodies or officers to financings value was raised on the TSX and the TSX-Venture, while deal with the complexity of the various matters dealt with under the in 2013 they handled 46 per cent of financing transactions. second category. Each province and territory has its own laws regulating mining activity (with varied names such as Mineral Act, Mining Act, 2 What are the target minerals? Mineral Resources Act, and Mineral Exploration and Tenure Act). Canada is a leading global producer of several minerals and metals, Some provinces have recently amended their legislation to reflect ranking at the top in the global production of potash, and is a major current attitudes related to sustainable development and consulta- producer of primary aluminum, cobalt, diamonds, molybdenum, tion with aboriginal communities (for example, the November 2012 nickel, platinum group metals, salt, titanium concentrate, uranium, regulations to Ontario’s amended Mining Act and the new regime and zinc. Key exports include aluminum, nickel, copper, gold, ura- which came into force on 1 April 2013). nium, coal, potash, zinc, iron ore and steel. Federal and provincial or territorial laws and regulations related to environmental protection, labour and employment relationships, 3 Which regions are most active? occupational health and safety matters, etc, also apply to mining activities. All provinces and territories produce minerals, but Ontario, Quebec, British Columbia and Saskatchewan are the largest producers. 7 What classification system does the mining industry use for Legal and regulatory structure reporting mineral resources and mineral reserves? Canada adheres to the CIM Standards (Canada), which were 4 Is the legal system civil or common law-based? adopted in 2005 to establish definitions and guidelines for the Canada’s legal roots are firmly entrenched in the systems of its found- reporting of exploration information, mineral resources and mining nations: England and France. The federal government, nine of eral reserves in Canada. They are incorporated by reference into the the 10 provinces, and the three northern territories have adopted a Canadian Securities Administrators’ National Instrument 43-101 common law legal system similar to the common law systems in the (NI 43-101), which sets the standards for all technical public dis- United Kingdom, the United States and Australia. closure for mineral projects. Mining companies listed on the TSX Quebec has adopted a civil law system (Civil Code) similar and TSX-Venture must comply with NI 43-101. The CIM is a mem- to the legal system used throughout most of Europe, Asia, South ber of the Committee for Mineral Reserves International Reporting America and parts of Africa. www.gettingthedealthrough.com 49 CANADA Fasken Martineau

Standards and the CIM Standards are consistent with other mem- • provincial and territorial land title and registry offices – these bers: Australia, Chile (National Committee), South Africa, USA, record information about the title of leasehold and freehold UK (National Committee) and Western Europe. property (including minerals). This information is available (usually online) for a fee; and Mining rights and title • Natural Resources Canada – publishes Commodity Reviews (www.nrcan.gc.ca/mining-materials/markets/commodity- 8 To what extent does the state control mining rights in your reviews/8360) and maintains a detailed listing of Canada’s jurisdiction? Can those rights be granted to private parties and operating mines and mineral processing facilities (www.nrcan. to what extent will they have title to minerals in the ground? gc.ca/mining-materials). Are there large areas where the mining rights are held privately or which belong to the owner of the surface rights? Is there a separate legal regime or process for third parties to obtain mining 10 What mining rights may private parties acquire? How are these rights in those areas? acquired? What obligations does the rights holder have? If exploration or reconnaissance licences are granted, does such All lands and minerals that have not been granted to private per- tenure give the holder an automatic or preferential right to acquire sons are owned by the Crown (which in Canada refers to either a mining licence? What are the requirements to convert to a the federal or provincial government in the name of Her Majesty mining licence? the Queen). Ownership rights to these ‘Crown minerals’ are vested by the Canadian Constitution in the province where the miner- Prospectors can explore ‘open’ Crown lands with a prospect- als are located. The federal government owns minerals underlying ing permit and can ‘stake’ the mineral rights if the land has not reservations for aboriginal peoples, national parks and other feder- already been staked and recorded by another party. These rights ally owned lands (for example, certain public harbours), and in the are acquired on a first come, first served basis. Land can be staked Northwest Territories, Nunavut and underlying Canada’s territorial on the ground through traditional methods (namely, cutting sea and continental shelf. claim posts and blazing claim lines) but the provinces are mov- Rights to Crown minerals are obtained through mining statutes ing towards ‘map staking’ where claims are delineated online and (see question 6), often by staking claims, performing assessment located through global positioning system technology. work and then obtaining leases or similar forms of tenure to conduct Mining claims that are staked and recorded are generally referred mining operations. The provincial governments (and in some cases to as ‘unpatented mining claims’ and are subject to certain payments the federal government) set out operating terms and conditions on and assessment work obligations. Failure to meet such requirements alienated Crown mineral lands and impose taxes and royalties. The on an annual basis can result in automatic forfeiture of the claim contractual capacity of the Crown as owner provides a means by and the area will become open for staking by others (a ‘use it or lose which governments supplement their authority as legislators. it’-type regime). The conversion of an unpatented mining claim to a Once private parties obtain the rights to Crown minerals lease varies by province, but generally can be done after a specified through the legislated leasing process, such minerals are held by the assessment work requirement has been met (the need for a discovery private party for the tenure of the lease. Subject to compliance with prior to lease conversion is no longer required in most provinces). general laws and in some instances, obtaining government consents, No other party can acquire a mining lease over the particular area the leases can be encumbered for security purposes in financings, other than the unpatented claim holder. Leases are usually for 21 transferred and renewed. years or longer with an opportunity to renew if mining activity There are significant areas where mining rights are privately is occurring or if it can be shown that the lessee is committed to held, either because of land grants made in the 1800s and early developing the mineral potential on the leased area. 1900s when mining rights were attached to surface right grants; or earlier mining legislation that provided for grants of ‘freehold’ 11 What is the regime for the renewal and transfer of mineral tenure or outright ownership of mineral rights. In those instances, licences? if a company is interested in acquiring rights to explore or develop In most provinces unpatented mining claims can be transferred by such private lands, it is a matter of private negotiation with the filing a simple transfer form and paying a fee to the government. The owner. Mining activities on those lands are subject to the same transfer and new owner would then be noted on the abstract for the environmental, labour and other laws as activities conducted on mining claim. For lease transfers, consent of the government may Crown leases. be required from the particular mining department (eg, in Ontario, Section 81(14) of the Mining Act restricts transfer of a lease until the 9 What information and data is publicly available to private parties consent of the Minister of Mines is obtained). that wish to engage in exploration and other mining activities? Is there an agency which collects mineral assessment reports from 12 Is there any distinction in law or practice between the mining private parties? Must private parties file mineral assessment rights that may be acquired by domestic parties and those that reports? Does the agency or the government conduct geoscience may be acquired by foreign parties? surveys which become part of the database? Is the database available online? There is no distinction in Canada between the acquisition of mining rights by domestic parties and by foreign parties. Information and data related to exploration and mining activities in Canada is available through: • provincial and territorial mining recorders’ offices – these pro- 13 How are mining rights protected? Are foreign arbitration awards in vide services related to staking ownership and mining claim respect of domestic mining disputes freely enforceable in maintenance, including receiving ‘assessment work’ reports and your jurisdiction? filings of exploration activities; Mining rights are protected by independent administrative tribunals. • provincial geological surveys – most provinces gather geological Appeals from these tribunals’ decisions lie with the Canadian courts. information, and may conduct broad ground or aerial surveys Mineral tenures are generally granted by Canada’s free-entry mining and publish maps, reports and digital data on geology and system, which limits the government’s involvement in disputes over other technical information (eg, www.geologyontario.mndm. mining rights. In all other situations, the exercise of governmental gov.on.ca);

50 Getting the Deal Through – Mining 2014 Fasken Martineau CANADA discretion over mining rights and disputes is subject to the rules of Duties, royalties and taxes Canadian administrative law. The provinces have broad jurisdiction over most international 18 What duties, royalties and taxes are payable by private parties arbitrations and have passed legislation governing the conduct and carrying on mining activities? Are these revenue-based or enforcement of international arbitral proceedings. Canada’s federal profit-based? Commercial Arbitration Act applies to arbitrations involving the fed- Corporations carrying on mining activities in Canada are subject to eral Crown and Crown-owned corporations as well as to maritime the general income tax rules applicable to all corporations. Federal and admiralty matters. In 1986, Canada adopted the UNCITRAL income tax is levied under the Income Tax Act (Canada); the prov- Model Law on International Commercial Arbitration and signed the inces and territories also have their own income tax statutes. A United Nations Convention on the Recognition and Enforcement number of unique tax measures and rules also apply specifically to of Foreign Arbitral Awards (the New York Convention). Canada Canada’s mining industry. signed the International Convention on the Settlement of Investment As a general matter royalties and mining taxes are imposed sep- Disputes (ICSID Convention) in December 2006. After a seven-year arately from income taxes by the province or territory in which the delay, Canada ratified the ICSID Convention on 1 November 2013 minerals are mined. The rates and basis for calculation of royalties and it came into force on 1 December 2013. and mining taxes vary depending upon the type of mineral and the jurisdiction. In some jurisdictions, many minerals are not subject to provincial mining taxes or royalties. In other jurisdictions, the 14 What surface rights may private parties acquire? How are these mining tax is levied on the basis of a progressive-rate system based rights acquired? on the mining profits or value of output, depending upon the par- In all but some very remote parts of Canada, the Crown lands avail- ticular jurisdiction. When the tax is computed by reference to min- able through the claim-staking and leasing process consist only of ing profits, the rules for computing mining profits generally differ the mining rights because the surface rights are owned privately significantly from those applicable for income tax purposes. In many by another party. The owner of the mining rights is nevertheless cases, an attempt is made to roughly calculate the mining profits at entitled to conduct exploration and even mining activities on the the pithead by permitting a processing allowance. leasehold interest, subject to compensation to the surface rights owner. Disputes arising in these situations can be settled through special tribunals (for example, the Mining and Lands Commissioner 19 What tax advantages and incentives are available to private in Ontario) or through the courts. However, a mining rights lessee parties carrying on mining activities? would be well advised to negotiate the acquisition of the surface Recognising that mining is a highly cyclical and capital-intensive rights privately. industry with a long lead time between initial investment and commercial production, the income tax systems and provincial mining taxes provide a generous treatment of exploration and other intan- 15 Does the government or do state agencies have the right to gible expenses. They allow mining companies to recover most of participate in mining projects? Is there a local listing requirement their initial capital investment before paying a significant amount for the project company? of taxes. Governments do not participate in mining projects in Canada and Canada’s Income Tax Act segregates exploration and develop- limit their role to one of regulation. ment expenses into various pools and permits deductions for the pools in a specified order. The classification of an expense into a particular pool depends upon the date the expense was incurred, the 16 Are there provisions in law dealing with government expropriation nature of the expense, and certain other considerations. Precise rules of licences? What are the compensation provisions? govern how these exemptions can be calculated: There are general statutes dealing with expropriation in Canada • Canadian Exploration Expenses (CEE) – expenses incurred to which provide for compensation. Mining tenure cannot be expro- determine the existence, location, extent or quality of a mineral priated or cancelled unilaterally by governments. Instances of resource in Canada and expenses incurred prior to the com- expropriation might include land needed for transportation corri- mencement of commercial production to bring a new mine into dors (road and rail), transmission lines and parkland. production; • Canadian Development Expenses (CDE) – expenses incurred 17 Are any areas designated as protected areas within your prior to the commencement of commercial production to bring jurisdiction and which are off-limits or specially regulated? a Canadian mineral resource into commercial production; • earned depletion allowance – certain depletion allowances are Responsibility for environmental protection, including setting aside permitted as deductions from income since mineral resources areas as parks and other forms of protection from development, are wasting assets; is shared by the federal and provincial or territorial governments. • purchase and sale of resource properties – the cost of acquiring a Local governments can also protect certain areas from development Canadian resource property is generally deductible on an annual by creating parks or specifically protected areas, or by limiting devel- 30 per cent declining balance basis as a CDE; and opment through the enactment of by-laws and official community • flow-through shares – corporations carrying out exploration in plans. Development is restricted according to the level of protection Canada can pass on the deduction associated with certain types assigned to a protected area. of expenses to shareholders by issuing flow-through shares. As of 2012, 10 per cent (over 1 million km2) of Canada’s terrestrial area and 0.7 per cent of Canada’s marine territory is protected, Most machinery, equipment and structures used to produce income most of which (93 per cent) is ‘strictly protected’ (meaning it is from a mine or an oil or gas project are currently eligible for a capital included in parks or other areas protected by law). Larger protected cost allowance (CCA) rate of 25 per cent on a declining-balance basis. areas are typically located in northern Canada. In addition to the regular 25 per cent CCA deduction, acceler- Canada is contributing to the 2010 target set by the United ated CCA is provided for certain assets acquired for use in new Nations Convention on Biological Diversity to protect at least 17 mines or eligible mine expansions. The accelerated CCA takes the per cent of terrestrial areas and inland waters and at least 10 per cent form of an additional allowance that supplements the regular CCA of marine areas by 2020. deduction. www.gettingthedealthrough.com 51 CANADA Fasken Martineau

The Income Tax Act was amended (subsequent to Budget Business structures measures released on 21 March 2013 as part of the Budget 2013), to phase out the additional allowance available for mining (other 24 What are the principal business structures used by private parties than for bituminous sands and oil shale, for which the phase- carrying on mining activities? out will be complete in 2015). The additional allowance will be Canada’s open, free-market economy allows for a wide range of phased out over the 2017 to 2020 calendar years. A taxpayer will business structures and forms, including corporations, partnerships, be allowed to claim a percentage of the amount of the additional limited partnerships, joint ventures and trusts. allowance otherwise permitted under the existing rules according Corporations are popular with offshore investors because they to the following schedule: are relatively simple to establish, can grow with the business, and offer flexibility in terms of business and tax planning. Corporations

Transition schedule can be incorporated under the federal Canada Business Corporations Act or the laws of a province (each province has its own business Year 2013– 2017 2018 2019 2020 After 2016 2020 corporations legislation). Offshore investors typically prefer to carry on business in Percentage 100% 90% 80% 60% 30% – Canada through a Canadian subsidiary because of concerns about limited liability, privacy, creditor protection and a local preference The definition of CEE in the Income Tax Act was amended in for dealing with a Canadian company. Financing options from accordance with Budget measures announced as part of Budget Canadian lenders tend to be more favourable for locally incorpo- 2013, to gradually remove certain pre-production mine develop- rated subsidiaries compared to branch offices of foreign business ment expenses from the definition of CEE and gradually treat such concerns. expenses as CDE.

25 Is there a requirement that a local entity be a party to the 20 Does any legislation provide for tax stabilisation or are there tax transaction? stabilisation agreements in force? There is no such requirement, although for tax planning or other Canada does not have legislation for tax stabilisation and no tax reasons, a foreign entity may choose to conduct Canadian activities stabilisation agreements are in force. through a local entity.

21 Is the government entitled to a carried interest, or a free carried 26 Are there jurisdictions with favourable bilateral investment treaties interest in mining projects? or tax treaties with your jurisdiction through which foreign entities That is not the practice in Canada. The federal and provincial will commonly structure their operations in your jurisdiction? governments do not get involved by holding any interests in min- Canada has developed an extensive network of bilateral and mul- ing projects. tilateral free trade and investment protection treaties, together with a network of double taxation agreements to promote and 22 Are there any transfer taxes or capital gains imposed regarding encourage foreign investment in the Canadian mining sector. the transfer of licences? Canada is an original member of the World Trade Organization Canadian residents are subject to income tax on gains arising from and is a signatory to numerous bilateral and multilateral free-trade the transfer of leasehold interests. agreements most of which contain both trade and investment protection provisions. The most notable is the North American Free Trade Agreement (NAFTA) with the USA and Mexico. Canada 23 Is there any distinction between the duties, royalties and taxes has nine other free-trade agreements (FTAs) that are in force. In payable by domestic parties and those payable by foreign parties? October 2013, Canadian and EU officials announced they had Canadian residents are subject to tax on their worldwide income. reached an agreement in principle on a Comprehensive Economic A non-resident of Canada is subject to Canadian income tax on and Trade Agreement (CETA). CETA will contain a chapter pro- income from employment exercised in Canada, income from car- tecting investors and their investments in Canada and the EU. rying on business in Canada, and gains arising from the disposi- While the final text has yet to be concluded, senior officials on both tion of ‘taxable Canadian property’, which includes any interest sides of the Atlantic predict that it may come into force as early in resource properties in Canada. A non-resident corporation that as 2015. In March 2014, after almost 10 years of negotiations, carries on business in Canada is also liable to pay branch taxes Canada finally signed an FTA with South Korea. The agreement equal to 25 per cent of its profits, to the extent such profits are not is broad, covering much more than simply trade in goods, and it reinvested in the Canadian business. contains a chapter protecting South Korean and Canadian inves- Certain types of property income paid to a non-resident by a tors and their investments in the other Party’s country. Canadian resident (including rents and royalties) are subject to While Canada’s FTA template calls for the inclusion of investor 25 per cent non-resident withholding tax. Canadian income taxes protection provisions in all such agreements, Canada has also con- payable by a non-resident of Canada may be reduced or be eligible cluded stand-alone foreign investment and protection agreements for exemptions under an applicable tax treaty. In some provinces, (FIPAs) with 40 countries, 26 of which are in force. It is currently there is potential for non-residents to be subject to land transfer negotiating FIPAs with 11 additional countries including India, taxes and equivalent duties on the acquisition of mining proper- Indonesia and Vietnam. In late 2012, Canada concluded a FIPA with ties in Canada at tax rates that are higher than those imposed on China, however, the agreement has yet to come into force. Canadian residents. Canada has 90 bilateral taxation treaties with other countries, eight treaties that are under negotiation or re-negotiation, and 11 treaties signed but not yet in force. Such treaties are generally based on the Organisation for Economic Co-operation and Development (OECD) model tax convention and alleviate double taxation of companies doing business in both jurisdictions. Among treaties of interest for foreign investors in the Canadian mining sector are the

52 Getting the Deal Through – Mining 2014 Fasken Martineau CANADA

Canada–Barbados Double Taxation Agreement signed in 1980 and to a Canadian company. Certain professionals from countries with the Canada–Cyprus Double Taxation Agreement signed in 1984. which Canada has signed a free-trade agreement, such as NAFTA, benefit from facilitative provisions to obtain work permits. Financing

27 What are the principal sources of financing available to private 30 What restrictions are imposed on the processing, export or sale parties carrying on mining activities? What role does the domestic of minerals? Are there any export quotas, licensing or other public securities market play in financing the mining industry? mechanisms that prevent producers from freely exporting their production? At the exploration stage, mining activities not financed by ‘grub- stakers’ (a term used by Canada’s mining industry for private Some provinces require extracted minerals to be processed domesti- funds) or under a farm-in arrangement are often financed by the cally, notably in Canada by Ontario’s Mining Act (section 91), and issuance of common shares (stock exchange listed or otherwise), in-province by Newfoundland’s Mineral Act (sections 31(5) and the sale of limited partnership units, or the sale of flow-through 31.1) and as a requirement of the lease. shares. In the absence of legislation, some provinces may attempt to At the extraction stage, financing is more frequently by debt negotiate processing requirements for a specific period of time as instruments, which are often in the form of syndicated loans from part of the general approvals process. chartered banks or their overseas agencies. Some production financing is also done by means of business unit, unit issuance, production 31 What restrictions are imposed on the import of funds for payments, advances against the purchase price and royalties. exploration and extraction or the use of the proceeds from the export or sale of minerals? 28 Please describe the regime for taking security over mining interests Canada imposes no controls on the import or export of capital and The land registry and title regimes are regulated by province and are no repatriation, domestic use or export performance requirements. similar in many respects. The following is an example from Ontario – in respect of patented freehold and leasehold title, the land regis- Environment try system governs title and registration matters. A lender can take 32 What are the principal environmental laws applicable to the security over the subject property and register a mortgage, charge or mining industry? What are the principal regulatory bodies that debenture against the subject property in the relevant land registry administer those laws? office by submitting a mortgage, charge or debenture electronically together with the requisite fee. Under the Mining Act (Ontario), Both federal and provincial environmental (and in Canada’s North there is an additional requirement in connection with charging – territorial) laws apply to the mining industry. leasehold interests. Prior to registration, a lender is required to The federal government has legislative jurisdiction over fisher- submit a full copy of the executed mortgage, charge or debenture ies, navigable waters, federal lands (including Indian reserves and together with the requisite fee and confirmation that all rents have national parks) and environmental matters of international and been paid to the Ministry of Northern Development and Mines inter-provincial concern. Certain types of projects may be required (MNDM) and obtain the consent of the Minister or an officer duly to complete a federal environmental assessment under the Canadian authorised by the Minister prior to registration of a mortgage or Environmental Assessment Act, 2012 (CEAA 2012). The CEAA charge over the subject leasehold property. The consent process 2012 is administered by the Canadian Environmental Assessment generally takes between four and six weeks. In respect of unpat- Agency (the Agency). ented mining claims, a lender can record a mortgage/charge or The provinces and the territories are generally responsible for debenture over the subject property with MNDM by submitting a matters within their boundaries. Each province and territory has fully executed copy of the mortgage/charge or debenture together adopted laws dealing with environmental protection and regulat- with the requisite fee. ing effluent discharges, atmospheric emissions, water resources, waste management, and other environmental impacts. These laws Restrictions are supported by a regulatory scheme to prohibit and limit contaminants to the environment and by a permitting system which 29 What restrictions are imposed on the importation of machinery authorises activities that impact the environment. Most also have and equipment or services required in connection with exploration legislation requiring a provincial or territorial environmental and extraction? impact assessment of certain types of projects. Canada does not control or restrict the importation of industrial Whether a project will be subject to assessment under provin- machinery or equipment. Most goods from most countries of origin cial/territorial or federal assessment laws typically depends on the can be imported upon the payment of the applicable customs duties type and size of the project, the types of approvals required for and taxes. As a general rule, the applicable customs duties are rela- the development of the project, and the significance of the potential tively low or, in many cases, no duty is assessed. The exact amount environmental and socio-economic impacts that could arise from of duty payable is a function of the classification of the equipment the project. and its value. The provinces and territories have also adopted require- Anyone importing goods into Canada must register with Canada ments with respect to mine reclamation and closure as well as the Border Services Agency to obtain an importer number. A non-resident requirement to provide financial assurance. Generally these are can register and can act as the importer of record into Canada. administered by provincial or territorial ministries responsible for Foreign workers coming to perform work in Canada require mines or natural resources. permits from the Federal Government and, if coming to provide services in the Province of Quebec, an authorisation from the latter. 33 What is the environmental review and permitting process for a The requirements vary depending on the nature of the work and mining project? How long does it normally take to obtain the the nationality or country of permanent residence of the incom- necessary permits? ing worker. Qualified technical workers are exempted from the Depending on the type, location and size of a mining project, it may requirement to obtain a work permit if they come temporarily to be subject to both federal and provincial or territorial permitting perform particular work in association with the sale of equipment www.gettingthedealthrough.com 53 CANADA Fasken Martineau requirements and environmental assessment processes. In Canada’s amount of uniformity across the country regarding basic labour North (Yukon, Northwest Territories and Nunavut), federal envi- and employment matters. ronmental assessment legislation generally does not apply. Employment statutes regulate matters such as minimum In all jurisdictions, where a proposed project is subject to employment standards, labour relations, human rights, occupa- environmental assessment, the project may not proceed before tional health and safety, workers’ compensation, universal health the environmental assessment process is completed and a positive insurance and privacy. determination is granted. Minimum employment standards laws cover minimum wages, The environmental assessment process typically requires prepa- hours of work, overtime hours and premiums, rest and meal periods, ration of an environmental study (potentially also a social impact mandatory holidays, vacation periods and pay, leaves (pregnancy, study) and public information or consultation. The thresholds parental, emergency, family medical), termination notice and sev- for triggering the process and requirements for information dis- erance pay, and unjust dismissal hearings (in some jurisdictions). closure and public consultation vary depending on the particular Labour relations statutes govern how employees may become jurisdiction(s) in which the assessment must occur. Generally, the represented by a trade union, as well as the rights and obligations process seeks to identify impacts so that they can be addressed of unions and employers once a union is designated to represent through the implementation of mitigation measures. The provincial a group of employees. Such union ‘bargaining units’ are generally and federal governments are also required to consult with aboriginal limited to a particular business establishment in a defined location communities whose rights may be impacted by the proposed project. or locations. The time required to complete the process varies depending on In addition to these statutes, many non-union employment the location and can be lengthy in certain jurisdictions. Generally it rights are governed by the common law and enforced through the takes at least two years to complete, although the timing can vary courts. Unionised employees’ rights are generally enforced through depending on the level of assessment required and the complexity of tribunals. the proposed project. The principal federal law governing occupational health and The federal government has introduced measures to avoid safety matters is part II of the Canada Labour Code. Most of the duplication in circumstances where both federal and provincial provinces and territories have specific statutes and regulations environmental assessment process are triggered with respect to dealing with mining operations. Those operations governed by the same project. Nine provinces and territories (not including federal law follow part II of the Canada Labour Code and the Northwest Territories, Nunavut, Prince Edward Island, Nova Scotia regulations thereunder. and New Brunswick) have entered into cooperation agreements with the federal government with a view to avoiding duplication. British 36 What restrictions and limitations are imposed on the use of Columbia and Canada have a Memorandum of Understanding in domestic and foreign employees in connection with mining place to facilitate substitution of the British Columbia environmen- activities? tal assessment process for the federal one. In 2012, the CEAA was overhauled with supporting regula- Canada’s rules for foreign workers and business visitors apply to the tions to establish a regulatory framework towards a ‘one-window mining industry. To work in Canada, a foreigner needs to apply for approach’ for the assessment of ‘major economic projects’. Under a work permit. The federal government administers the Temporary the new CEAA 2012, only ‘designated projects’ will require an Foreign Worker Program through Immigration and Citizenship environmental assessment. Canada, the Ministry of Employment and Skills Development Canada (ESDC) and the Canada Border Services Agency. Generally a labour market opinion (LMO) from the ESDC is 34 What is the closure and remediation process for a mining needed before issuance of a work permit. The ESDC ensures that the project? What performance bonds, guarantees and other financial employment of foreign workers supports economic growth and helps assurances are required? create more opportunities for all Canadians. (Quebec Immigration Canada’s provinces and territories impose mine closure and rec- also participates in decisions in Quebec.) There are several exemp- lamation obligations. Generally this requires the preparation and tions to the LMO requirement, including the intra-company transfer filing of a mine closure plan before mine production can proceed. exemption and the NAFTA professionals’ exemption. In the latter As part of the plan, mine-closure costs are estimated and financial cases, issuance of a work permit follows a simpler procedure. assurance must be provided to the government to cover the closure Business visitors from visa-exempt countries can be admitted to costs. Increasingly, progressive reclamation obligations are being Canada to participate in business meetings without having to go considered. The method of calculating the amount and the accept- through any particular formalities. Those from non-visa-exempt able forms of financial assurance (for example, letters of credit, countries need to apply for a temporary resident visa to a Canadian government bonds, cash, mine-reclamation trusts) varies depend- embassy or consulate abroad. ing on the jurisdiction. In addition, a federal environmental assessment may be required Social and community issues for the decommissioning and abandonment of projects that meet the ‘designated project’ thresholds under the CEAA 2012. 37 What are the principal community engagement or CSR laws applicable to the mining industry? What are the principal Health & safety, and labour issues regulatory bodies that administer those laws? While Canada does not have an overarching CSR law, myriad fed- 35 What are the principal health and safety, and labour laws eral, provincial and territorial laws apply, including: health and applicable to the mining industry? What are the principal safety, labour relations, environmental protection and assessment, regulatory bodies that administer those laws? and in a few rare cases agreements with aboriginal people. Some Canada’s constitution divides the authority to enact labour and form of environmental assessment is usually required to develop a employment laws between the federal government and the prov- mining project. When First Nations communities assert aboriginal inces and territories. Approximately 90 per cent of employees in rights, aboriginal title, or treaty rights to a particular area, the Crown Canada fall under the jurisdiction of provincial or territorial laws. may owe a duty to consult with them or seek a workable accommo- While the laws and statutes vary between jurisdictions, there is a fair dation in respect of any Crown decisions that may infringe those rights. While the duty to consult or seek a workable accommodation

54 Getting the Deal Through – Mining 2014 Fasken Martineau CANADA with aboriginal peoples is a legal duty imposed on the Crown and The combination of complexity, contested legal entitlement, and not on private parties, many private parties have consulted with and inadequate returns has had a dampening effect on mineral explo- sought to accommodate aboriginal peoples’ interests by entering ration on reserves. into agreements with them. A number of jurisdictions have legislated the requirement for private parties to consult and even enter into 39 What international treaties, conventions or protocols relating to agreements. More still are contemplating regulations that will try CSR issues are applicable in your jurisdiction? to push some of the Crown’s obligations onto project proponents. On 1 November 2012, the Ontario government’s new consul- Canada has adopted a number of voluntary aspirational conven- tation regulations under the Mining Act came into effect. Mining tions regarding CSR that, because of their nature, are not directly companies are required to submit exploration plans or obtain applicable within Canada, including: exploration permits prior to conducting activity on mining claims • UN Declaration on the Rights of Indigenous Peoples (2007); or leases as of 1 April 2013. A necessary component of such plans or • Voluntary Principles on Security and Human Rights (2000); and permits is to satisfy the government that the company has consulted • OECD – Guidelines for Multinational Enterprises (1976). with aboriginal peoples in the vicinity of the property. Ontario is the first Canadian jurisdiction to incorporate consultation requirements These documents are used as touchstones by civil society in judging in its mining statute. mining operations within Canada and mining operations undertaken internationally by Canadian companies. Canada has also signed the OECD International Convention 38 How do the rights of aboriginal, indigenous or currently or on Combating Bribery of Foreign Officials (1997), which, although previously disadvantaged peoples affect the acquisition or not directly applicable, is the genesis for the Corruption of Foreign exercise of mining rights? Public Officials Act, 1999 that criminalises the bribing of foreign While many aboriginal peoples have signed treaties with the Crown officials. and have constitutionally protected treaty rights, many have not. Large parts of Canada are therefore subject to claims based on abo- Foreign investment riginal title or aboriginal rights. Although mineral rights can often be obtained without involvement of aboriginal people, in most of 40 Are there any foreign ownership restrictions in your jurisdiction Canada any exercise of mining rights will involve a Crown licence or relevant to the mining industry? permit, which in turn is likely to engage the Crown’s duty to consult The Investment Canada Act (ICA) is a law of general applica- with any affected aboriginal group. tion. While it does not set out specific foreign ownership limits or Additionally, there are specific (and usually not expansive) restrictions, it contains provisions to allow for review of certain areas of Canada set aside for the use and benefit of aboriginal investments in Canada by non-Canadians. Under the ICA, acquisi- communities (also known as First Nations) called Indian reserves. tions of Canadian businesses by non-Canadians may be subject to: There are Indian reserves in most parts of Canada. Management a ‘net benefit to Canada’ review if certain specified thresholds are and control of the reserve land is provided for under the Indian exceeded; and a national security review at the discretion of the Act, with some powers being vested in the band and some pow- Minister of Industry. ers in the Federal Department of Aboriginal Affairs and Northern The Non-Resident Ownership Policy in the Uranium Mining Development. Sector as set out in a letter issued by the Minister of Natural Property rights and rights to minerals on reserves are governed Resources in 1987 remains the current statement of Canadian policy primarily by two provisions of the Constitution Act, 1867. The with respect to the foreign ownership of Canadian producing ura- pattern of rights to minerals on Indian reserves is complicated and nium mining properties. The policy provides that: very uneven – both between and within provinces. The various • a minimum 51 per cent Canadian resident ownership is required federal–provincial agreements affecting minerals were concluded for producing uranium mining properties in Canada; more for administrative expedience than for legal clarification. • resident ownership for producing uranium properties in Provincial assertions add to the doubts that the agreements leave Canada of less than 51 per cent may be permitted if control in unresolved. fact by Canadians can be established (as defined in the ICA); and Moreover, the returns to Indian bands from mineral develop- • exemptions to the ownership restrictions may be granted by ment, to the extent that development occurs, are often meagre. Cabinet only if Canadian partners in a mining development cannot be found.

Michael Bourassa [email protected] John Turner [email protected]

333 Bay Street, Suite 2400 Tel: +1 416 865 5455/4380 Bay Adelaide Centre, Box 20 Fax: +1 416 364 7813 Toronto, ON M5H 2T6 www.fasken.com Canada

www.gettingthedealthrough.com 55 CANADA Fasken Martineau

The policy does not apply to foreign participation in uranium Korea, contain investment protection chapters. As a general rule, exploration in Canada but will apply if such exploration activities these provisions protect investments in the mining industry by result in a producing uranium mine. requiring national treatment for foreign investments and prohibit- While comments have been made from time to time regarding expropriation without compensation, restrictions on the repa- ing the need to liberalise the policy, there has been no formal triation of funds, and performance requirements. As noted in the announcement by Canada that it has any immediate intention to answer to question 26, Canada has 26 bilateral FIPAs now in force do so. However, notwithstanding the policy, Rio Tinto’s purchase of and an additional 14 (including one with China) that are signed but Hathor Exploration (Roughrider Deposit) may suggest that at least not yet in force. one non-Canadian investor sees a possible change in policy. Because the Roughrider Deposit is not a producing operation, Rio Tinto is Some of the information contained in this summary was drawn from not subject to the 49 per cent limit; however under the current ura- Fasken Martineau’s 2014 Canadian Mining Law, which was edited nium policy once production begins Rio Tinto will be required to by Chuck Higgins (www.fasken.com/canadian-mining-law-book). comply with the policy. The fact that Rio Tinto has been willing to make this investment might be taken as an indicator of what its view * With special thanks to contributors Peter Kirby, Claude Jodoin, is on the possible liberalisation of the uranium policy in the future. Christopher Steeves, Michelle Pockey, Rosalind Cooper, Gilda Villaran, Kevin O’Callaghan, David Johnson, Andrea Centa, International treaties Huy Do, Steven Catania, Kristen Brewer, Paul Wilson, Lucas Moalusi, Jianping Zhang, Denis Dupont and Orlee Wertheim. 41 What international treaties apply to the mining industry or an investment in the mining industry? Canada is a signatory to numerous FIPAs and many of its FTAs, including NAFTA and the latest agreements with the EU and South

56 Getting the Deal Through – Mining 2014 Peña Mancero Abogados COLOMBIA Colombia

Gabriela Mancero Peña Mancero Abogados

Mining industry Under Law 1382 of 2010, which amended the Mining Code (Law 685 of 2001), and was in force until 11 May 2013, it was possi- 1 What is the nature and importance of the mining industry in ble for the state to reserve certain strategic minerals and areas to your country? award them through objective bids, thus fostering large-scale mining The Colombian economy continues to grow steadily with an expan- projects. Under that law, the government declared the following 11 sion of 5.1 per cent in 2013. By November 2013, foreign direct minerals of strategic interest for the country: gold, platinum, copper, investment amounted to US$15,171 million, out of which over phosphates, potassium, magnesium, metallurgic and thermal coal, US$12,000 million came from the mining and oil and gas sector. The uranium, iron and coltan. Colombian mining industry has experienced an important evolu- The following are the strategic areas declared so far and that are tion, growing from local and small-scale production to regional and therefore subject to awarding through bid processes launched by the large-scale development. In 2013, the mining industry amounted to government: 4.9 per cent of the GNP, mainly owing to an increase in production of coal, precious metals and emeralds. State State area (hectares) Strategic reserved area Today, mining activity represents one of the most important (hectares) industries in the national economy. In fact, the current National Antioquia 6,307,237.6 723,511.8 Development Plan 2010 to 2014 (Law 1,450/2011), which com- piles the government’s list of priorities for that period, considers Bolivar 2,665,160,7 8,944.8 foreign and local investment in the mining industry as one of the Caldas 741,543.5 32,497.0 five main economic activities chosen to boost the Colombian econ- Cauca 3,064,432.5 224,284.2 omy. The National Mining Development Plan 2010–2018 which is Cesar 2,237,471.9 199,441.1 currently under discussion, is focused on the formulation of short- Choco 4,796,003.6 335,907.2 and medium-term policies that may contribute to the strengthening Huila 1,871,020.1 132,772.7 of a competitive, responsible and ordered mining industry. La Guajira 2,067,041.7 33,509.7 Nariño 3,164,824.5 241,159.9 2 What are the target minerals? Norte De Santander 2,192,999.7 268,956.5 The following are the main metallic minerals and precious stones Putumayo 2,627,455.3 151,045.9 produced in Colombia and their production amounts in 2013: Quindio 193,528.0 31.1

Coal Risaralda 354,111.7 16,598.9 In 2013, coal production amounted to 85.5 million tonnes. Exports Tolima 2,398,141.1 435,122.7 corresponded to 73.6 metric tonnes, lower than the 79.7 metric Valle Del Cauca 2,130,679.6 97,164.3 tonnes exported in 2012.

3 Which regions are most active? Metallic minerals produced in 2013 • copper, 3,136.68 (this is the 2012 figure); In general terms, mining production is spread throughout the whole • iron, 173,257 tonnes (this is the 2012 figure); of Colombia, but the main production areas are specific to the mineral • ferronickel, 113,223 tonnes; and mined. For instance, gold production is most active in the state of • nickel had a production of 49.32 million tonnes in 2013, rep- Choco, located in western Colombia. Gold production is also active resenting a decrease of 5 per cent on 2012 production. in the state of Antioquia, located in the north-west area of the country. The state of Bolivar is third highest in the country for gold Precious minerals and stones: production. It is located in the north of the country and gold pro- • Gold production amounted to 55,74 tonnes in 2013, a decrease duction reached 5,423kg in 2011 and 3,322kg in 2012. of 16 per cent compared with 2012. Silver production is active mainly in the state of Antioquia with • Silver production in 2012 amounted to 622,684.15 troy ounces. 7,999kg produced in 2012, but also in Choco and Bolivar with, • Platinum production increased reaching 1,504kg in 2013. respectively, 3,577kg and 678kg produced in 2012. • Colombia is the world’s biggest producer of emeralds and pro- Platinum production takes place in the state of Choco, where duced 2.4 billion pesos worth of the gems in 2013, down a fifth production in 2012 reached 1,006kg. Nickel production is active from the year before. The National Mining Agency (ANM) did in the state of Cordoba, located in the north-west of the country, not state the quantity produced. The main areas of emerald pro- and in the state of Antioquia. The production of iron is focused duction are the states of Boyacá and Cundinamarca, located in mainly in the states of Cundinamarca and Boyacá, located in central the centre of the country. Colombia. www.gettingthedealthrough.com 57 COLOMBIA Peña Mancero Abogados

Legal and regulatory structure • Decree 1,320/2008, concerning prior consultation of indigenous and Afro-descendant communities; 4 Is the legal system civil or common law-based? • Non-renewable Natural Resources and Environment Code Colombia has a civil law legal system, based in written codification. (Decree 2,811/1974); and The judges must issue their decisions based on the written formal • Environmental laws and regulation applicable to the mining law, not on judicial precedent as in the common law system. industry (Law 99 of 1993, Decree No. 2,820 of 2010, Decree 1,320 of 1998, Law 1,333 of 2009 amended by Decree 4,673 of 2010 and Resolution 189 of March 2014 issued by the 5 How is the mining industry regulated? Environmental Licences National Agency (ANLA)). The Colombian mining statutes, laws, decrees and regulations apply nationwide. Nevertheless, there are also specific rules for activity in The principal regulatory bodies administering the above mentioned specific regions related, for instance, to land and the environment. regulations are the Ministry of Mines and Energy, the Colombian Geological Service (until 3 May 2012, this entity acted as the 6 What are the principal laws that regulate the mining industry? Colombian Institute of Geology and Mining (Ingeominas)), the What are the principal regulatory bodies that administer those newly created National Mining Agency, which started functioning as laws? of 3 May 2012, the secretaries of mines of the Governors’ Offices of Boyacá, Antioquia, Bolívar, Caldas, Cesar and Norte de Santander, The principal laws and rules that regulate the mining industry in the Mining and Energy Planning Unit (UPME), the Ministry of the Colombia are: Environment, ANLA and the Regional Autonomous Corporations. • the Colombian Constitution (articles 330, 332, 360, 361) – pursu- Under the new institutional structure, a vice-minister of mines ant to the Colombian Constitution, the subsoil is owned by the and a vice-minister of energy were created within the Ministry of state and mining activity is licensed through a concession contract Mines and Energy. The vice-ministry of mines will be organised into that includes exploration, building, production and abandonment; two new divisions, the Environment and Communities Directorate, • the Mining Code (Law 685/2001, modified by Law 1,382/2010) and the Mines Directorate. (Law 1,382/2010 was declared unconstitutional by decision Also, a new authority called the National Mining Agency is of the Constitutional Court (Decision C-366/2011). In this now in charge of the administration of mineral resources and the decision the court stated that Law 1,382 had been approved promotion of their exploration and production, inspired by the without the mandatory prior consultation of indigenous and agency in charge of managing hydrocarbons, the National Agency Afro-descendant communities. In this context, the court granted of Hydrocarbons, which has achieved success in the administration the national government a two-year period in which to pass a of national resources in the hydrocarbons sector. new Mining Code that fulfilled this requirement. As of the dead- As mentioned above, in this new structure, a new technical insti- line on 11 May 2013, the law ceased to be in force and therefore tution called the Colombian Geological Service will be in charge of Law 685 of 2001 is now back in force); the knowledge of the subsoil and risk management. The tasks of • Law 1,450/2010, which among other provisions includes a planning in the mining sector, as head of the UPME, will be enforced prohibition on carrying out mining activities in Colombian wet- through a new unit within the Ministry of the Environment in lands, Ramsar Convention-listed wetlands and forestry reserves; charge of environmental licensing and a new unit within the Interior • Law 141/1994 on the National Royalties System, modified by Ministry in charge of prior consultation with communities. Law 5/2011, Law 1,450/2011 (National Development Plan Even though there is a national environmental authority and Law), Law 1283/2009, Law 756/2002, among others; also an environmental licences agency, namely the Ministry of the • Decree 933 of 2013, which includes technical and environmen- Environment and ANLA, the country has a number of regional tal requirements to be evidenced by applicants for the comple- environmental agencies that are independent and autonomous tion of traditional mining legalisation procedures in progress organisations working in the different regions of the country and in at the time of the abolition of Law 1,383/2010; charge of enforcing environmental regulation to the mining projects • Decree 943 of 2013 indicates that the only national mining within their zones. Owing to the power of such agencies within authority is the ANM and that territorial ordering plans refer their areas of influence, they play a predominant role in the devel- only to land while powers regarding the subsoil are only vested opment of any mining project. in the ANM; Following international recommendations and standards, the • Decree 934 of 2013 establishes causes for denial of a concession Colombian Attorney General passed a resolution 0-3438, dated 29 contract proposal and requires applicants to file financial state- December 2011, whereby a new unit was created within that entity ments to support the estimates presented concerning economic for the prosecution of environmental crimes. This was the result of investments to be made for the project; an inter-institutional agreement entered into between the Attorney • Decree 935 of 2013 and Decree 1,300 of 2013 elaborate on the General’s Office, the Prosecutor’s Office, the Ministries of Mines and applicable requirements to obtain an extension to the conces- of the Environment and Ingeominas (now known as the National sion contract and the process to that effect as well as the financial Geological Service). requirements to be met by new concession contracts appli- The unit focuses mainly on criminal investigation against pri- cants. Regarding this regulation, in a recent decision (Consejo vate parties and entities affecting natural resources and putting the de Estado, Sección Tercera, Auto 11001032600020130009100 environment at risk. Some of the main areas of investigation will be (47693), 26 February 2014, C. P. Jaime Orlando Santofimio), the illegal mining, contamination of water resources, and squatting on Council of State suspended the application of article 1 of Decree land for public use or natural reserves, among others. 1300 of 2013 and article 5 of Decree 0935 de 2013 as they established new economic-capacity requirements to obtain a mining licence that were not previously established in the law; 7 What classification system does the mining industry use for • Mercury law No. 1658 of 2013, introduced incentives for reporting mineral resources and mineral reserves? the formalisation of small-scale mining such as: granting of The geological information reported by Ingeominas is supported soft credits and financing programmes to facilitate access to in the standards of the United States Geological Survey. Also, the resources; created a sub-contract intended to formalise illegal reports of mineral resources are available in the Colombian System mining activities with the registered licence-holder; of Mining Information (SIMCO), available online at the UPME

58 Getting the Deal Through – Mining 2014 Peña Mancero Abogados COLOMBIA

(www1.upme.gov.co). Regarding mineral reserves there is an accu- vast areas of the country have not yet been explored or have not rate methodology for calculating them, defined in Resolution No. been subject to geological studies. 1,853/2009 of the Ministry of Mines and Energy. Mineral resources are classified in national law (by Resolution 18-1108/2003) follow- 10 What mining rights may private parties acquire? How are these ing the United Nations Standards CIIU (Rev. 3 – Rev. 2) and there is acquired? What obligations does the rights holder have? If also a Technical Mining Glossary established by Decree 2,191/2003, exploration or reconnaissance licences are granted, does such where mineral reserves and every single mineral resource relevant to tenure give the holder an automatic or preferential right to acquire the Colombian mining industry are precisely defined. a mining licence? What are the requirements to convert to a mining licence? Mining rights and title The mining rights that a private party may acquire are exploration 8 To what extent does the state control mining rights in your and production rights, including the rights to build infrastructure jurisdiction? Can those rights be granted to private parties and within the granted area, and the right to establish the necessary to what extent will they have title to minerals in the ground? easements to enforce exploration and production rights. As a gen- Are there large areas where the mining rights are held privately eral rule, mining rights are acquired following the ‘first come, first or which belong to the owner of the surface rights? Is there a considered’ rule. In exceptional circumstances, when investment separate legal regime or process for third parties to obtain mining projects are of national interest due to their scale or importance, rights in those areas? the state may carry out a public bidding process and rights are The state controls mining rights in Colombia. Given that the state is awarded on a competitive-bidding basis. the owner of the subsoil, the acquisition of mining rights requires the The rights holders have the obligation to comply with all terms execution of a concession contract with the corresponding mining and conditions of the concession contract including, but not limited, authority, subject to the payment of royalties. Once the concession to payment of land taxes, filing of an environmental management contract is executed and the mining title is granted, title holders may plan, consulting with indigenous or Afro-descendant communities negotiate their rights with other private parties provided any such located within the title area or nearby areas, obtaining the corre- transaction is duly approved by the corresponding mining authority sponding environmental licence and complying with labour and and registered with the Mining Registry. HSE regulations. Currently, there are over 14,000 mining concession applications The concession contract, which corresponds to the mining by private parties being processed nationwide. licence, includes all stages of the mining activity so the holder has the Pursuant to Colombian law and upon obtaining a mining con- right of exploration and production guaranteed, provided the holder cession, any party wishing to carry out a mining project in this complies with the terms and conditions of the concession contract. country must meet a number of conditions among which is compliance with a consultation procedure whereby ethnic minorities 11 What is the regime for the renewal and transfer of mineral located in the area or in the area of influence of the project may have licences? a say on the project’s impact on their people. Renewal of mineral licences There is tension between the protection of the interests of ethnic The renewal regime for mineral licences depends on the regulation minorities and the development of the mining industry. The main in force at the time of granting of the corresponding licence. The area of discussion is to what extent ethnic minorities may block a main applicable renewal regimes are: mining project. • Concession contracts granted under the Mining Statute in force Regarding those areas reserved as strategic by the government, under Law 685 of 2001: these contracts were granted for a bidding processes will be launched in the future. These have not 30-year period extendable for an additional 30-year period, started yet. counted from the date of registration at the National Mining Registry. Such period comprises: 9 What information and data is publicly available to private parties • an exploration stage of three years, extendible for an addi- that wish to engage in exploration and other mining activities? Is tional two-year period; there an agency which collects mineral assessment reports from • a construction and setting-up stage of three years, extendible private parties? Must private parties file mineral assessment for one additional year; and reports? Does the agency or the government conduct geoscience • a production stage for the remaining period (at least 21 surveys, which become part of the database? Is the database years). available online? Renewal applications must be filed at least three months prior Private parties wishing to engage in exploration and other mining to the expiration date. Extension is automatic and not discre- activities may consult SIMCO, available online at the UPME web- tional provided the applicant has fully complied with all con- site, which publishes updated information on the national mining tract obligations. production, reserves, royalties, advantages for foreign investors, • Concession contracts granted under Law 1,382 of 2010: the prices of mineral resources, technical issues, national infrastruc- exploration stage may be extended for two-year periods for up ture, the official mining and energy statistical bulletin and official to 11 years, but such extension must be duly justified on tech- maps with information on the mining industry such as the mining nical and economic grounds and upon evidencing exploration districts, silver production, gold production, royalties by mineral works performed, compliance with mining and environmental and other relevant information. This information is available online guidelines, describing works to be performed, specifying their at the SIMCO website (www.simco.gov.co). duration, investments to be made and payment of the corre- The agency that collects mineral assessment reports is Ingeominas, sponding land tax. At least two years prior to the expiration recently restructured as a technical body named the National of the production stage and provided full compliance with all Geological Service. This agency performs geoscience surveys and contract obligations is evidenced, a contract extension of 20 information maps are available on its website (www.ingeominas. years may be applied for. Renewal is not automatic and must gov.co). However, one the great areas for concern in Colombia is the include new technical, economic, environmental and social stud- fact that there is not sufficient geological information, given that ies supporting the then current situation of the resources. Prior to renewal, the parties shall negotiate renewal conditions and, www.gettingthedealthrough.com 59 COLOMBIA Peña Mancero Abogados

eventually, additional consideration apart from royalties. The 14 What surface rights may private parties acquire? How are these renewal shall be granted only if it is proved that it shall be of rights acquired? benefit to the state’s interests. Surface rights may refer to land property, land leasing and land ease- • Production licences granted under Decree 2,655 of 1988: ments. While the subsoil is owned by the state, surface rights may be production licences have an initial duration of 10 years. Two freely acquired by private parties provided no restrictions exist (for months prior to the expiration of the initial term, the beneficiary example, national parks, certain wetlands, forest reserves and stra- may either request an extension once for a term equal to the tegic minerals). If the land is already owned by a third party, it may initial one, or use the preferential right to enter into a concession be leased. The terms and conditions of such a lease may be freely contract. Such contract shall be governed by the law in force at negotiated between the parties. If the land is owned by a third party the time of execution of the corresponding concession contract. and that party is not willing to lease the property, then an easement • Contribution or Production Contracts: Given that these con- may be negotiated. tracts are fully governed by their own terms and conditions, The easement allows the beneficiary to carry out mining activi- renewal conditions vary depending on each contract. ties on the land without actually owning or leasing it. The Mining Code provides for compulsory easements to be applied for when- Transfer of mineral licences ever the landowner is not willing to give the mining title holder Licences may be transferred by giving prior notice to the National access to the property where the mine is located. Compulsory Mining Agency. The assignor must first file the transfer notice. After easements are subject to an administrative procedure and entail such notice is filed, the parties must file the transfer agreement and payment of compensation to the landowner. evidence of the assignee’s legal existence. If no decision regarding the transfer has been issued by the mining authority within 45 business days from the date of the transfer application, then the transfer 15 Does the government or do state agencies have the right to shall be deemed approved and may be registered with the National participate in mining projects? Is there a local listing requirement Mining Registry. The transferor may desist from the transfer appli- for the project company? cation unilaterally and at any time prior to registration. There are no restrictions on government or state agencies participat- Types of transfer include the following: ing in mining projects but it is rare for them to do so. Requirements • Partial transfer of rights under the concession contract: trans- are the same as those applicable to private entities. feror and transferee are jointly and severally liable for all contract obligations. Both parties may be required to comply with 16 Are there provisions in law dealing with government expropriation 100 per cent of the contract obligations. of licences? What are the compensation provisions? • Transfer of contract areas: technical feasibility must be evidenced together with an independent working programme. There are specific provisions concerning expropriation of goods for Transfer cannot be below two hectares. A new concession con- mining activities. Article 186 of the Mining Statute states that, given tract derives from this transfer. The term of the new contract will the public utility and social interest of mining activities, expropria- be the same as that of the original contract. tion of real estate may be applied for in order to carry out mineral production. Within 10 days following the application date, the Ministry of 12 Is there any distinction in law or practice between the mining Mines and Energy shall order an administrative inspection charged rights that may be acquired by domestic parties and those that to the applicant and shall decide on the expropriation within the may be acquired by foreign parties? next 20 days. There is no distinction in either law or practice between the mining There are no provisions dealing with government expropriation rights that may be acquired by domestic parties and those that may of licences. However, there are just causes for unilateral termination be acquired by foreign parties. Nevertheless, foreign parties must of the concession contract by the state in case of a material breach of have a local corporate presence (either a subsidiary or a branch) to contract obligations by the licence holder. be able to carry out mining activities in Colombia. In this sense, they must channel the currency corresponding to their foreign investment 17 Are any areas designated as protected areas within your jurisdiction through local financial entities so that it is duly registered and recog- and which are off-limits or specially regulated? nised as foreign investment by the Central Bank of Colombia. Yes. Pursuant to the Colombian Mining Code, the following are protected areas: 13 How are mining rights protected? Are foreign arbitration awards • national and regional parks; in respect of domestic mining disputes freely enforceable in your • forest reserves; jurisdiction? • special areas declared as such by the government; Mining rights are protected through both the judicial system and • moorlands determined as such by the Von Humboldt Institute; arbitration. As regards disputes deriving from the granting, modi- • wetlands designated as such under the Ramsar Convention; fication, renewal or cancellation of mining rights, remedies must be • areas declared as national security zones (none declared to this filed before contentious-administrative courts as the state (or the date); and corresponding government agency) will be a party to such dispute. • the Sabana de Bogotá, its wilderness, nearby valleys, waters, Regarding disputes between private parties involving transfer, and surrounding hills and mountainous areas. assignment or private transactions within the mining sector, the parties may freely choose between settling their disputes through There are also certain areas where mining activities are restricted the jurisdiction of local courts or through arbitration. International (that is, mining activities are subject to special permits by certain arbitration is also available whenever there is a foreign element authorities), such as: involved in the dispute. • strategic areas to be awarded through special bidding processes; Foreign arbitration awards in respect of domestic mining dis- • urban areas, subject to municipal agreements; putes are enforceable in Colombia as the country is a party to the • rural areas with existing constructions, farms and gardens, Convention on the Recognition and Enforcement of Foreign Arbitral unless authorised by the owner of the land and not representing Awards of 1958. any danger;

60 Getting the Deal Through – Mining 2014 Peña Mancero Abogados COLOMBIA

• archeological, historical or cultural interest zones, unless 20 Does any legislation provide for tax stabilisation or are there tax authorised by the competent authority; stabilisation agreements in force? • oceans, beaches and river areas served by public transport Law 963 of 2005 introduced the possibility of entering into tax sta- companies, unless authorised by the competent authority; bilisation agreements with the state. This law applies to investment • areas occupied by public works or services, unless authorised by projects in any sector of the economy and is subject to approval by the entity in charge of the work and provided that the mining the Ministry of Commerce. The law was adopted on 8 July 2005 activity is compatible with the work; and and implemented by Decree 2,950 of (29 August) 2005 and Decree • indigenous or Afro-descendant groups’ mining zones, when they 1,474 of 2008 and protects against adverse changes in the laws or have exercised their pre-emptive rights. regulations itemised in the contracts. Legal stability contracts are meant to ensure investors of more Duties, royalties and taxes than US$1 million that if rules or interpretations that are specifically identified in the contracts as determining factors for investment, 18 What duties, royalties and taxes are payable by private parties change in an adverse manner during the contract term, these changes carrying on mining activities? Are these revenue-based or profit- will not affect the investment. based? The stability contracts are available for investments in tour- The following are the main duties, royalties and taxes payable by ism, industrial activities, agricultural activities, free-trade zones and private parties carrying on mining activities in Colombia: petroleum zones, forestry activities for export, mining, export pro- • special taxes – these were created when not all minerals were cessing zones, telecommunications, construction, port and railroad subject to royalty payment. For example, there used to be a developments, electric power generation projects, irrigation and special coal, gold and emerald tax. These special taxes were efficient use of hydro-resource projects. The contracts are also avail- abolished when the Royalties Law was passed and now they able for any other activity approved by the Committee to implement are only in force for privately owned gold mines, which are not the law, which consists of the Ministers of commerce, industry and subject to the payment of royalties; tourism, finance, and public credit, plus the director of the national • royalties – these are due on all types of minerals and any type planning department. of mining project. They are paid on the basis of production vol- The contracts may have terms of between three and 20 years. umes and are payable only when there is production; The price is an annual premium of 1 per cent of the amount of funds • surface rent – this is payable only during those periods when to be invested. Decree 2,950 of 2008 provides a detailed list of the there is no production. Surface rent is based on the size of the requirements of each stability contract. area granted under the corresponding concession contract; • additional compensation in areas of state investment – this is a kind of right of entry whereby the government opens a public 21 Is the government entitled to a carried interest, or a free carried bid for a particular mining right and establishes an annual fixed interest in mining projects? amount corresponding to a contribution to the municipality For concession contracts granted under Law 1,382 of 2010, the gov- or region. It is established on a case-by-case basis within each ernment may be entitled to an additional compensation to be negoti- public bid; ated at the time of renewal of the concession contract. • compensation derived from mining contribution contracts – mining contribution contracts were contracts in force before 22 Are there any transfer taxes or capital gains imposed regarding the current concession contracts. They were abolished in 2001 the transfer of licences? but some of those executed before 2001 are still in force and regulated by the law in place at the time of execution. Mining Any transfer of rights generating profit for the transferor is taxable contribution contracts were freely negotiated between the par- in Colombia and subject to the imposition of capital gains taxes. ties so their terms and conditions were basically agreed upon by the private party and the state on a case-by-case basis. Therefore, 23 Is there any distinction between the duties, royalties and taxes the compensation derived from mining contribution contracts payable by domestic parties and those payable by foreign parties? consists of a lump sum collected by the government agency that There is no distinction between the duties, royalties and taxes received the contribution for administration and auditing of payable by domestic parties and those payable by foreign parties. such contracts. It is a sort of additional royalty that is expressly Colombia honours the principle that foreign and local investors included in the corresponding contracts; and must be treated equally. • environmental tax and contributions – these apply to all users of renewable and non-renewable natural resources. Business structures

19 What tax advantages and incentives are available to private 24 What are the principal business structures used by private parties parties carrying on mining activities? carrying on mining activities? There are no specific tax advantages or incentives available to pri- Given the obligation that foreign private parties have to incorporate vate parties carrying on mining activities. There are, however, certain a local subsidiary or establish a local branch in order to be able general tax advantages and incentives applicable to all sectors of to carry out mining activities in Colombia, the principal business the economy such as treaties to avoid double taxation (currently in structure used is the incorporation of a business entity in Colombia. force with Spain, Switzerland and the Andean Community countries Of the most common corporate structures, simplified stock (Peru, Bolivia and Ecuador)) and legal stability contracts whereby corporations (SAS entities) and branches of foreign corporations a private party enters into a contract with the state providing for are the most popular. protection from changes to those laws that were determinant for Currently, over 90 per cent of business entities incorporated in that party’s investments. There are also special deductions on the Colombia are SAS entities. They are stock corporations that allow for acquisition of productive fixed assets, on depreciation of goods and flexibility as far as capital and administration are concerned. Foreign amortisation of investments. A VAT credit applies to the import of investors may incorporate SAS entities either alone or together with heavy machinery for the industry. local or foreign partners so this is a popular alternative for those

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foreign parties wishing to establish a joint venture with local title FTA Canada 15 August Law 1,363 of Standing holders. 2011 2009 agreement Decision Branches of foreign corporations are deemed commercial of constitutionality establishments of their parent companies so, although they have an C-608 of 2010 independent structure in Colombia, they are jointly and severally FTA European Union Signed on 26 Negotiated – liable with the parent for any obligation deriving from their local June 2012 Pending approval by congress operation. This structure is usually chosen by large transnational corpora- FTA Panama Under negotiation tions who do not plan on having local or foreign partners and decide FTA South Korea Signed on 11 Negotiated – to act directly in Colombia through their own branches. April 2013 Pending approval by congress FTA Israel Under negotiation 25 Is there a requirement that a local entity be a party to the transaction? BITs under negotiation or ratified Given that the state is the owner of the subsoil, the acquisition of Agreement Entry into force Approving law Status of mining rights in Colombia requires the execution of a concession agreement contract with the corresponding mining authority. Once the conces- Chapter XVII of the 1995 Law 172 of Standing sion contract is executed and the mining title is granted, title hold- FTA G2 (Mexico and 1994 agreement Decision ers may negotiate their rights with other private parties provided Colombia) of constitutionality any such transaction is duly approved by the corresponding mining C-178 of 1995 authority and registered at the Mining Registry. Chapter IX of the 8 May 2009 Law 1,189 of Standing Chile FTA 2008 agreement Decision of constitutionality 26 Are there jurisdictions with favourable bilateral investment treaties C-031 of 2009 or tax treaties with your jurisdiction through which foreign entities Chapter XII of the Guatemala: Law 1,241 of Standing will commonly structure their operations in your jurisdiction? Northern Triangle 12 November 2008 agreement Decision FTA (Guatemala, 2009 of constitutionality Colombia has implemented a policy of negotiation and ratification of El Salvador and C-446 of 2009 international investment agreements, which include bilateral invest- El Salvador: 1 Honduras) February 2010 ment treaties (BITs), as well as free-trade agreements (FTAs) with Honduras: 27 chapters on investment and double taxation agreements (DTAs). March 2010 In order to protect foreign investment, Colombia is party to BIT Peru 2003 Law 279 Standing various international agreements: the Multilateral Investment of 1996 agreement Decision Guarantee Agency, the International Centre for Settlement of (Modifying of constitutionality Investment Disputes, the Overseas Private Investment Corporation Protocol Law C-008 of 1997 and and the Agreement of Cooperation for Emerging Markets. 801 of 2003) C-961 of 2003 BIT Spain 22 September Law 1,069 of Standing Free-trade agreements ratified or under negotiation 2007 2006 agreement Decision of constitutionality Agreement Entry into force Approving law Status of C-309 of 2007 agreement BIT Switzerland 6 October Law 1,198 of Standing Andean Community 1993 Decision 324 Standing 2009 2008 agreement Decision of Nations (Peru, agreement of constitutionality Ecuador and Bolivia) C-150 of 2009 MERCOSUR 1981 Law 45 of Standing Chapter X of the 15 May 2012 Law 1,143 of Standing (Argentina, Paraguay, 1,981 agreement United States FTA 2007 (Protocol agreement Uruguay and Brazil) of amendment FTA G2 (Mexico and 1995 Law 172 of Standing Law 1,166 of Colombia) 1994 agreement Decision 2007) of constitutionality Chapter V of the Law 1,372 of Pending internal C-031 of 2009 EFTA FTA 2010 approval FTA Chile 8 May 2009 Law 1,189 of Standing Chapter VIII of the Law 1,363 of Pending internal 2008 agreement Decision Canadian FTA 2009 approval of constitutionality BIT Peru (broadened) Law 1,342 of Pending internal C-031 of 2009 2009 approval FTA Northern Guatemala: Law 1,241 of Standing BIT China Law 1,462 of Standing Triangle (Guatemala, 12 November 2008 agreement Decision 2011 agreement Decision El Salvador and 2009 of constitutionality of constitutionality Honduras) C-446 of 2009 El Salvador: 1 C-199 of 2012 February 2010 BIT India Law 1,449 of Standing Honduras:27 2011 agreement Decision March 2010 of constitutionality FTA United States Colombia and Law 1,143 Standing C-123 of 2012 United States: of 2007 agreement Decision BIT United Kingdom Law 1,464 of Decision of 15 May 2012 (Amendment of constitutionality 2011 constitutionality Protocol, Law C-750 of 2008 and C-169 of 2012 1,166 of 2007) C-751 of 2009 FTA European Union Pending internal FTA EFTA (Iceland, In force in Law 1,372 of Standing (not including the approval Liechtenstein, Switzerland and 2010 agreement Decision countries that have Norway and Liechtenstein of constitutionality ratified FTAs with Switzerland) only C-941 of 2010 Colombia)

62 Getting the Deal Through – Mining 2014 Peña Mancero Abogados COLOMBIA

BIT South Korea Pending internal over moveable property, machinery or implements dedicated to approval production. BIT Kuwait Under negotiation The above securities must be registered at the National Mining BIT Japan Under negotiation Registry. The securitisation of future cash flows deriving from production DTAs ratified or under negotiation is also possible. Acts and contracts entered into during the securiti- DTA Entry into force Approving law Status of sation process shall be performed in the terms and form allowed by agreement the capital markets’ regulation. Andean Community 2004 Decision 578 Standing of Nations (Peru, agreement Restrictions Ecuador and Bolivia) DTA Spain 1 January 2009 Law 1,082 of Standing 29 What restrictions are imposed on the importation of machinery 2006 agreement Decision and equipment or services required in connection with exploration of constitutionality and extraction? C-383 of 2008 DTA Chile 1 January 2010 Law 1,261 of Standing There are no restrictions imposed, particularly on the importation of 2008 agreement Decision machinery and equipment or services required in connection with of constitutionality exploration and extraction. Nevertheless, there are general restric- C-577 of 2009 tions applicable to all sectors of the economy that include the pro- DTA Switzerland Law 1,344 of Standing hibition on importing chemical, biological and nuclear weapons, 2009 agreement Decision nuclear and toxic waste and certain genetic resources. There is also of constitutionality C-460 of 2010 a ‘prior licence’ regime for certain imports such as those not subject to payment, import of goods not subject to import duties, import DTA Canada Project of Law Pending internal 205 of 2009 approval of imperfect, used or outlet machinery or equipment, among others. DTA South Korea Signed on 27 Pending internal July 2010 approval 30 What restrictions are imposed on the processing, export or sale of DTA Mexico 15 May 2012 Signed on 29 Pending internal minerals? Are there any export quotas, licensing or other mechanisms August 2010 approval that prevent producers from freely exporting their production? DTA Portugal Negotiated There are no restrictions imposed on the processing, export or sale DTA India Negotiated of minerals. Likewise, there are no export quotas, licensing or other DTA Belgium Negotiated mechanisms that prevent producers from freely exporting their DTA Czech Republic Negotiated produce. DTA France Negotiated DTA United States Under negotiation 31 What restrictions are imposed on the import of funds for DTA Germany Under negotiation exploration and extraction or the use of the proceeds from the DTA Netherlands Under negotiation export or sale of minerals? DTA Japan Under negotiation Colombia has strict foreign exchange controls. Currency deriving from the import of funds for exploration and extraction has to be Financing channelled through local financial institutions and registered as foreign investment with the Central Bank of Colombia. Foreign 27 What are the principal sources of financing available to private parties may not remit funds to finance their local mining activities parties carrying on mining activities? What role does the domestic as loans since foreign indebtedness is restricted to foreign finan- public securities market play in financing the mining industry? cial entities previously registered with the Central Bank. The use There are very limited financing sources because financial entities of the proceeds from the export or sale of minerals is not subject such as banks consider mining activities as high-risk investments. to any restriction and such proceeds may be freely remitted abroad. Furthermore, there are no governmental financing sources Imports and exports must be registered at the Central Bank. available for mining activities. Financing relies heavily upon direct foreign investment by entrepreneurs, private equity funds or trusts. Environment Regarding the domestic public securities market, this is at a very 32 What are the principal environmental laws applicable to the early stage of development and does not play a major role in the mining industry? What are the principal regulatory bodies that mining sector. administer those laws? The principal environmental laws applicable to the mining industry 28 Please describe the regime for taking security over mining interests. can be found in the following statutes: Taking security over mining interests is permissible. Securities reg- • natural resources statute (Law 99 of 1993); ulated by the Mining Code are: • environmental licence application procedures (Decree No. 1,220 • Mortgages – mortgages are governed by the general rules of the of 2005); Colombian Civil Code. They may be granted together with • consultation with indigenous and Afro-descendant communities mining pledges over production minerals. (Decree 1,320 of 1998); • Pledges – a pledge may be granted with the express purpose of • environmental sanctioning procedure (Law 1,333 of 2009 guaranteeing credits or other obligations acquired to build, set amended by Decree 4,673 of 2010); up and exploit mines. It may be granted over the right to explore • prohibition of the use of dredges, small dredges, excavators and produce deriving from the concession contract. and other mechanical equipment in illegal mining activities (ie, • Pledges over moveable property – such a pledge may be granted those carried out without a registered mining licence) (Law together with a pledge over future production of the mine and 1,450 of 2011); and www.gettingthedealthrough.com 63 COLOMBIA Peña Mancero Abogados

• destruction of heavy machinery and its spare parts if used for • real estate; illegal mining activities and/or not having an environmental • fixed and permanent premises built and assigned by the con- authorisation (Decree 2,235 of 2012). cession holder exclusively for the transport and shipping of minerals comprised within the contract area; and The principal regulatory bodies that administer these laws are: • those goods that may not be withdrawn from the mine without • the Ministry of the Environment, which is the environmental causing harm to the deposit. authority nationwide; and • autonomous regional corporations (CAR) who are regional The return of such goods may apply only when, at the discretion of environmental authorities with jurisdiction at state level. the mining authority, they may be suitable for public service or for use by the community. Through decision C-123 of 2014, the Constitutional Court declared Upon termination of the concession contract, the concession that environmental protection measures must also be agreed upon holder shall continue to be bound to comply with and guarantee with local municipal authorities of the area where mining activities environmental obligations existing at the time of termination. will be carried out. At the time of execution of the concession contract, the concession holder must grant a performance bond to guarantee compliance with mining and environmental obligations, payment of fines 33 What is the environmental review and permitting process for a and unilateral termination of the contract by the state. If the perfor- mining project? How long does it normally take to obtain the mance bond is enforced, the concession holder must restore it to its necessary permits? initial amount. Any mining project usually starts with the exploration stage. For The amount guaranteed by the performance bond is calculated exploration purposes, the concession holders must follow the cor- on the basis of the following criteria: responding environmental guidelines published by the Ministry of • for the exploration stage, 5 per cent of the annual value of the the Environment and must present an environmental management investment intended for exploration in the corresponding year; plan (PMA). No environmental licence is required at this point. • for the construction and setting-up stage, 5 per cent of the Environmental guidelines consist of a sort of manual that includes annual investment; and the design of plans and measures for environmental protection • for the production stage, 10 per cent of the result of multiplying and HSE. The government and national environmental agencies the estimated annual production volume of the mineral subject are currently discussing the need to introduce new laws that will to concession with the mine entrance price of such a mineral as demand obtaining environmental licences for the exploration stage annually fixed by the government. as well. If during the exploration stage there is a need to use any natu- The performance bond must be approved by the mining author- ral resources (for example, use of water resources or tree felling), ity that granted the concession and must be kept in place during the corresponding environmental permit must be obtained. the concession term, including renewals or extensions and for three Upon completion of the exploration stage, an environmental additional years. The insured amount must always correspond to the licence is required to continue with the next stages of the mining above-mentioned percentages. project. Together with the application for an environmental licence, If there is any difficulty in the granting of the performance the concession holder must also file a business plan (PTO). bond, it may be replaced with a real estate guarantee, either granted Concession holders must also make sure that any indigenous or directly by the concession holder or by a third party. Afro-descendant communities located within the area of the mining project or within its area of influence are duly consulted beforehand. Health & safety, and labour issues Environmental studies prepared for the mining project must involve the participation of such communities. Within 15 days following 35 What are the principal health and safety, and labour laws the date of application for the environmental licence or filing of the applicable to the mining industry? What are the principal PMA, the competent environmental authority shall make sure that regulatory bodies that administer those laws? such participation took place and, if not, it shall call the parties to a The principal health and safety laws applicable to the mining prior-consultation meeting. industry are the following: The time frame for the granting of an environmental licence var- • the Mining Code, articles 97, 59 and 318; ies from project to project depending on the area where it is located, • Decree 1,335/1987: Underground Work Safety Regulation; whether indigenous or Afro-descendant communities exist in such • Decree 2,222/1993: Regulation of Health and Safety in Open Pit area or whether there are any reserves, parks or restricted areas Mining; and nearby. On average, the process can take from six months to one year. • Decree 035/1994: Safety and Prevention Measures in Mining Works. 34 What is the closure and remediation process for a mining project? What performance bonds, guarantees and other financial The principal labour laws applicable to the mining industry are the assurances are required? following: • the Labour Code: Decree Law 2,663/1950; In every mining project, the PMA, the PTO and the environmental • the Mining Code, articles 249, 250, 251, 253 and 254; and licence must always include the activities that will be carried out in • Resolution 18 0666/2010. the closure and remediation process. The closure plan must be prepared jointly with the mining and environmental authorities upon The principal regulatory bodies that administer those laws are: an evaluation of the status of the mine at the time of closure. • the Ministry of Mines and Energy; For follow-up purposes, the environmental authority verifies • the Colombian Institute of Geology and Mining (formerly that all closing and remediation activities included in the environ- Ingeominas); mental licence are complied with. • the Ministry of Social Protection; and Upon termination of the concession contract, the concession • the secretary of mines of the states Antioquia, Bolivar, Santander, holder must return to the state, free of charge, the following infra- Cesar, Boyacá and Caldas. structure used during the development of the mining project:

64 Getting the Deal Through – Mining 2014 Peña Mancero Abogados COLOMBIA

36 What restrictions and limitations are imposed on the use of domestic and foreign employees in connection with mining activities? Update and trends Holders of a concession contract must hire national employees provided they have the professional qualifications required for the job. Over the past year, as the success of a peace process between At least 70 per cent of the qualified professionals and managers must the government and guerrilla groups seems to grow closer, the economy has been in good shape and foreign investment has be Colombian citizens as well as 80 per cent of the non-qualified reached record levels. Nevertheless, the mining industry has workers. Also, the mining authority may determine the minimum had to face difficulties deriving from a dramatic decrease in number of local employees to be hired from within the region where international commodity prices, pressure from environmental the mining project takes place. groups and agencies towards a stricter application of environmental protection regulation and a number of regulatory changes that created a framework of uncertainty as to the Social and community issues future of mining projects. Miners are protesting strenuously over the length of time it takes to obtain a licence from the 37 What are the principal community engagement or CSR (corporate National Environmental Licensing Authority, a new agency with social responsibility) laws applicable to the mining industry? What little experience and a lot of pressure upon it. In December last are the principal regulatory bodies that administer those laws? year, in a historic event in the sector, environmental authorities imposed their biggest ever environmental fine of US$3.6 million The principal community engagement laws applicable to the mining on US coal producer Drummond Company Inc for dumping several industry are: hundred tonnes of coal in January 2013 from a barge into the • the Colombian Political Constitution, article 330; sea to avoid sinking in rough waters. As a result, Drummond stopped production for several months thus severely affecting coal • the Mining Code, chapter XIV, articles 121–136. This chap- production levels in the country. In the meantime, the government ter regulates the relation between mining activities with ethnic is working towards the implementation of large-scale mining groups: indigenous and Afro-descendant communities. Law projects where environmental protection and social responsibility 21/1991, which approves the Agreement 169/1989 from the will be key factors. The fact that Colombia is still one of the last International Labour Organization; unexplored regions in the Western Hemisphere and that it is richly endowed with minerals, guarantees that investment in the sector • Decree 1,320/1998 on prior consultation of indigenous and will continue to grow in the coming years. Afro-descendant communities for production of natural resources within their territory; and • Decree 2,820/2010 on environmental licences. 38 How do the rights of aboriginal, indigenous or currently or previously disadvantaged peoples affect the acquisition or The principal regulatory bodies that administer those laws are the exercise of mining rights? Ministry of Mines and Energy, the Colombian Institute of Geology Indigenous communities and Afro-descendant communities have the and Mining, the Mining and Energy Planning Unit and the Ministry preferential right to hold a concession contract over areas located of the Environment, Housing and Territorial Development, as well as in an indigenous or Afro-descendant mining zone. These zones are the mining secretaries of the states of Antioquia, Bolivar, Santander, defined by the mining authority and it is possible to restrict mining Cesar, Boyacá and Caldas. activity in indigenous or Afro-descendant mining zones for cultural, economic or social reasons. In other areas, outside indigenous or Afro-descendant mining zones, the rights of these communities are defined in connection with the environmental licence, because it is necessary to perform a prior consultation with such communities regarding the mining project.

Gabriela Mancero [email protected]

Suite 301 Tel: +57 1 3000 223 Calle 94A No. 11A-66 Fax: +57 1 3000 222 Bogotá www.pmabogados.co Colombia

www.gettingthedealthrough.com 65 COLOMBIA Peña Mancero Abogados

39 What international treaties, conventions or protocols relating to The Colombian mining industry is facing dramatic changes CSR issues are applicable in your jurisdiction? introduced as a result of a very large number of new mining rights Colombia is a party to Agreement 169/1989 issued by the applications and heavy criticism about the lack of strong institutions International Labour Organization. that may adequately enforce the law. As a result, the government is currently launching a whole new institutional structure provid- Foreign investment ing government agencies with stronger tools for the prosecution of illegal mining. 40 Are there any foreign ownership restrictions in your jurisdiction Large areas of the country having important reserves expec- relevant to the mining industry? tations are still unexplored, which explains the great number of Foreign investment is fostered in the country. There are no foreign concession contract applications currently filed. There is currently ownership restrictions relevant to the mining industry. However, great concern about the environmental implications if all such min- foreign parties wishing to carry out mining activities in Colombia ing licences are granted and there is a lot of pressure from environ- must establish a branch or incorporate a local subsidiary. mental pressure groups to have more areas declared as protected or restricted areas in order to avoid further mining activities in those International treaties areas.

41 What international treaties apply to the mining industry or an investment in the mining industry? There are no specific international treaties applicable to the mining industry or an investment specifically in the mining industry.

66 Getting the Deal Through – Mining 2014 Tobar & Bustamante ECUADOR Ecuador

Cesar Zumarraga and Santiago J Bustamante Tobar & Bustamante

Mining industry 5 How is the mining industry regulated? According to the 2008 Constitution, the state owns all minerals 1 What is the nature and importance of the mining industry in and non-renewable natural resources within the national territory. your country? These minerals and resources are considered to form a strategic sec- Although the country has great mining potential, similar to that of tor, which is managed, regulated, controlled and governed by the neighbouring countries, no metallic minerals (gold, silver, copper, state. The state can, on an exceptional basis, delegate mining rights zinc, etc) are currently being exploited in Ecuador, on either a to individuals or entities, by granting mining concessions for a term medium or a large scale. During the past 10 years, exploration of 25 years, which grant the concessionaire the exclusive right to mining activities have been carried out, principally by Canadian explore, exploit, process and sell any metallic minerals within the companies, which have resulted in the discovery of six mining concession. However, in order to commence the exploitation phase, projects that are ready to be developed and can therefore enter a concessionaire must first sign an exploitation contract with the into the exploitation phase. Ecuadorean state. Once these mining projects are in the exploitation stage, min- For each mining phase, a concessionaire must obtain an envi- ing will increase in importance for Ecuador as this will generate ronmental licence, granted following the preparation and approval jobs within the industry, particularly in areas around the mining of environmental impact studies, which studies must include pro- operations, and, due to the additional environmental and social cedures to consult, and disseminate information among, the com- responsibilities introduced by the Constitution of the Republic of munities within the area of influence. It should be noted that the Ecuador enacted in October 2008 (2008 Constitution), the qual- 2008 Constitution introduced many changes affecting environ- ity of life for many local communities will improve. In addition, mental and social responsibilities, which must be borne in mind the various royalties and taxes that are required to be paid to the by the mining industry. The changes included the specific inclusion Ecuadorean state pursuant to the terms of exploitation contracts of the rights of nature (the 2008 Constitution is without a doubt will also provide the country with additional income, although pro-nature), and the principles of sustainability, precaution, pre- as the Ecuadorean state only signed its first exploitation contract vention and environmental efficiency, which all arise out of the pursuant to the new Mining Act with Ecuacorrientes in March fundamental principle sumak kawsay, which means ‘good life’ in 2012, the actual benefits have yet to be seen. It is also important Quichua, the indigenous language of Ecuador. to mention that in April 2013 Ecuacorrientes and the Ecuadorean government signed a protection of investments agreement. 6 What are the principal laws that regulate the mining industry? What are the principal regulatory bodies that administer those laws? 2 What are the target minerals? Generally, there are a number of legal provisions regarding the The principal minerals targeted in Ecuador are gold, silver, cop- mining industry in the 2008 Constitution and, in particular, there per, lithium, rare earth, potash, iron, uranium and coal, although is the Mining Act that was enacted on 29 January 2009, and further Ecuador has a much wider geological potential and, to an extent, modified by the amendment passed on 16 July 2013. The General which minerals are targeted depends on global trends and the Mining Regulations and the Small-Scale and Artisanal Mining interest of individual companies. Regulations were promulgated on 4 November 2009. A new Mining Environmental Regulation for Mining Activities was promulgated 3 Which regions are most active? on 27 March 2014. The principal regulatory bodies that regulate and control the The most important minerals (gold and copper) discovered to date industry are the Ministry of Non-Renewable Natural Resources are located in the south of Ecuador, principally in the Zamora (MNRNR), the Ministry of the Environment, the Mining Regulation Chinchipe, Morona Santiago, Azuay and El Oro provinces. It should and Control Agency (ARCOM) and the National Geological also be mentioned that there are non-metallic minerals in the south Mining Investigation Institute. In addition to the Mining Act, the of the country and in particular in the province of Azuay. National Mining Company (Enami EP) was also created, which will be responsible for developing state mining projects and various Legal and regulatory structure projects in association with private companies. 4 Is the legal system civil or common law-based? The legal system is civil law-based. 7 What classification system does the mining industry use for reporting mineral resources and mineral reserves? Ecuador does not yet have a binding legal code for reporting mineral resources and reserves. However, according to Instruction www.gettingthedealthrough.com 67 ECUADOR Tobar & Bustamante

No. 261 issued by the MNRNR, until the Classification of Mineral the MNRNR following a public bidding process. The Ecuadorean Resources and Reserves Regulations are issued, reports presented to Mining Act recognises four categories for mining concession rights: the ARCOM by concessionaires must use the format accepted by the artisanal, small-scale mining, medium-size mining and large-scale Committee for Mineral Reserves International Reporting Standards, mining. which include the standards of the Australian Joint Ore Reserves The Mining Act defines artisanal mining as that which is carried Committee, the Canadian code 43-101, the UK Reporting Code and out for the subsistence of family units through the use of manual the South African Code for Reporting of Mineral Resources and equipment or portable devices. The production ranges for artisanal Mineral Reserves. mining are: • for metal minerals: up to 10 tons per day in underground mining Mining rights and title and up to 120m3 per day in alluvial mining; • for non-metal mining: up to 50 tons per day; and 8 To what extent does the state control mining rights in your • for construction materials: up to 100m3 per day in alluvial jurisdiction? Can those rights be granted to private parties and deposits and 50 metric tons per day for open-pit mining in hard to what extent will they have title to minerals in the ground? rock. Are there large areas where the mining rights are held privately or which belong to the owner of the surface rights? Is there a The production ranges for small-scale mining are: separate legal regime or process for third parties to obtain mining • for metal minerals: up to 300 tons per day in underground min- rights in those areas? ing; up to 1,000 tons per day in open-pit mining; and up to According to the 2008 Constitution, the state owns all those min- 1,500m3 per day in alluvial mining; erals and non-renewable natural resources within the national ter- • for non-metal mining: up to 1,000 tons per day; and ritory, although mining concessions of 25 years can be granted to • for construction materials: up to 800m3 per day for alluvial ter- individuals and entities giving them the right to explore, exploit, race mining, and 500 metric tons per day for open-pit mining. process and sell any minerals within the concessions (see question 5). There are, in fact, large areas where the mining rights are held The production ranges for medium-scale mining are as follows: privately. It should be noted, however, that the ownership of mining • for metal minerals: 301–1,000 tons per day in underground concessions is distinct from ownership of the surface land. mining; 1,001–2,000 tons per day in open-pit mining; and According to the Mining Act, in order to obtain a new mining 1,501–3,000m3 per day in alluvial mining; concession in a free area, applicants must participate in a public • for non-metal mining: 1,001–3,000 tons per day; bidding process, with the new concession being awarded to the • for construction materials: 801–2,000m3 per day for alluvial ter- successful bidder. If a concessionaire wishes to transfer an existing race mining; and concession to a third party, authorisation from the mining authori- • 501–1,000 metric tons per day for open-pit mining in hard rock ties must first be obtained. (quarries).

Any range that exceeds the one established for the medium-scale 9 What information and data is publicly available to private parties mining is considered large-scale mining. that wish to engage in exploration and other mining activities? Is These concessions grant concessionaires the exclusive right to there an agency which collects mineral assessment reports from explore, exploit, process and sell minerals within said concession, private parties? Must private parties file mineral assessment although if a concessionaire is in the large-scale mining category and reports? Does the agency or the government conduct geoscience wishes to commence exploitation activities, it must first enter into surveys, which become part of the database? Is the database an exploitation contract with the Ecuadorian state. Existing min- available online? ing concessions can be transferred, provided that prior authorisation ARCOM keeps a mining register of all the concessions that exist from the mining authorities has been obtained. in the country. Companies interested in specific areas should there- The principal obligations of mining rights holders are: fore contact ARCOM and request a certificate regarding the areas • to pay annual mining conservation patents; of interest. • to present annual exploration reports and investment plans; According to the Mining Act of Ecuador, all mining conces- • to present half-yearly production reports; sionaires should submit a technical and financial report of their • to pay mining royalties to the state when in the exploitation activities as indicated by the regulations of the mining authorities. phase; Submitting these reports is a legal duty necessary to maintain good • to obtain an environmental licence prior to commencing standing. The MNRNR and ARCOM are the institutions responsi- activities; ble for receiving annual exploration reports, investment plans and • to obtain administrative authorisations prior to commencing production reports from mining concessionaires. activities; ARCOM and the National Institute of Metallurgic Mining • to ensure at least 80 per cent of its workforce are Ecuadorean Investigation are the government agencies responsible for carrying employees; out technical analyses of national geological information and col- • to comply with the environmental management plan; lecting information for the national mining register. This informa- • to train their personnel; and tion is public but not available online. • to maintain information regarding their operations, etc.

10 What mining rights may private parties acquire? How are these 11 What is the regime for the renewal and transfer of mineral acquired? What obligations does the rights holder have? If licences? exploration or reconnaissance licences are granted, does such Prior authorisation is currently required by the state for the claim or tenure give the holder an automatic or preferential right to acquire the transfer of mining concessions and according to the amendment a mining licence? What are the requirements to convert to a introduced to the Mining Act in 2013, the transfer of shares which mining licence? represent more than 10 per cent of the stock of the company must Individuals or companies who are duly qualified as subjects of min- be registered in the Mining Registry, with a prior payment of one per ing rights may acquire mining concessions, which are granted by cent of the value of the transaction.

68 Getting the Deal Through – Mining 2014 Tobar & Bustamante ECUADOR

The state shall authorise the transfer of a mining title before the 15 Does the government or do state agencies have the right to signing of the transfer contract. For that purpose, the suitability of participate in mining projects? Is there a local listing requirement the concessionaire to hold mining rights must be demonstrated, and for the project company? a fee equivalent to 1 per cent of the value of the transaction must be According to the Ecuadorean Constitution (article 315), the state paid as well. may participate in the use and exploitation of natural resources A mining concession is granted for up to 25 years and may be through public enterprises such as the ENAMI or through mixed renewed for an equal period. Once the mining concession has been public–private enterprises in which the state is a majority share- granted, the concessionaire shall comply with the following phases holder. The ENAMI may also participate in partnership or in asso- and terms: up to four years of initial exploration; up to four years of ciation with other entities, public or private, in accordance with the advanced exploration; and two years of economic evaluation which legal provisions (see question 21). can be extended for an additional two-year period. During the last phase, the concessionaire must apply for the commencement of the exploitation phase of the project. The failure of such application 16 Are there provisions in law dealing with government expropriation would extinguish the mining concession. of licences? What are the compensation provisions? Within six months of the commencement of the exploitation The 2008 Constitution guarantees the right to private property and phase, the concessionaire, in the large-scale mining category, must prohibits any kind of confiscation. The same Constitution declares sign a mining exploitation contract with the Ecuadorean govern- that the expropriation of property – including mining concessions ment, although negotiations may begin during the economic evalu- – for reasons of public benefit or social interest may be declared, ation phase. Note: artisanal, small-scale and medium-scale mining at a fair value, restitution and payment. There are no specific rules operations do not need to sign a mining exploitation contract with for valuation and compensation in order to determine how much a the Ecuadorean government and are entitled to carry out explora- private individual could receive due to the expropriation of a mining tion and exploitation activities simultaneously. concession.

12 Is there any distinction in law or practice between the mining 17 Are any areas designated as protected areas within your rights that may be acquired by domestic parties and those that jurisdiction and which are off-limits or specially regulated? may be acquired by foreign parties? In Ecuador, there are various areas that are considered protected, Apart from the fact that foreign parties cannot participate in Small- because they are within the National System of Protected Areas, scale mining, domestic and foreign parties are equally entitled to Protector Forests or State Patrimony Forests. acquire mining rights. As a general rule, by constitutional mandate, the extraction of non-renewable resources, including logging, in protected areas is prohibited. However, such resources can be exploited on an 13 How are mining rights protected? Are foreign arbitration awards exceptional basis if requested by the president of Ecuador and the in respect of domestic mining disputes freely enforceable in your Ecuadorean National Assembly issues a declaration stating that it is jurisdiction? in the public interest. According to Ecuadorean legislation, mining is considered to be of With regard to Protector Forests, specific mining activities can public interest, which means it is in a special category and is granted be carried out once an environmental licence has been obtained, more protection than other private interests including land owner- specifying that activities can be carried out in the area. ship. If a concessionaire suffers any form of disruption as a result of a third party’s actions, concessionaires can initiate an adminis- Duties, royalties and taxes trative relief action with the ARCOM, which can take either direct or indirect preventive measures. 18 What duties, royalties and taxes are payable by private parties The Mining Act specifically states that, in the event of a dis- carrying on mining activities? Are these revenue-based or profit- pute arising out of an exploitation contract made between the based? Ecuadorean state and a mining concessionaire, such a dispute can As a general provision, the 2008 Constitution provides that the either be resolved by the local courts or may be submitted to interstate is entitled to receive a share of the benefits resulting from the national arbitration. However, the dispute can only be submitted to exploitation of non-renewable natural resources, which share is international arbitration if arbitration provisions are included in the not to be less than that received by the concessionaire carrying out contract and the seat of arbitration is in a Latin American country, the exploitation. The Mining Act more specifically establishes that as required by the 2008 Constitution. the state’s share consists of various taxes and royalties, including There is no local legislation preventing the enforcement of income tax, VAT, 12 per cent of the concessionaire’s profits (this is international arbitration awards in Ecuador. distributed to the concessionaire’s employees), windfall profit tax in the case of the large-scale mining category and a royalties depending 14 What surface rights may private parties acquire? How are these of the category of the mining title. rights acquired? Duties Private parties may acquire any form of surface rights, from own- More specifically, mining concessionaires have a number of finan- ership of the surface area to leases, usufructs, easements, etc. If a cial obligations under the Mining Act, including the requirement to mining concessionaire wishes to acquire an easement over a sur- pay annual conservation patent fees, except in the artisanal mining face area in order to develop its mining operations, it can either category. The conservation patent fees payable for concessions are enter into an agreement with the surface-owner or request that the calculated as follows: ARCOM impose an easement. It should be noted, however, that • small-scale mining: a sum equivalent to 2 per cent of the cur- foreigners cannot acquire any surface rights within frontier zones, rent minimum wage, multiplied by the number of hectares in the considered to be an area within 20 kilometres of a national border. concession; (See question 40.) • medium-scale and large-scale mining: initial exploration phase: a sum equivalent to 2.5 per cent of the current minimum wage, multiplied by the number of hectares in the concession; www.gettingthedealthrough.com 69 ECUADOR Tobar & Bustamante

• advanced exploration phase: a sum equivalent to 5 per cent of reinvested in production assets, provided the assets are to be used the current minimum wage, multiplied by the number of hec- to purchase new machinery or equipment, which are used as part of tares in the concession; and their production activities, such as the purchase of goods related to • exploitation phase: a sum equivalent to 10 per cent of the current investigations or technology to improve their productivity, gener- minimum wage, multiplied by the number of hectares. ate production diversity and to increase employment. Furthermore, deductions can be made when activities are carried out in economi- The state sets the minimum wage each year and for 2014 it is cally depressed areas or frontier zones and employees resident in US$340. such areas are employed. In addition, mining concessionaires are required to pay fixed fees for the use of water, which fees are set out in the Water Act and 20 Does any legislation provide for tax stabilisation or are there tax the Authorisation for the Use of Water Resolution granted by the stabilisation agreements in force? National Water Secretariat. The Ministry of the Environment also sets fees with regard to the environmental licence. The Ecuadorean Constitution (article 82) guarantees the principle of legal certainty, recognising clear, ex ante legal rules that shall be Taxes respected by all the state authorities. Furthermore, after the promul- Mining concessionaires are also required to pay various taxes, both gation of the Organic Code of Production in 2010 the state created direct and indirect. Direct taxes include income tax, which is cur- investment agreements with both domestic and foreign investors, in rently 22 per cent and payable on income less expenses. They must order to provide tax stability and other incentives. The first Mining also pay 3 per cent of their profits to their employees and 12 per Investment Agreement was signed during the last year with the cent of their profits to the state, as part of the benefits share referred Chinese company Ecuacorriente. to above. Finally, if mining concessionaires send money abroad, a 5 per cent currency exit tax is payable. 21 Is the government entitled to a carried interest, or a free carried As for indirect taxes, VAT at a rate of 12 per cent is payable interest in mining projects? on goods purchased and services rendered. Unfortunately, mineral According to the Constitution (article 315) and the Ecuadorean exporters are unable to recover any VAT payable, unlike in other Mining Law (article 16) the state may participate in mining pro- industries. jects through public or mixed public–private enterprises in which the Customs duties and other charges imposed by Customs are state is a majority shareholder. payable when importing goods to Ecuador. With the enactment of the current Mining Act (article 12) the In addition, a windfall profit tax of 70 per cent is payable only National Mining Company was created, in order to manage min- after pre-production investments in the mining project have been ing activity for the sustainable use of the mining resources. The recuperated. As mentioned, this tax only applies in the large-scale Company may carry out its duties independently, or in partnership mining category. or association with other entities, public or private, in accordance Furthermore, with regard to municipal taxes, liability for the with the legal provisions. following taxes should be borne in mind: • municipal patent – the maximum annual tax that can be paid, calculated according to a concessionaire’s assets, is US$5,000; 22 Are there any transfer taxes or capital gains imposed regarding • municipal tax equivalent to 0.15 per cent of the concessionaire’s the transfer of licences? assets; and According to the amendment introduced to the Mining Act in 2013, • rural land tax. the transfer of shares that represents more than 10 per cent of the stock of the company must be registered in the Mining Registry, with Concessionaires are also required to pay a contribution to the a prior payment of 1 per cent of the value of the transaction. Superintendency of Companies, which is currently set at 0.1 per cent of the concessionaire’s real assets. 23 Is there any distinction between the duties, royalties and taxes Royalties payable by domestic parties and those payable by foreign parties? Finally, with regard to royalties, the Mining Act states that during Domestic and foreign parties are required to pay the same duties, the exploitation stage, mining concessionaires must pay a royalty royalties and taxes (see question 18). depending on the mining category. Artisanal miners don’t have to pay any royalty at all. Small-scale mining is required to pay a royalty Business structures equivalent to 3 per cent of the sales of the principal and secondary minerals; medium-scale mining is required to pay a royalty equiva- 24 What are the principal business structures used by private parties lent to 4 per cent of the sales of the principal and secondary miner- carrying on mining activities? als; and, large-scale mining is required to pay a royalty equivalent to While foreign companies may open up a branch in Ecuador, this 5 per cent of the sales of the principal and secondary minerals. The business structure is not often used, as not only is there a risk that General Mining Regulations provide more detail, stating that the roy- the foreign parent company could be held accountable for any of alty is calculated on the gross income, less refining and transport costs. the branch’s liabilities, but also it is often more expensive and takes On the other hand, the percentage of royalties payable by con- longer to set up a branch than to incorporate a local company. cessionaires carrying out non-metallic mining activities is calculated In addition, local companies can have broader corporate objects, according to production costs. whereas the corporate object of a branch must be exactly the same (Shares or equity transfer fees are also applicable. See question as that of the parent company. 22.) As for joint ventures and trusts, although these structures are permitted in accordance with Ecuadorean legislation, they are not often used. 19 What tax advantages and incentives are available to private As such, the most common business structure is to incorporate parties carrying on mining activities? an Ecuadorean company. There are many forms of company, the Companies that reinvest their profits in the country are entitled to most common being corporations and limited liability companies. In a 10 per cent reduction in the income tax payable on the amount many ways the forms of company are very similar, for example, they

70 Getting the Deal Through – Mining 2014 Tobar & Bustamante ECUADOR must have at least two shareholders; however, the principal differ- Both the mining rights arising from a mining concession and ences between the two are that, in the case of limited liability compa- the contractual rights stemming from the exploitation contract can nies, the maximum number of shareholders is 15 and a shareholder be pledged as guarantee assignments to parties lending to a project. may only transfer shares if the prior consent of all the other share- Pursuant to the Civil Code, any right can be waived or assigned and holders is obtained. Although it depends on the needs of each inter- thus property, personal, litigation and inheritance rights, among oth- ested party, as such restrictions do not apply to corporations, this is ers, can be assigned. the most common form of business structure used. In the event of a The following conditions must be met to ensure that a guarantee joint venture, this structure can be reflected in the share ownership assignment is an effective guarantee for parties lending to a min- of the local company. ing project: first, a financial entity, not domiciled in the country or qualified as a subject entitled to mining rights must be allowed to be an assignee of mining rights; and secondly, the authorisation for 25 Is there a requirement that a local entity be a party to the the guarantee assignment and any other requirement needed for the transaction? formalisation thereof should be in place at the time said assignment Any foreign entity is required by law to be domiciled in Ecuador. is granted so that if the mining concessionaire defaults, the financial In addition, for tax planning reasons, it is quite often advantageous entity can automatically step into the project without needing any to incorporate a local company. For the development of small-scale other kind of procedure or authorisation. mining the concessionaire must be Ecuadorean and cannot have for- In addition to the above-mentioned guarantees, a pledge over eign partners or shareholders. These limitations are also applicable the shares held by the holding company in the company operating for artisanal miners. the mining project would be another option. The holding company could also place its shares in a guarantee trust in favour of the lend- 26 Are there jurisdictions with favourable bilateral investment treaties ers to the project. or tax treaties with your jurisdiction through which foreign entities Finally, the guarantee system also allows for an industrial pledge will commonly structure their operations in your jurisdiction? on the minerals obtained from the deposit, as well as on the current and future cash flows from the sale of said minerals. Ecuador has signed agreements for the promotion and protection of investments with the following countries: Argentina, Bolivia, Restrictions Canada, Chile, China, Costa Rica, Cuba, the Dominican Republic, El Salvador, France, Honduras, Italy, Paraguay, Peru, Romania, Spain, 29 What restrictions are imposed on the importation of machinery Sweden, Switzerland, the United States and Venezuela. However, the and equipment or services required in connection with exploration Ecuadorean state has decided to withdraw from the agreement with and extraction? the United States and it is possible that it will decide to withdraw Generally, there are no restrictions regarding such importation; from such treaties with other countries. however, certain exceptions apply. Ecuador has also entered into double tax treaties with Canada, China, Spain, France, Germany, Belgium, Switzerland, Romania, Italy, Brazil, Chile, Uruguay and Mexico and it is therefore advisable 30 What restrictions are imposed on the processing, export or sale for foreign entities to use these jurisdictions if possible. If foreign of minerals? Are there any export quotas, licensing or other entities wish to use jurisdictions that are considered to be tax havens, mechanisms that prevent producers from freely exporting their it should be noted that Ecuador imposes punitive taxes. production? There are no restrictions regarding the processing, export or sale Financing of minerals obtained from mining operations. The principle of free trade is enshrined in the current legislation and minerals can be 27 What are the principal sources of financing available to private freely exported, provided all of the taxes required to be paid have in parties carrying on mining activities? What role does the domestic fact been paid (the relevant taxes are discussed under question 18). public securities market play in financing the mining industry? Financing for mining operations generally comes from abroad as there are very limited financing sources because financial entities 31 What restrictions are imposed on the import of funds for such as banks consider mining activities to be high-risk investments. exploration and extraction or the use of the proceeds from the In addition, there are no government financing sources for mining export or sale of minerals? activities. The mining industry, therefore, relies heavily on direct Ecuador does not impose any form of restriction regarding the foreign investment, either by entrepreneurs, private equity funds or importation of funds to be used for mining operations, nor on the trusts. use of proceeds resulting from the sale or exportation of minerals. However, any funds brought into Ecuador must be registered with the Central Bank of Ecuador. 28 Please describe the regime for taking security over mining interests.

The personal nature of mining rights contradicts several norms of Environment the Mining Act, which treat said rights as if they were property rights. However, because they are personal rights, suitable guaran- 32 What are the principal environmental laws applicable to the tees can be set up for lenders to a mining project. mining industry? What are the principal regulatory bodies that Although whether it is possible to pledge the mining rights aris- administer those laws? ing from a mining concession is open to question, it is feasible to The principal environmental legislation that applies to the mining establish an industrial pledge over a mining concessionaire’s assets. industry are the 2008 Constitution, the Environmental Management A mining concessionaire could therefore grant a number of distinct Act, the Environmental Mining Regulations, the Unified Text of and independent security interests, one over the mining rights aris- Secondary Environmental Legislation, the Forestry and Conservation ing out of the mining concession and the other over the buildings, of Natural Areas and Wildlife Act, the application of social partici- machinery, tools, etc, located in the mining concession, in accord- pation mechanisms established in the Environmental Management ance with the terms of article 576 and onwards of the Ecuadorean Act Regulations, the Water Act, and the Prevention and Control of Commercial Code. Environmental Contamination Act. www.gettingthedealthrough.com 71 ECUADOR Tobar & Bustamante

The regulation and control bodies are the Ministry of the applicable labour and immigration requirements, including the obli- Environment and its regional environmental offices and, with regard gation to train Ecuadorean personnel in their field of expertise. to water resources, the National Secretariat of Water. In addition, when hiring, mining companies must favour workers living in the area of influence of the project and have policies regarding the integration of employees’ families in place. 33 What is the environmental review and permitting process for a mining project? How long does it normally take to obtain the Social and community issues necessary permits? In order to carry out mining activities, a concessionaire must obtain 37 What are the principal community engagement or CSR (corporate an environmental licence. In order to obtain such a licence, the con- social responsibility) laws applicable to the mining industry? What cessionaire must prepare environmental impact studies and sub- are the principal regulatory bodies that administer those laws? mit them to the Ministry of the Environment for approval. Once All mining activities must respect the principle of sumak kawsay, the approved, the corresponding environmental licence is issued. It principle established in the 2008 Constitution to ensure that eve- should be noted that concessionaires performing initial or advance ryone may live in a healthy and economically stable environment. exploration do not need an environmental impact study but rather Ecuadorean legislation contains many provisions regard- an environmental card or an environmental statement, respectively, ing these matters. There are a series of legal provisions regarding which are simpler reports than the former. CSR in various different pieces of legislation, including the 2008 The entire environmental licensing process can take about six Constitution, the Mining Act, the Popular Solidarity Economy Act, months. the Environmental Management Act and the Citizen Participation Act, among others. 34 What is the closure and remediation process for a mining The government institutions responsible for ensuring compli- project? What performance bonds, guarantees and other financial ance with these provisions are the MNRNR, the Ministry of the assurances are required? Environment, the People’s Secretary, the Ombudsman and, essentially, all public officials as, by constitutional mandate, they are All environmental impact studies must contain an environmental required to abide by the principles and guarantees set out in the management plan, which in turn must contain a plan for the par- 2008 Constitution. tial or total closure of the mining operations. Among other details, In addition, it is common for each mining company to have its the plan must contain details regarding the dismantling of facilities, own CSR policies. remediation and rehabilitation of affected areas, etc. The concessionaire must provide an annual budget for these closure activities, approved by the environmental authorities. 38 How do the rights of aboriginal, indigenous or currently or With regard to guarantees, the concessionaire is required to pro- previously disadvantaged peoples affect the acquisition or vide a bank guarantee or to take out an insurance policy, which must exercise of mining rights? remain in force until the total closure of mining operations, in order In Ecuador, the collective rights of indigenous communities, to guarantee compliance with the environmental management plan. nationalities and peoples are recognised in the 2008 Constitution and the various international human rights agreements, protocols, Health & safety, and labour issues declarations and other instruments (see question 39). Indigenous communities, nationalities and peoples must be 35 What are the principal health and safety, and labour laws consulted, freely and with sufficient information, regarding any applicable to the mining industry? What are the principal plans or programs to explore, exploit or sell non-renewable nat- regulatory bodies that administer those laws? ural resources located within their land and which could affect The principal legal provisions regarding health and safety, and them, either environmentally or culturally, or affect their prop- labour laws are set out in international agreements to which erty rights. Furthermore, they have the right to receive a share of Ecuador is a party including ILO, the 2008 Constitution, and vari- the benefits generated by these projects and to receive compensa- ous Ecuadorean laws and regulations, including the Labour Code tion for any social, cultural or environmental damage caused as a and the General Labour Risks Insurance Regulations, among result. The consultation referred to above is mandatory and must others. Labour law in Ecuador is extremely complex and heavily be carried out by the competent authorities on a timely basis. biased in favour of employees, and the rights granted to employ- It is completely prohibited to carry out extraction activities in ees by the legislation cannot be waived or challenged. The Labour lands belonging to peoples who voluntarily choose to remain isolated. Code regulates the forms of labour contracts, holiday, minimum wages, bonuses and other benefits, maternity leave, unions and collective contracts, strikes and compensation, among other mat- 39 What international treaties, conventions or protocols relating to ters. The Social Security Act governs social security benefits and all CSR issues are applicable in your jurisdiction? companies must make their employees members of the Ecuadorean Ecuador is party to a number of international treaties, the princi- Social Security Institute (IESS). pal ones being the following: the Universal Declaration of Human The IESS and the Ministry of Labour, together with its labour Rights; the International Convention on the Elimination of All inspectors, are responsible for ensuring compliance with labour and Forms of Racial Discrimination; the UN Covenant on Civil and social security legislation. Political Rights; the International Covenant on Economic, Social and Cultural Rights; the Additional Protocol to the American Convention on Human Rights in the Area of Economic, Social and 36 What restrictions and limitations are imposed on the use of domestic Cultural Rights; and the ILO Convention (169) on Indigenous and and foreign employees in connection with mining activities? Tribal People in Independent Countries. The Mining Act states that no more than 20 per cent of a min- According to the current Constitution, the above-mentioned ing company’s employees can be foreign. Furthermore, preference international agreements are binding, and within them, the provi- should always be given to Ecuadorean specialised technical person- sions of the human rights agreements prevail over the Constitution nel and only if there are none should foreign personnel be contracted. itself. In addition, the government has developed laws and regu- Any foreign employees must have a work visa and comply with all lations to protect the right to prior consultation of indigenous

72 Getting the Deal Through – Mining 2014 Tobar & Bustamante ECUADOR

Update and trends

In spite of the government’s political decision to support and promote of wealth is equitably and fairly distributed throughout society. As mining activities, the mining industry has not taken off yet. The legal a result of this principle, industry players must bear in mind that framework in place since 2009 has failed to create an attractive and a successful project means there is a fair return: for the state, as safe environment for public or private investors. the owner of the resource, for the private investor, as the entity In 2013 the Ecuadorean government enacted the last amendment responsible for its production and which bears the business risk; and of the Mining Act seeking to improve the legal framework of the also for the communities within the area of influence of the project. development for the mining industry. Among the most relevant Despite the mentioned legal framework, the geological potential amendments we can highlight the following: the medium mining of Ecuador remains very attractive. In the 2013 Canadians companies, category was created; new regulation and penalties were included which are clients of this firm, announced two majors discoveries. in order to control and eradicate illegal mining activities; the The first one is the Condor Gold Project in the Zamora Chinchipe modification of permit and authorisation requirements to simplify and province, by Ecuador Gold and Copper (TSX.V EGX), which comprises expedite the processes; and the modification of the windfall tax that 447.3 million tonnes at 0.56 g/t gold (Au) (8 million ounces Au) in the was a burden for private investors in the negotiation processes of the indicated category with a further 197.6 million tonnes at 0.4 g/t Au exploitation contracts. (2.6 million ounces Au) in the inferred category. However, the amendments did not cover a number of relevant Secondly, funded by joint-venture partner Cornerstone Resources matters that are essential to make the mining business in Ecuador (TSX.V CGP) targeting porphyry copper-gold deposits, Cascabel has been attractive, such as: modifying the legal nature of mining rights from the focus of a five-hole drill campaign that produced results indicating ‘personal’ to ‘real rights’, eliminating the limit on the exploration the possible discovery of a large gold-enriched copper porphyry system. phases, and allowing private companies or individuals to explore free Hole 5 assayed: 672m grading 0.93 per cent copper (Cu) and 0.91 g/t areas. Au (from 658m), including 552m grading 1.03 per cent Cu and 1.05 According to article 408 of the Constitution, the state is entitled g/t Au (from 778m) or 258m grading 1.27 per cent Cu and 1.40 g/t Au to receive a share of the benefits obtained from the exploitation of (from 1052m). A phase 2 drill programme is under way and Cornerstone natural resources in a sum which is to be no less than that received retains a 15 per cent interest in this exciting discovery. by the company carrying out the exploitation. Paradoxically, the lack of attractiveness of the legal framework The state’s share in mining projects is comprised of the following: creates a lot of opportunities for new investors. Ecuador is still an • royalty between 3 per cent and 5 per cent of sales depending on unexplored country (less than 4 per cent of the territory has been the mining category; explored) and the government wants to promote the industry. In fact, • a 22 per cent income tax; things may be coming to a head during the coming months, as the • 12 per cent of the profits which were previously paid to workers; government hired a well-respected international consulting firm (Wood • in the large-scale category, a 70 per cent windfall tax calculated Mackenzie) to do a competitive analysis of Ecuador’s mining sector. on the mineral base price set by the exploitation contract; and Results of its analysis are to be presented directly to President • 12 per cent VAT as determined by the tax legislation currently in Rafael Correa. effect (articles 82 and 93 of the Mining Act). As Louis James from Cassey Research says: ‘Then the ball will be in Correa’s court. His political party has a supermajority, so he doesn’t The Constitution has incorporated a guiding public policy concept, the need much agreement to get things done; if he decides to do what’s principle known as Sumak Kawsay, which translates into English as necessary – even if it means changing the Constitution again – it the Good Life, which requires the state to ensure that any generation could happen very fast.’ communities. It is also important to note that, in the light of a 2012 area, there would be a requirement of prior authorisation from the decision of the Inter-American Court of Human Rights, Ecuador Ministry of Defence, in accordance with article 41 of the Ecuadorean should adopt legislative measures in order to fully facilitate the Safety Law (see question 14). right of indigenous peoples to prior consultation, and should also modify those laws that may restrict its free and informed exercise. International treaties

Foreign investment 41 What international treaties apply to the mining industry or an investment in the mining industry? 40 Are there any foreign ownership restrictions in your jurisdiction As previously mentioned, Ecuador has double tax treaties with relevant to the mining industry? Canada, China, Spain, France, Germany, Belgium, Switzerland, The 2008 Constitution incorporated the prohibition of real estate Romania, Italy, Brazil, Chile, Uruguay and Mexico. Ecuador has acquisition by foreigners in border areas, which extends to 20 kilo- also signed agreements for the promotion and protection of invest- metres from the frontier. This prohibition does not apply to min- ments with a number of countries, as mentioned in the response to ing concessions. However, if an area is located within the border question 26.

Cesar Zumarraga [email protected] Santiago J Bustamante [email protected]

Av 12 de Octubre N26-97 y Lincoln Tel: +593 2 298 6456 Edificio Torre 1492, Oficina 1505, Piso 15 Fax: +593 2 298 6462 Quito www.tblaw.ec Ecuador

www.gettingthedealthrough.com 73 FINLAND Kalliolaw Asianajotoimisto Oy – Attorneys at Law Finland

Pekka Holopainen and Panu Skogström Kalliolaw Asianajotoimisto Oy – Attorneys at Law

Mining industry Platinum group metals Mining projects Good discovery potential 1 What is the nature and importance of the mining industry in your Rare earth metals Deposits Good discovery potential country? Tantalum Deposits Moderate discovery potential Finland is one of the leading mining countries in Europe. Accordingly, Tungsten Deposits Moderate discovery potential mining is a very important industry for Finland, along with its future Aluminium No deposits Low discovery potential growth potential. Finland has the right geology and a long min- Chromium Mining production Good discovery potential ing tradition: mining activity in Finland is currently concentrated Iron Mining projects Moderate discovery potential around gold, platinum group metals, base metals, diamonds and Magnesite No deposits Moderate discovery potential industrial minerals. Finland offers an attractive investment and operating environ- Manganese Mining projects Moderate discovery potential ment for the exploration and mining industry. There is potential for Molybdenum Deposits Moderate discovery potential new discoveries because there are commodities that are currently Nickel Mining production Good discovery potential explored on a small scale or not at all. In contrast to many other Rhenium No deposits Low discovery potential countries, Finland also has many high-class geological databases Tellurium Deposits Good discovery potential available on the Internet. The infrastructure is good, even in rural Vanadium Mining projects Good discovery potential areas, and there are skilled subcontractors available. Also, the public sector provides many services for the mining industry that would, in Zinc Mining production Good discovery potential other countries, incur large costs. Barite No deposits Moderate discovery potential Finland’s mining production has doubled over the past decade Bentonite No deposits Low discovery potential and the growth has been especially fast in recent years. In 2013, the Boron No deposits Low discovery potential total amount extracted from Finnish mines was 79.4 million tonnes, Clay minerals Deposits Moderate discovery potential of which 36.5 million tonnes constituted ore or usable minerals as it Copper Mining production Good discovery potential appears from the report of the mining authority, the Finnish Safety and Chemicals Agency (TUKES). The number of mine workers in Diatomite No deposits Low discovery potential the whole mining sector (including construction minerals) in Finland Feldspar Mining production Good discovery potential has also increased and the total workforce, including subcontractors, Gypsum No deposits Low discovery potential currently numbers around 4,500 people. That number is expected to Limestone Mining production Good discovery potential grow in the future. There were in total 46 mines operating in Finland Lithium Mining projects Good discovery potential in 2013 of which 12 were for metallic minerals. All in all, the whole Perlite No deposits Low discovery potential Finnish mineral cluster (including the technology and service providers) provides employment for some 30,000 people. Quartz Mining production Good discovery potential Silver Mining projects Moderate discovery potential Talc Mining production Good discovery potential 2 What are the target minerals? Titanium Mining projects Good discovery potential The target minerals are as follows: Gold Mining projects Unknown Uranium and thorium Exploration Unknown Metal/Mineral Mining Production Discovery Potential in Finland in Finland Soap stones Mining projects Unknown Antimony Deposits Moderate discovery potential Precious stones Deposits Unknown Beryllium No deposits Moderate discovery potential Cobalt Mining production Good discovery potential 3 Which regions are most active? Fluorite No deposits Low discovery potential Northern and eastern Finland are the most active regions, although Gallium No deposits Low discovery potential ore bodies are also discovered in other parts of the country. Germanium No deposits Low discovery potential Legal and regulatory structure Graphite Deposits Moderate discovery potential Indium No deposits Moderate discovery potential 4 Is the legal system civil or common law-based? Magnesium No deposits Low discovery potential Finland’s legal system is civil law-based. Niobium Mining projects Good discovery potential

74 Getting the Deal Through – Mining 2014 Kalliolaw Asianajotoimisto Oy – Attorneys at Law FINLAND

5 How is the mining industry regulated? exploration permits and mining permits subject to the legal require- In Finland national and EU laws regulate the entire country, ments being met. Currently less than 2 per cent of the total area of although the Åland Islands are exempted in some ways, given their Finland is subject to exploration permit or permit applications or right of self-government. There are mining and other laws in force mining permits or permit applications. that regulate the mining industry. Exploration It is possible for private parties to engage in exploration in the form 6 What are the principal laws that regulate the mining industry? of prospecting work without any permit on areas where the surface What are the principal regulatory bodies that administer those rights are held by someone else (private/state). This right is com- laws? parable with rights of public access. It is also possible to carry out There is a special mining law in force in Finland, namely the new exploration without an exploration permit but with a landowner’s Mining Act (621/2011), which entered into force on 1 July 2011. The permit, but this does not give any priority to get the exploration or Act takes account of other key legislation applicable to exploration mining permit for the target area. and mining activity, including the Environmental Protection Act, the An exploration permit, granted by TUKES, is always required Nature Conservation Act, the Act on the Protection of Wilderness if the activity poses any risk to people’s health, general safety or Reserves, the Land Use and Building Act, the Occupational Safety other industrial and commercial activity, or any deterioration of the and Health Act, and legislation applicable to the Sami Homeland, landscape or nature conservation. Without exception, an explora- the Skolt area and reindeer herding area. Several government decrees tion permit is required if the prospecting is targeted for locating or have been issued based on the Mining Act such as the Mining Decree exploring a deposit containing uranium or thorium. (391/2012), the Government Decree on Mine Safety (1571/2011) The exploration and mining rights can be acquired by private and the Decree of the Ministry of Employment and the Economy parties. A potential reservation followed by an exploration permit on Hosting Equipment in Mines (1455/2011). All laws operate at or mining permit, or both, gives the priority and title to the minerals the national level. in the target area. The most important government body for the mining industry There are an increasing number of reservations, exploration is TUKES, which acts as the mining authority. TUKES is respon- areas and mining areas but there are still large areas with good or sible for granting permits and supervising and enforcing compli- moderate discovery potential available for interested parties. ance with the Mining Act. Decisions of TUKES can be appealed to the administrative courts and further, with some limitations, to the Mining Supreme Administrative Court. The Ministry of Employment and A mining permit gives the right to develop a mine and to carry on the Economy is responsible for the general guidance, monitoring, mining activities. The holder of a mining permit has the right to and development of activities under the Mining Act. exploit the mining minerals found in the mining area, the organic On the environmental side, the environmental permit required and inorganic surface materials, waste rock and tailings generated as for mining is granted by the competent regional state administra- by-products of mining activities. In addition, the holder may exploit tive agency (AVI), whereas the centres for economic development, other materials belonging to the bedrock and soil of the mining area transport and the environment (ELY centres) manage the regional to the extent that their use is necessary for the purposes of mining implementation and development tasks of the state administration. operations in the mining area. The mining permit also entitles its The ELY centres supervise decisions on environmental and holder to exploration within the mining area. The procedures for water permits issued by the AVIs and protect the public interest in establishing a mining area involve the claiming of rights to land use environmental and water issues. Activities that require an environ- and of other rights to the areas for the holder of the mining permit, mental permit such as mining projects are supervised throughout the determination of compensation, and conducting the required their lifetime. ELY centres also act as contact authorities in envi- measures of land subdivision. ronmental impact assessment procedures. The decision to grant a mining permit is based on a compre- Local municipalities are responsible for their own detail plan- hensive approach, on the one hand taking account of the needs of ning and are also the authorities granting building permits. prospecting and mining, on the other hand, considering factors such Finally, in any matters that relate to radioactive substances the as the status of landowners and private parties sustaining damage. Radiation and Nuclear Safety Authority of Finland (STUK) is the Moreover, impacts of activities on the environment, landscape, land key authority to involve. STUK belongs to the administration of the use and safety, the economic use of natural resources and nature Ministry of Social Affairs and Health. conservation, radiation safety and the reconciliation of user needs in different areas need to be taken into account. Very often the mining company acquires the title (surface rights) 7 What classification system does the mining industry use for to the land through voluntary acquisitions. Should this not be the reporting mineral resources and mineral reserves? case, the government may grant a permit to utilise an area for min- Mainly CIM and JORC systems. ing even though the surface rights are held by someone else (redemption permit for a mining area). The formal prerequisite for this is Mining rights and title that the mining project is in the public interest. 8 To what extent does the state control mining rights in your jurisdiction? Can those rights be granted to private parties and 9 What information and data is publicly available to private parties to what extent will they have title to minerals in the ground? that wish to engage in exploration and other mining activities? Is Are there large areas where the mining rights are held privately there an agency which collects mineral assessment reports from or which belong to the owner of the surface rights? Is there a private parties? Must private parties file mineral assessment separate legal regime or process for third parties to obtain mining reports? Does the agency or the government conduct geoscience rights in those areas? surveys, which become part of the database? Is the database Finland has a system according to which the discoverer basically can available online? get the rights to the minerals in the ground even if the surface rights The Geological Survey of Finland (GTK) is the national geological are held by the state or a third party. The state registers reservations organisation as well as the national geosciences centre responsible for for areas regarding which exploration permits can be filed, issues collecting and maintaining geoscientific data in Finland. The GTK’s www.gettingthedealthrough.com 75 FINLAND Kalliolaw Asianajotoimisto Oy – Attorneys at Law key activities are the mapping and evaluation of natural resources, located at a distance of less than one kilometre from such an area, and research and development. In addition to national mapping belonging to a party other than the applicant on the basis of a permit and geosciences information related to bedrock geology, geophys- referred to in Mining Act. In addition, the reservation notification ics, geochemistry and mineral occurrences, the GTK evaluates the cannot concern an area that has previously been a reservation area ore potential of geological formations to encourage further evalua- until one year has passed since the expiry or cancellation of the tion by the private sector. All discoveries are tendered to the private reservation decision. sector through the Ministry of Employment and the Economy, and The reservation gives priority to get an exploration permit and the government has no role in the downstream development of the is valid for two years, within which time an application for an mineral deposits. exploration permit must be filed or the reservation will expire. The The GTK’s databases cover the entire country with exceptional holder has to give prior notice of prospecting to the landowner, quality and include: however, a reservation does require exploration to be carried out. A • high-resolution, low-altitude airborne geophysical surveys (40m reservation cannot be assigned to another party. altitude, 200m line spacing); • regional till geochemical sampling (one sample/4km2); in bed- Exploration permit rock mapping at 1:100,000 scale; and Exploration permits are granted on a first-to-file basis by TUKES, • quaternary geology mapping at 1:20,000 scale. taking into account that a reservation gives priority. Mining permits for uranium and thorium are granted by the Finnish government. Datasets are available in digital GIS form and selected ones are view- Basically, if exploration cannot be carried out as the above- able on GTK’s web page Active Map Explorer (http://geomaps2.gtk. mentioned prospecting work and the property owner does not fi/activemap/). This web service provides up-to-date information on consent to exploration, a permit granted by TUKES (exploration land tenure, exploration reports, drilling, mines and undeveloped permit) is needed. An exploration permit is also always required deposits, mineral indications data, and bedrock age data in Finland. if the exploration could cause harm to people’s health or general Each holder of an exploration permit (called claim under the old safety, damage to other industrial and commercial activity, or any Mining Act) must yearly submit a report to TUKES on the explora- deterioration in value related to the landscape or nature protection tions activities that have been carried out and their main results. values. Further, an exploration permit is required if the targeted Once an exploration permit has expired or been cancelled, minerals are uranium or thorium. the exploration permit holder must within six months, submit to The application for a permit must include reliable information TUKES an exploration work report, the information material per- on the applicant meeting the prerequisites for carrying out opera- taining to the exploration, and a representative set of drill core tions commensurate with the permit sought; the area, parties con- samples. The drill core samples are ultimately archived at the drill cerned; a preliminary assessment of the mining minerals in the core archive of the GTK. area, and the basis for such an assessment; plans concerning the activities; the environmental and other impacts of activities; and after-care measures. 10 What mining rights may private parties acquire? How are these The exploration permit also includes provisions on, for example, acquired? What obligations does the rights holder have? If exploration the times and methods of exploration surveys and the equipment or reconnaissance licences are granted, does such tenure give and constructions used; measures to diminish harm caused to rein- the holder an automatic or preferential right to acquire a mining deer herding in a special reindeer herding area; obligation to report licence? What are the requirements to convert to a mining licence? about exploration activities and their results; post-mining measures; Right to carry out prospecting work the waste management plan for extractive waste and collateral In Finland, based on the principle of public access everyone has the securing the post-exploration measures. right even on another’s land to conduct geological measurements The holder of an exploration permit has an obligation to carry and make observations and to take minor samples in order to find out prospecting or a survey. TUKES can decide that an exploration mining minerals, provided that this does not cause any damage or permit will expire if operations have been interrupted continuously more than minor inconvenience or disturbance (prospecting work). for a minimum of one year for a reason given by the permit holder. There some limitations to this regarding (eg, restricted areas). The person who, in connection with prospecting, intends to damage Prior to commencement of sampling the person or company has or cut down growing trees shall inform the landowner in advance. to submit a notification to the owner and holder of a real estate in Damage and harm arising from prospecting has to be compensated the area prospecting area, which contains contact details, the pros- in full. For an exploration permit, the permit holder must pay the pecting area, methods used and targeted mining minerals as well as exploration fee (see also question 18) and compensate landowners other information provided for in the Mining Act. or owners of the water areas for all damage and harm caused to A private party may make a reservation notification, acquire an them. The holder of the exploration permit must deliver to the exploration permit or mining permit on a first come, first served mining authority a detailed annual report on the prospecting work basis. Exploration or mining permits are granted if the applicant carried out in the permit area. After the termination or expiration proves that the conditions set for it in the Mining Act are met and of the exploration permit the permit holder must immediately there is no impediment stipulated in the Act to the granting of the restore the exploration area to the condition required by public permit. However, regardless of an impediment specified in this Act, safety, remove temporary constructions and equipment, attend to a permit may be granted if it is possible to remove said impediment rehabilitation and tidying of the area, and restore the area to its through permit conditions or by decreasing the size of the area. natural status as far as possible. The permit holder must also submit to the mining authority within six months an exploration work Reservation report, the information material pertaining to the exploration, and The reservation notification is filed in written form with the min- a representative set of core samples accompanied by the drill logs. ing authority (TUKES). The notification must include information The permit holder must pay an exploration fee (for more details on the notifier; the target area (reservation area) and a compilation see question 18). of an exploration plan and other measures in preparation for the exploration permit application. Mining permit The reservation notification may not concern an area that forms Mining permits are, as exploration permits, also granted on a first-to- part of an exploration area, mining area, or gold panning area or is file basis by TUKES. Notwithstanding this, regarding a mining permit

76 Getting the Deal Through – Mining 2014 Kalliolaw Asianajotoimisto Oy – Attorneys at Law FINLAND for a deposit located within a valid exploration area, the exploration Mining permit permit holder has priority to the mining permit. Mining permits for A mining permit is as a rule granted until further notice. A permit uranium and thorium are granted by the Finnish government. can also be granted only for a fixed term where there are compel- The establishment of a mine and undertaking of mining activity ling reasons that relate to, for example, the size and qualities of are subject to a mining permit granted by TUKES. Even when the the deposit and the ability of the applicant to start the mining mining permit application relates to an area for which an explora- operation. The term may not exceed 10 years from the date on tion permit has been granted, the mining permit is a new permit and which the permit gained legal force. subject to new scrutiny of the project on its merits. The prerequi- The Mining Act requires TUKES to review the terms of the sites for getting a mining permit are that the deposit is exploitable mining permit every 10 years even for those permits that are valid in terms of size, ore content and technical characteristics. until further notice. However, the revision of the terms may not A mining permit entitles the holder to exploit the mining min- materially lower the profit that is derived from the mine. erals found in the mining area; the organic and inorganic surface materials, excess rock, and tailings generated as a by-product of Transfer of permits mining activities; and other materials belonging to the bedrock and A reservation for an exploration permit cannot be transferred. soil of the mining area to the extent that the use of these is neces- An exploration permit and a mining permit are transferrable. sary for the purposes of mining operations. The mining permit also Moreover, an exploration permit application and a mining permit entitles the holder to carry out exploration within the mining area. application can be transferred. The transferee has to meet the same The mining permit holder is obliged to ensure that the mining legal requirements that are detailed in the Mining Act for a permit activities do not cause damage to people’s health or danger to pub- holder. For the production of uranium or thorium a permit pursuant lic safety; mining activities do not cause significant harm to public to the Nuclear Energy Act is also required. or private interests, in relation to the overall costs of the mining The transfer is subject to the approval of TUKES, which gener- operations, reasonably avoidable infringement of public or private ally has to approve the transfer if the formal requirements have interests; excavation and exploitation do not entail obvious wast- been met. However, TUKES may decline to approve the transfer ing of mining minerals; potential future use and excavation work if, for example, the transferee has earlier failed to comply with at the mine and deposit are not endangered or encumbered. The requirements of the Mining Act. mining permit holder is obliged to submit an annual report to the mining authority on the extent and results of the exploitation of the Change-of-control situations deposit and to inform of any essential changes in the information on A change of control in the permit holder does not have to be mineral resources. approved by TUKES in order for the permit to continue to be valid. In the mining permit, TUKES sets a time limit in the permit dur- However, as the exploration permit has a limited term and also the ing which the permit holder has to start the mining activity or such terms of a mining permit are revised every 10 years, the change of preparatory work as indicates that the permit holder is seriously control may lead to changes in the terms of the permit. This could be aiming at actual mining operations. If the time limit is forfeited, the case if, for instance, the ability of the permit holder to fulfil the TUKES may decide that the mining permit expires. requirements of the permit changed owing to the change of control. Finally, when the mining activities have ended the mining permit holder has two years to bring the mine and any auxiliary areas up 12 Is there any distinction in law or practice between the mining the standards required by public safety and to make the necessary rights that may be acquired by domestic parties and those that rehabilitation, cleaning and landscaping measures. This includes the may be acquired by foreign parties? measures that have been set in the mining permit and mine safety permit. In accordance with the parties entitled to operate a business in Finland, parties eligible to apply for an exploration permit or a Redemption permit for a mining area mining permit are: In the case the applicant of the mining permit does not hold the • any natural person domiciled within the European Economic surface rights, the applicant has to apply from the government for Area (EEA); the right to utilise the area for mining (redemption permit for a • any Finnish corporation or foundation; and mining area). The granting of such permit is subject to the mining • any foreign corporation or foundation that has been established project being based on public need and the mining area meeting in accordance with the laws of a state belonging to the EEA and the requirements set forth in section 19 of the Mining Act. (For that has its registered office, central administration or principal more details, please see question 14 below.) place of business in a state belonging to the EEA and has regis- The holder of the mining permit also must pay an excavation tered a branch office in Finland. fee to the holders of surface rights as well as compensate in full for damages or harm to the landowners. (For more details on the min- The National Board of Patents and Registrations may grant a ing permit related fees, please see question 18 below.) permit to conduct business operations governed by the Mining Act to another natural person as well as to a foreign corporation or foundation. Such a permit is also required for general partnership 11 What is the regime for the renewal and transfer of mineral licences? or limited partnership unless at least one of the partners in general Renewal of an exploration permit partnership and one of the liable partners in limited partnership is a An exploration permit is always granted for a fixed term of up to natural person or corporation that fulfils the above requirements. In four years. The permit can be extended for up to three years at a addition, a governmental agency may apply for such permits. time for a total period of 15 years. The extension is subject to the In practice, exploration and mining companies usually set up a following requirements: Finnish subsidiary in the form of a limited liability company (Oy) • the exploration must have been effective and systematic; through which the activities are carried out. • the determination of the exploitability of the deposit requires follow-up research; • the permit holder has complied with the terms of the permit; and • extending the permit does not cause unreasonable harm to private or public interest. www.gettingthedealthrough.com 77 FINLAND Kalliolaw Asianajotoimisto Oy – Attorneys at Law

13 How are mining rights protected? Are foreign arbitration awards 15 Does the government or do state agencies have the right to in respect of domestic mining disputes freely enforceable in your participate in mining projects? Is there a local listing requirement jurisdiction? for the project company? The supervision of the granting of mining rights, their validity and The government can participate in mining projects, for example, the compliance with the Mining Act by the holders of the mining through voluntary investments in mining companies. The govern- rights, is carried out by the mining authority (TUKES), whose deci- ment cannot demand a stake in a mining project if the stakeholders sions can be appealed to the administrative courts and further to the of the project do not agree to this. Supreme Administrative Court. Damage compensation claims and Mining companies do not have to be listed in Finland. Many injunctions or other temporary procedural remedies are handled by companies are listed abroad, such as Toronto or London and may or the local district courts as the first instance. Punishments under the may not have a dual listing at the OMX Nasdaq Helsinki Exchange. penal code relating to obligations set forth in the Mining Act are also handled by the district courts as the first instance. 16 Are there provisions in law dealing with government expropriation Finland has ratified the Convention on the Recognition and of licences? What are the compensation provisions? Enforcement of Foreign Arbitral Awards (the New York Convention) and hence foreign arbitration awards or countries belonging to the There are no provisions on government expropriation of licences. New York Convention, as a rule, are enforceable in Finland. 17 Are any areas designated as protected areas within your jurisdiction 14 What surface rights may private parties acquire? How are these and which are off-limits or specially regulated? rights acquired? Prospecting work and granting of an exploration permit or gold Surface rights available for private parties are ownership of land, panning permit is prohibited on the ground of a cemetery; in an area tenancy or usufruct right to the surface. used by the Finnish Defence Forces or any area controlled by the Ownership of land is acquired by purchasing the property by Border Guard where movement is restricted or prohibited, or within executing a written purchase agreement that must be executed in a 100 metres of such an area; in an area where movement is restricted specified form. or access denied to outsiders; on a traffic route or passage in public Tenancy is agreed with the landowner in a tenancy agreement, use; within 150 metres of a building intended for residential or work which has to be made in writing and signed by both parties. It is also use, or comparable space, in an area in horticultural use; within 50 possible to agree with the landowner on the right to take extractable metres of a public building or utility, or either a power line with a land resources from a property. The right to utilise extractable land voltage of over 35,000 volts or a transformer station; and in any resources from a property can also be carried out by including in other similar area, designated for special use. the mining permit such areas where there are land resources that However, prospecting work as well as exploration may be car- are suitable for filling-in during mining operations or other material ried out in an area referred to above, except for cemeteries, with the that is required as supplementary material in the processing of the consent of the authority or institution competent in the matter, or mine products. that of the relevant holder of rights. Should the mining company not purchase the surface rights, it Moreover, there are limitations with regard to certain traffic can obtain usufruct rights to the area needed for mining activity. areas, which in certain cases require the consent of the authority This takes place through contractual means or by applying to the or institution competent in the matter, or that of the holder of the government for a redemption permit for a mining area. A redemp- rights for exploration whenever the area in question is a street area tion permit must be based on a public need and therefore these or market place, a road area of a highway, an airport or another are not automatically granted. This public need is assessed on the area in aviation use, a railway area, a canal used for public traffic basis of the impact of the mining project on the local and regional or another such traffic area, or an area within 30 metres of any of economy and employment, and society’s need for the raw material. the above-mentioned traffic areas. There are also certain limita- In this case, the title to the land does not transfer to the mining tions with regard to areas that have previously been covered by an company. However, if the mining area or its auxiliary area causes exploration permit or mining permit. major inconvenience for the utilisation of the area, the owner of the The mining area and the auxiliary area to a mine should, in prin- surface rights may demand that the whole property or a part thereof ciple, not be located in an area for which an exploration permit or a is redeemed by the holder of the mining permit. The principle of gold panning permit cannot be granted, based on the above limita- full compensation to the landowner is the rule. There are also some tions. However, a mining permit may be granted regardless of an other situations when the owner of the surface rights may demand impediment referred to above if the mining area cannot be otherwise redemption. implemented as a continuous area of a size and shape that facilitates Usually, if possible on reasonable terms, the mining companies compliance with requirements concerning safety, location of mining purchase the surface rights from the landowner through voluntary activities and mining technology, and the area in question is not cem- acquisitions. etery or an area for the Finnish Defence Forces or any of the special The general rule in Finland is that the owner of a property has traffic areas referred to above. to use that property in a way that does not cause inconvenience to Mining activities are also basically prohibited in national parks neighbours. The Mining Act obliges the holder of the mining rights and nature reserves, historical relics, within 200 metres from nation- to compensate the landowners, tenants and other parties for damage ally important facilities as well as untouched mountain areas in and inconvenience, whether temporary or permanent, caused by the Lapland. mining or exploration operations. Finally, mining activities in a Natura 2000 area are subject In determining the compensation payable to the holders of the to particular scrutiny. TUKES may not grant a permit for a min- surface rights, the principles applicable to compensation in the ing project, if the assessment procedure indicates that the project event of expropriation of property for general needs are used, would have a significant adverse impact on the particular ecological which generally require full compensation to be paid. value for the protection of which the site has been included in, or is intended for inclusion in, the Natura 2000 network.

78 Getting the Deal Through – Mining 2014 Kalliolaw Asianajotoimisto Oy – Attorneys at Law FINLAND

Duties, royalties and taxes If the permit authority has postponed the expiry of the mining permit (before mining activities have started or if they have been 18 What duties, royalties and taxes are payable by private parties carrying suspended) the excavation fee is doubled to €100 per hectare until on mining activities? Are these revenue-based or profit-based? mining activities commence or resume. Private parties carrying on mining activities in Finland are subject to The obligation to pay an excavation fee starts when the mining income taxes, value added tax and exploration and excavation fees permit has become legally valid. The obligation to pay elevated payable to the landowners. Also, private parties have to pay possible compensation starts when the decision on the new time for com- transfer-of-assets tax and real estate tax in the event that such party mencing mining activity, or continuing activities, has become acquires real estate in Finland. legally valid. For the purpose of the verification of the excavation fee, the Income taxes mining permit holder has to submit the relevant information to the Income tax is payable on the party’s taxable income, calculated in mining authority no later than on 15 March in the year following accordance with the relevant tax regulations. Currently, the corpo- the year for which the fee is to be paid. The mining authority con- rate income tax rate is 20 per cent. firms the amount of the excavation fee annually. The excavation fee must be paid no later than on the 30th day Value added tax (VAT) from the date TUKES’ decision on the fee enters into force. VAT is payable on sold goods and services, unless such goods The Government Decree on Mining (391/2012) contains more and services fall under a specific exception. The general VAT rate specific provisions on the grounds for determining the excavation for goods and services is currently 24 per cent, but there are some fee as well as on the information to be submitted to TUKES for the exceptions relating to certain products and services. VAT is pay- purpose of confirming the fee. able by the seller, however, the seller may deduct the input VAT of purchases of goods and services for business purposes, if another VAT taxpayer has supplied them. Should the amount of VAT paid 19 What tax advantages and incentives are available to private by the VAT taxpayer for the goods and services purchased for the parties carrying on mining activities? business operation exceed the amount of VAT payable for the sales Accelerated tax depreciation deductions may be available for the of goods and services, the VAT taxpayer will be refunded the excess, part of a new production unit connected to a mine within certain provided that the purchased goods and services relate to business development areas in Finland. There are also certain governmental activities from the sales of which VAT is payable. subsidies available for the development areas in Finland.

Exploration fees 20 Does any legislation provide for tax stabilisation or are there tax The holder of an exploration permit shall pay annual compensation stabilisation agreements in force? (exploration fee) to the owners of land included in the exploration area. Finland is a country of low political risk, so no stabilisation agree- The annual amount of the exploration fee per property is: ments are available. The permitted range of VAT is subject to EU • €20 per hectare for each of the first four years of validity of the rules. exploration permit; • €30 per hectare for the fifth, sixth and seventh year of validity 21 Is the government entitled to a carried interest, or a free carried of the exploration permit, each; interest in mining projects? • €40 per hectare per year for the eighth, ninth and 10th year of No. validity of the exploration permit; and

• €50 per hectare for the 11th and for further years of validity of the exploration permit. 22 Are there any transfer taxes or capital gains imposed regarding the transfer of licences? The exploration fee for the first year has to be paid within 30 days When only permits (licences) are transferred, the transaction can from the date the exploration permit gains legal force. The fee for be subject to VAT (which the purchaser of the permits can in many the following years is paid at the anniversary of the first payment. cases deduct (see question 18)). Further, the profit made in connec- In addition to the exploration fees, the exploration permit holder tion with the selling of the licences is subject to capital gains tax, has to compensate the landowners and owners of the water areas which for corporations is at the moment 30 per cent for a capital for all damages caused by the exploration work carried out by the gain not exceeding €40,000 and thereafter 32 per cent. exploration permit holder within the exploration permit area. If the When, for instance, a junior company is acquired by a mining owner or holder of an area connected to the exploration permit area company through a share transaction, the transaction is subject to requests this, the private exploration permit holder has to provide to a two per cent asset transfer tax and can result in capital gains the landowner in question a security over the compensation before taxation on the profit that the sellers of the shares make. However, the commencement of the exploration work. if the junior company whose shares are being sold is owned by a foreign parent company and neither the junior’s parent company Concession fee and mining fee nor the purchaser have permanent establishment in Finland, the If the mining permit holder does not own the surface rights to the share transaction is exempted from asset transfer tax. mining area, the mining permit holder has to pay an annual compensation (excavation fee) to the landowners. The amount of the excavation fee per property is €50 per hectare 23 Is there any distinction between the duties, royalties and taxes per year. In addition to that, the excavation fee has a variable part of payable by domestic parties and those payable by foreign parties? 0.15 per cent of the calculated value of mining minerals included in There is no such distinction. However, see question 12. the metal ores that are excavated and exploited in the course of the year. The calculation is based on the average price of the exploited metals included in the ore during the year and the average value of other products exploited from the ore during the year.

www.gettingthedealthrough.com 79 FINLAND Kalliolaw Asianajotoimisto Oy – Attorneys at Law

Business structures Restrictions

24 What are the principal business structures used by private parties 29 What restrictions are imposed on the importation of machinery carrying on mining activities? and equipment or services required in connection with exploration The most general business structure used to carry on mining and extraction? activities in Finland is a limited liability company (Oy). Foreign Generally, there are no special restrictions for the importation of companies may also operate through branch offices. Joint ven- mining machinery and equipment. There are certain specific laws tures (usually in the form of an Oy) are also used for cooperation that may affect the importation of machinery and equipment or between companies in exploration activities. services required in connection with mining activities such as the importation of explosives, for which a separate permit is needed.

25 Is there a requirement that a local entity be a party to the transaction? The party holding the mining rights under the Mining Act needs to 30 What restrictions are imposed on the processing, export or sale be either a natural or a legal person (corporation) with permanent of minerals? Are there any export quotas, licensing or other residence within the EEA or a branch of an association or founda- mechanisms that prevent producers from freely exporting their tion established in a member country of the EEA. For any other per- production? son as well as a foreign corporation or foundation, see question 12. The commodity minerals are generally not subject to export restrictions. There are certain specific regulations, such as regulations regarding precious metals, which have to be followed in order to 26 Are there jurisdictions with favourable bilateral investment treaties bring such metals to the market. Export of uranium and thorium is or tax treaties with your jurisdiction through which foreign entities more specifically regulated and subject to a number of permits. will commonly structure their operations in your jurisdiction? Finland has entered into a number of tax treaties, which may affect the structuring of foreign entities’ operations in Finland. There does 31 What restrictions are imposed on the import of funds for not, however, seem to be one preferred way to structure the opera- exploration and extraction or the use of the proceeds from the tions but the companies have used a variety of structures. export or sale of minerals? There are no specific restrictions or limitations in the mining laws of Financing Finland concerning import of funds for mining activities or the use of the proceeds. 27 What are the principal sources of financing available to private parties carrying on mining activities? What role does the domestic Environment public securities market play in financing the mining industry? Most of the parties operating in the mining business in Finland are 32 What are the principal environmental laws applicable to the Finnish subsidiaries of foreign junior companies, the activities of mining industry? What are the principal regulatory bodies that which are funded through the parent companies by the capital mar- administer those laws? kets in the United Kingdom, Sweden, Canada or Australia or sub- Environmental laws sidiaries of international mining companies for which the funding The Ministry of Environment, together with subordinated regional comes from the income from the mining company’s own produc- ELY centres administer the laws relating to the environment. tion. It has been very difficult to collect private funding for min- The revised environmental protection and water legislation ing operations from the capital market in Finland as the mining came into force in March 2000. financing sector is not as developed as in many other countries. The Environmental Protection Act implements the EU Directive Lately, however, Finnish investors and banks have also been more on Integrated Pollution Prevention and Control, which obliges interested in the possibilities of investing in or financing mining EU member states to integrate the control of emissions caused by operations. Finnish Industry Investment has invested in explora- industry. tion and mining companies whose projects are in Finland and also The Water Act controls the use of water resources and structures the banks operating in Finland have recently shown an interest in built along waterways. mining activity and have invested in it. Also, some Finnish pension The Waste Act prevents the generation of waste and reduces its funds have invested in mining companies. hazardous or harmful features, promotes waste recovery and other Certain public funding, such as investment grants or devel- organisation of waste management, prevention of littering and opment grants for small and medium-sized companies, may be cleaning of sites that have become littered. granted by the ELY centres for exploration and mining operations. The Chemicals Act prevents health and environmental harm and The Finnish Funding Agency for Technology and Innovation and danger of fire and explosions caused by chemicals. Finnvera may also provide funding or guarantees, or both, for exploration and mining companies and associations operating in Health and safety laws Finland. Such funding is subject to applicable preconditions, and The Ministry of Labour, the Ministry of Social Affairs and Health in addition the authority can, based on the law, use its discretion and the Units for Safety at Work administer the health and safety when deciding on the grants, loans or other public funding. Certain laws. grants for employment may also be available through the employ- The Safety at Work Act sets out many standards according to ment administration. which an employer shall monitor and take care of the health of every employee. An employer shall also assess the health risks of an employee that are caused by conditions at any particular workplace, 28 Please describe the regime for taking security over mining interests. and remove or minimise those risks. The holder of an exploration permit may pledge its preferential right There are many statutes concerning safe conditions in the work- to a mining permit and the holder of a mining licence may pledge place and how to handle explosives and various hazardous tools the right to exploit the minerals. The pledge becomes effective when such as laser equipment, according to standards as set out by such TUKES has received a written notification of the pledge. statutes.

80 Getting the Deal Through – Mining 2014 Kalliolaw Asianajotoimisto Oy – Attorneys at Law FINLAND

33 What is the environmental review and permitting process for a activities are confirmed in a closure plan, which has to be delivered mining project? How long does it normally take to obtain the for approval to the environmental permit authority prior to closure necessary permits? of the mine. The nature and scope of the environmental permitting and review In connection with the granting of the environmental permit the process is dependent on the nature of the project and the environ- mining company is required to provide a security for the fulfilment mental effects thereof. A mining project requires an environmental of the closure and restoration obligations. The amount is set by the permit. Before applying for an environmental permit the applicant authorities and the security is generally required in the form of a may need to carry out an assessment of environmental impacts that bank guarantee or bank deposit. However, other forms of security is handled by the competent ELY centre – a process that usually takes (on demand guarantee or guarantee insurance) can be accepted by about one to two years. The environmental permit is granted by the virtue of a precedent rendered by the Supreme Administrative Court. competent AVI, based on a written application that includes a large number of statements, descriptions and other related material on the Health & safety, and labour issues project. The permits required by the Water Act are often applied for and handled simultaneously with the environmental permit. In 35 What are the principal health and safety, and labour laws addition to the actual review of the permit application during the applicable to the mining industry? What are the principal application process, many parties (such as the local municipality, regulatory bodies that administer those laws? the owners of real estate and the reindeer owners, if the project is Mine safety matters are regulated in the Mining Act and more within a reindeer management area) are heard. According to the specific provisions concerning mining safety permit are laid down environmental authorities, obtaining an environmental permit for in a Government Decree on Mine Safety (15712011). See also a new project should take about 10 months, but generally takes question 32. about 18 months because in most cases there is a need to ask the The general labour laws of Finland are applicable to the mining applicant to provide further information. The actual length of the industry. The principal law regulating labour relations is the Labour granting process depends on the size of the project, tempering and Contract Act. There is also a generally binding collective bargaining releases, objections to the project and further clarification possibly agreement applicable to the mining industry. required by the authorities. During the exploration phase, it may be necessary for the holder 36 What restrictions and limitations are imposed on the use of domestic of the exploration permit to make a notification of the explora- and foreign employees in connection with mining activities? tion work to the environment authorities in case the exploration work planned to be carried out may have a negative impact on the Generally, an alien who intends to engage in paid employment in environment. Such notification is handled by the relevant regional Finland is required to have a residence permit. A person engaged environmental permit authority or the local supervising authority in an independent business or profession in Finland must have a (depending on the nature of the actions to be carried out) that may residence permit for a self-employed person. set certain limitations and obligations that need to be followed by However, EU citizens and citizens of Iceland, Liechtenstein, the exploration permit holder in connection with the exploration Norway and Switzerland can freely work in Finland if the work lasts work to be carried out, otherwise the exploration work may be for a maximum of three months. After that, they must register their prohibited. right to reside in Finland, but they do not need a special residence permit. The employee must go to the local police department to register his or her right to reside in Finland. Unless it is withdrawn, 34 What is the closure and remediation process for a mining registration by a person with the right to reside in Finland is valid project? What performance bonds, guarantees and other financial until further notice. assurances are required? Foreign employees who are non-EU citizens and equivalent per- When the holder of a mining permit relinquishes or loses the min- sons need a residence permit for an employed person if they intend ing right, the area covered by the mining permit will be returned to to work in Finland. An alien who has entered the country either the holder of the surface rights without compensation. The holder with or without a visa is not allowed to engage in paid employment of the mining permit may, however, keep the products of the mine, in Finland but, rather, has to apply for a residence permit. A resi- the buildings built on the surface and equipment in the area for two dence permit can be granted on the basis of either temporary work years. Unless removed within that time period, they shall become, or work of a continuous nature. without compensation, the property of the holder of surface rights. In granting the permit, the needs of the labour market are taken In connection with the granting of the mining permit, the per- into consideration. The policy aim of the residence permit is to mit holder will have to deposit a collateral to the mining authority support the possibility of those who are in the employment mar- for the purpose of termination and after-care measures of mining ket to gain employment. Thus, the availability of the workforce operations that is sufficient in view of the nature and extent of in Finland is also supported. To grant a residence permit for an mining activity, the permit regulations issued for the activity and employed person, the foreign national’s means of support must be collateral demanded by virtue of other legislation. guaranteed. The employment office will estimate both the labour After relinquishing or losing the mining permit, the holder has requirements and the sufficiency of the means of support. to without delay secure the area in such a way that it fulfils the As to Finnish citizens, there are no particular mining law related requirements for safety in general. The mine closure and remedia- restrictions in connection with mining activities. As a rule, an tion questions are handled before the commencement of any mining employee must be 18 years of age or older. actions as a part of the environmental permit process. The environmental permit includes terms regarding the closure of a mine Social and community issues such as restoration of the environment and prevention of tamper- ing. Such terms generally will provide for obligations for removal 37 What are the principal community engagement or CSR (corporate of buildings, equipment and infrastructure, handling of the waste social responsibility) laws applicable to the mining industry? What materials and restoration of the landscape, including the revegeta- are the principal regulatory bodies that administer those laws? tion. The environmental permit includes the terms rules for closure The Mining Act is the main CSR law applicable to the mining and restoration, based on which the costs for such operations can industry. be estimated to a general level. The final closure and restoration www.gettingthedealthrough.com 81 FINLAND Kalliolaw Asianajotoimisto Oy – Attorneys at Law

38 How do the rights of aboriginal, indigenous or currently or previously disadvantaged peoples affect the acquisition or Update and trends exercise of mining rights? In respect of the Sami Homeland, the mining authority TUKES is Finland has for the past two years ranked among the top two obliged to establish what the effects of the exploration or mining worldwide mining destinations in the survey by the Fraser Institute, Canada’s leading public policy think-tank. Nevertheless, nowhere would be on the rights of the Sami to maintain and develop their is immune to industry cycles and the fluctuating price of metals. own language and culture. TUKES is also obliged to consider what Although the output of the Finnish mines continued to rise in 2013 measures would be required for decreasing and preventing such mining investments declined from €320 million in 2012 to €200 damage. In this context TUKES needs to cooperate with the Sami million in 2012. Also, exploration activities declined in 2013 as metres drilled Parliament, the local reindeer owners’ associations, the competent declined by half compared with 2012. This can be seen as a local administration as well as with the mining permit applicant – reflection of the difficulties exploration companies are facing in the same applies basically for the Skolt people. getting financing. Not much improvement is anticipated for 2014. On the mining side the effects of the lower metal prices and the hard climate for getting financing for developing mines as also 39 What international treaties, conventions or protocols relating to visible. Consequently, during the current year we are not expecting CSR issues are applicable in your jurisdiction? to see the opening of new mines and there will be only moderate expansion of current ones. The United Nations Convention on Biological Diversity CBD, One the positive side the mining authority TUKES has section 8 J and the International Covenant on Civil and Political been able to improve their processes and, hence, the process Rights are applicable. of granting exploration permits is no longer hindering effective Finland has not ratified the ILO 169 Indigenous and Tribal exploration. However, environmental permitting and the handling of appeals on granted permit are still causing some delays in starting Peoples Convention of 1989. exploration activities.

Foreign investment International treaties 40 Are there any foreign ownership restrictions in your jurisdiction relevant to the mining industry? 41 What international treaties apply to the mining industry or an The Act on Monitoring of Corporate Acquisition (172/2012) gives investment in the mining industry? the government the authority to restrict the transfer of control of Finland has entered into certain international treaties, which apply companies to foreigners should there be a very important national directly to the mining industry such as the Convention Concerning interest. Safety and Health in Mines. There are also several other conventions The act is mainly aimed at change of control in companies in the and treaties that relate to the mining industry, for example, through defence industry and it is very unlikely that the law would be applied employment issues and environmental issues. in the case of mining sector transactions in the future.

Pekka Holopainen [email protected] Panu Skogström [email protected]

Eteläranta 12 Tel: +358 9 6812 930 00130 Helsinki Fax: +358 9 6812 9320 Finland www.kalliolaw.fi

82 Getting the Deal Through – Mining 2014 Kimathi & Partners, Corporate Attorneys GHANA Ghana

Michael Edem Akafia and Kimathi Kuenyehia Sr Kimathi & Partners, Corporate Attorneys

Mining industry Legal and regulatory structure

1 What is the nature and importance of the mining industry in 4 Is the legal system civil or common law-based? your country? Ghana’s legal system is based on English common law. Gold accounts for about 90 per cent of all mineral receipts. Ghana increased its 2013 gold output by 2.1 per cent to 97.8 tonnes from 5 How is the mining industry regulated? 80 tonnes (Ghana Chamber of Mines). Ghana’s output amounts to 3 per cent of global output and Ghana was the ninth leading The mining industry in Ghana is regulated at the state and national producer of gold for 2013. level by way of mining laws and agreements. The mining industry in Ghana continues to be the largest contributor to revenue. It contributed about 18.7 per cent of the Ghana 6 What are the principal laws that regulate the mining industry? Revenue Authority’s total domestic revenue for 2013. However, What are the principal regulatory bodies that administer those owing to the decline in gold prices total mineral receipts fell from laws? US$5,447, 306,422 in 2012 to US$4, 786,714,504 in 2013. The fall The principal laws that regulate the mining industry are the Minerals in gold prices also led to 13 per cent decline in export earnings to and Mining Act 2006 (Act 703) (the Minerals and Mining Act) and US$3,192,648 in 2013, although total production increased from the following regulations: 3,166,483 ounces in 2012 to 3,192,648 ounces in 2013. • the Minerals and Mining (Compensation and Resettlements) Mining companies returned about US$3.1 billion – representing Regulations 2012 (LI2175); 68 per cent of their mineral revenue – through the Bank of Ghana • the Minerals and Mining (Support Services) Regulations 2012 and the commercial banks in 2013, a figure far in excess of the statu- (LI2174); tory minimum of 25 per cent. Total merchandise export earnings in • the Minerals and Mining (General) Regulations 2012 (LI2173); 2013 represented 37.6 per cent of gross merchandise exports. • the Minerals and Mining Regulations (Health, Safety and The sector directly employs 17,103 people and mining com- Technical) 2012 (LI 2182); panies voluntarily contributed about US$12.1 million to their host • the Minerals and Mining (Explosives) Regulations 2012 communities and also the general public in 2013. This compares (LI2177); and with 21,239 total employees in 2012 (the fall is attributable to the • the Minerals and Mining (Licensing) Regulations 2012 (LI retrenchment exercise carried out by the major gold producers in 2176). Ghana). The mining sector is also a crucial contributor to the attrac- These regulations are hereinafter referred to collectively as the tion of investments into Ghana. The total investments in the sector ‘Minerals and Mining Regulations’, replaced the Mining Regulations within the past 10 years amount to approximately US$7 billion. 1970 (LI 665). The principal regulatory body that administers these These investments came from companies that are engaged in laws is the Minerals Commission. gold production, exploration and support services. The Minerals and Mining Act aims to: • develop a national policy on mining and consolidate the dispa- 2 What are the target minerals? rate laws on mining which existed at the time; and The main minerals extracted in Ghana are gold, diamond, bauxite • increase investment by foreign mining companies in Ghana by and manganese. However, gold currently accounts for over 90 per removing the uncertainty concerning the availability and con- cent of mining sector revenue and activity in Ghana. ditionality of mining rights as well as the bureaucratic gridlock that provided opportunities for corruption.

3 Which regions are most active? Mining legislation is applied equally to Ghanaians and foreign The Ashanti Belt, which covers most parts of Ghana’s Ashanti and investors, except for provisions relating to small-scale mining of Western Regions is most active, particularly when it comes to gold minerals, which is exclusively reserved for Ghanaians. mining and prospecting. The Sefwi Belt in the north west of the The Minerals and Mining Regulations (Health, Safety and western region and the Wa-Laura, Bole and Bui Belts in the north- Technical) 2012 (LI 2182) establishes environmental, safety, machin- ern regions of Ghana are also very active with a lot of gold pros- ery and related guidelines for mining operations. pecting activity. The Minerals Commission was established under the Minerals The Kibi Belt in the eastern region is very active with diamond Commission Act 1993 (Act 450) for the ‘regulation and manage- and bauxite mining. There is also gold prospecting activity in this ment of the utilisation of the mineral resources of Ghana and the area. coordination of the policies in relation to them’.

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The Minerals Commission is empowered by section 100 of the work and search for minerals. It gives the holder the right to conduct Minerals and Mining Act to, under the direction of the Minister of reconnaissance exercises regarding the reconnaissance area. Mines; supervise the proper and effective implementation of the However, the holder is not entitled to drill, excavate or carry on Minerals and Mining Act and Regulations. any under surface operations. The prospecting licence permits the The Minerals Commission is required by law to formulate rec- holder to carry out activities including activities to determine the ommendations on mineral policy, monitor the implementation of extent and economic value of any deposit in the prospecting area. these policies, assess ‘stability agreements’ and report to parliament, The mining lease gives the holder the right to intentionally win minas well as to collect data on national mineral resources. erals, and it includes any operations directly or indirectly necessary or incidental thereto. The grant of mineral right is based on first come, first served 7 What classification system does the mining industry use for basis as long as the applicant has met the requirements stipulated in reporting mineral resources and mineral reserves? the mining law. In Ghana, any of the recognised international classification sys- A holder of a reconnaissance licence can apply to obtain a min- tems are acceptable including those from Canada, South Africa and ing lease but not on a preferential basis. Australia. From 1 July 2010, the Minerals Commission enacted a new The Minerals Commission, however, has guidelines for prepar- policy concerning the granting of extensions to mineral rights. This ing feasibility study reports. is because the Mineral Commission realised that a number of companies were abusing the regime then in place. Mining rights and title Section 34(2) of the Minerals and Mining Act, allows for the term of prospecting licences to be no more than three years. Licence 8 To what extent does the state control mining rights in your holders are obliged to reduce the area of the prospecting licence jurisdiction? Can those rights be granted to private parties and upon renewal by section 38(1) of the Minerals and Mining Act. In to what extent will they have title to minerals in the ground? practice however, the term granted has generally been two years, to Are there large areas where the mining rights are held privately ensure companies are kept on their toes. or which belong to the owner of the surface rights? Is there a Following complaints from prospecting licence holders that the separate legal regime or process for third parties to obtain mining two-year term granted was not enough for the completion of their rights in those areas? exploration programmes, a further one-year extension was granted The title or ownership of all minerals, including metallic minerals, without requiring a reduction of the size when holders have dem- is vested in the president of the Republic of Ghana in trust and on onstrated performance but need time to complete their exploration behalf of the people of Ghana. programmes to enable them make informed decisions to renew the Mineral rights are granted to private parties, which allows them licence. to have the right to mine the minerals in the ground. The Minerals Commission has realised that a number of com- There are large areas such as Tarkwa and Obuasi where the panies have been abusing this privilege and have continuously mining rights are privately held by relatively large mining compa- requested extensions even though they were in a position to apply nies. Small-scale and artisanal miners are also permitted to exploit for a renewal of the licence. This practice created problems for the the minerals in those areas. Often, the surface rights are owned Minerals Commission in its management of the mineral title system. separately. Consequently, since 1 July 2010, the Minerals Commission has been guided by the following policy in granting extensions: 9 What information and data is publicly available to private parties • extensions are limited only to prospecting licences. Reconnaissance that wish to engage in exploration and other mining activities? Is licences and mining leases will not be extended; and there an agency which collects mineral assessment reports from • prospecting licences requiring extensions will be granted once private parties? Must private parties file mineral assessment for a term of one year, especially for those companies active on reports? Does the agency or the government conduct geoscience the ground. surveys, which become part of the database? Is the database available online? No extensions will be entertained for non-performing companies. A holder of a reconnaissance licence or a prospecting licence The Minerals Commission has a geological map of Ghana specify- may apply for one or more mining leases regarding any or all of the ing the probable areas where minerals may be found. minerals which formed the subject of the licence, prior to the expiry The mining laws require that records of all mineral rights granted of the licence. However, the blocks which constitute the reconnais- should be maintained and must be open to inspection by members sance or prospecting area should not form more than three discrete of the public. Copies of such records are available to members of areas (three separate applications should be submitted) with each the public on payment of the prescribed fees. The database is not consisting of either a block or a number of blocks with common yet available online. sides. The grant of the mining lease in these circumstances is subject 10 What mining rights may private parties acquire? How are these to compliance with all the terms of the licence held prior to the acquired? What obligations does the rights holder have? If application for the mining lease. The Minister responsible for natu- exploration or reconnaissance licences are granted, does such ral resources is required to grant the application provided all the tenure give the holder an automatic or preferential right to acquire application requirements have been met within 60 days of receipt of a mining licence? What are the requirements to convert to a the application. Any dispute between the applicant and the Minister mining licence? should be resolved through the alternative dispute mechanism pro- There are three kinds of mining rights in Ghana: reconnaissance vided in the Minerals and Mining Act. licence, prospecting licence and mining lease. Private parties may acquire any or all of them, although the right sequence is to obtain 11 What is the regime for the renewal and transfer of mineral licences? the exploratory licences (reconnaissance and prospecting) and then A holder of a reconnaissance licence may, not later than three convert to a mining lease if exploration is successful. The recon- months before the expiration of the initial term of the licence, apply naissance licence allows the holder to engage in initial exploratory

84 Getting the Deal Through – Mining 2014 Kimathi & Partners, Corporate Attorneys GHANA to the Minister for an extension of the term of the reconnaissance The law requires that the mineral rights must be exercised in a licence in respect of all or part of the reconnaissance area. manner consistent with the reasonable and proper conduct of the The holder of a prospecting licence may, at any time but not operations concerned so as to affect as little as possible the interest later than three months before the expiration of the initial term of of any lawful occupier of the land in respect of which such rights the licence, apply to the Minister in the prescribed form for an exten- are exercised. sion of the term of the prospecting licence, for a further period of Also, the lawful occupier of any licensed area has the right to not more than three years in respect of all or any number of blocks graze livestock upon or to cultivate the surface of such land in so which are the subject of the prospecting licence. far as such grazing or cultivation does not interfere with the mineral A holder of a mining lease may, at any time but not later than operations in the area. three months before the expiration of the initial term of the mining lease or a shorter period that the Minister of Lands and Natural Resources allows, apply in a prescribed form to the Minister for an 15 Does the government or do state agencies have the right to extension of the term of the lease for a further period of up to 30 participate in mining projects? Is there a local listing requirement years in respect of all or any number of contiguous blocks that are for the project company? the subject of the lease and in respect of all or any of the minerals The Minister of Lands and Natural Resources has the right of pre- the subject of the lease. emption to all minerals raised, won or obtained in Ghana and from A mineral right cannot in whole or in part be transferred, any area covered by territorial waters, the exclusive economic zone assigned, mortgaged or otherwise encumbered or dealt in without or the continental shelf and products derived from the refining or the prior written approval of the Minister of Lands and Natural treatment of these minerals. The government may, by an executive Resources, whose approval should not be unreasonably withheld or instrument, appoint a statutory body to act as its agent for the given subject to unreasonable conditions. exercise of the right of pre-emption. Where the Minister does not give written approval within 30 The government is entitled to a 10 per cent free carried interest days, he or she is required, upon a request by the applicant, to give in the rights and obligations of the mineral operations where the a written reason for the failure to approve within 14 days of the mineral right is for mining or the exploitation of minerals for which receipt of the request for the reason. the government is not required to make any financial contribution. Any dispute arising from a disagreement over the right to extend The government is not precluded from any other or further partici- the term, transfer, assign, mortgage or otherwise encumber a mineral pation in mineral operation subject to the agreement of the holder. right will trigger the dispute resolution (alternative dispute resolu- There is no special listing requirement for the project company. tion) provision in the law starting first with an attempt at an amicable resolution through mutual discussions. 16 Are there provisions in law dealing with government expropriation of licences? What are the compensation provisions? 12 Is there any distinction in law or practice between the mining According to article 20 of the 1992 Constitution of the Republic of rights that may be acquired by domestic parties and those that Ghana, no property of any description, or interest in or right over may be acquired by foreign parties? any property shall be compulsorily taken possession of or acquired Small-scale mining is reserved exclusively for Ghanaians. Beyond by the state unless that possession or acquisition is necessary in the this, there is no distinction between the mining rights that may be interest of public security, morality, law and order or other public acquired by domestic parties and those that may be acquired by benefit and the necessity for the acquisition or possession is clearly foreign parties. stated so as to provide reasonable justification for ‘any hardship that In the mining industry there is no requirement that a foreign may result to any person who has an interest in or right over the party should have a domestic partner. However, the government of property’. Article 20 further indicates that compulsory acquisition Ghana, as per the Minerals and Mining Act, has a 10 per cent free of property by the state can only be made under a law that makes carried interest in all mining undertakings and retains the option to provision for the prompt payment of fair and adequate compen- acquire additional interest on terms to be agreed on by the private sation and the person adversely affected by such an action has a party and the government. right of access to the High Court for the determination of his or her interest or right and the amount of compensation to which he 13 How are mining rights protected? Are foreign arbitration awards or she is entitled. in respect of domestic mining disputes freely enforceable in your As a measure against speculative holding of large areas of land jurisdiction? the law requires the holder of a prospecting licence, prior to or at the expiration of the initial term, to surrender not less than half the The independence of the judiciary is guaranteed under Ghana’s number of blocks (one block is 21 hectares) of the prospecting area 1992 Constitution and mineral rights are subject to the processes so long as a minimum of 125 blocks remain subject to the licence of the courts. and the blocks form not more than three discrete areas each consist- There are also dispute resolution provisions under the Minerals ing of a single block, or a number of blocks each having a side in and Mining Act, which make room for the application of interna- common with at least one other block in that area. The Minister tionally accepted rules in any dispute including the rules of procedure may, based on a written request for relief, exempt a holder from the for arbitration of the United Nations Commission on International obligation to surrender land. Trade Law (UNCITRAL) Rules. Foreign arbitration awards in respect of domestic mining disputes are freely enforceable in Ghana in accordance with Ghana’s 17 Are any areas designated as protected areas within your Alternative Dispute Resolution law. jurisdiction and which are off-limits or specially regulated? There are some restrictions regarding mining in forest areas and 14 What surface rights may private parties acquire? How are these water bodies. Other regulators (the Forestry Commission and the rights acquired? Water Resource Commission) play a role in the grant of mineral rights for exploitation of minerals in those areas. The law allows the mineral rights holder to pay fair, adequate and Otherwise, parties have the right to enter upon and erect camps prompt compensation to the original surface right holder if there is or temporary buildings including installations and the necessary any disturbance to the surface rights of the owner. www.gettingthedealthrough.com 85 GHANA Kimathi & Partners, Corporate Attorneys equipment on any land or in any waters that form part of the area manner in which the Minister will exercise a discretion conferred by licensed for the purpose of reconnaissance prospecting, mining, the Minerals and Mining Act on tax stabilisation as indicated above, transporting, dressing, treating, smelting or refining the mineral and environmental issues and obligations of the holder to safeguard recovered by him or her during the mining operations. The grant of the environment in accordance with any enactment and dealing with the mineral right automatically entitles the holder of the rights to all the settlement of disputes. A development agreement is subject to these surface rights. ratification by Parliament.

Duties, royalties and taxes 21 Is the government entitled to a carried interest, or a free carried 18 What duties, royalties and taxes are payable by private parties interest in mining projects? carrying on mining activities? Are these revenue-based or profit- The government is entitled to a 10 per cent free carried interest in based? the rights and obligations of the mineral operations where the min- Private parties carrying on mining activities are required to pay roy- eral right is for mining or the exploitation of minerals for which the alty and taxes to the government together with other taxes includ- government is not required to make any financial contribution. The ing: corporate tax, rental charges with respect to the area to which government is not precluded from any other or further participation the mining right relates, stamp duty (on instruments and documents) in mineral operation subject to the agreement of the holder. and business operating levies and property rates (to local government authorities in areas of operation). In 2012, corporate taxes 22 Are there any transfer taxes or capital gains imposed regarding were increased from 25 per cent to 35 per cent for mining companies the transfer of licences? and a uniform regime for capital allowances of 20 per cent for five Transfer of chargeable assets including licences and leases are sub- years for the mining sector. A 10 per cent windfall tax levy on mining ject to capital gains tax at 15 per cent on any gains arising on the companies was announced in 2012, but is yet to be passed into law. realisation of those assets subject to capital gains tax. The royalties payments are revenue-based (fixed at 5 per cent of total revenue obtained from mining operations), but corporate taxes are profit-based. 23 Is there any distinction between the duties, royalties and taxes A holder of a mineral right is required to pay an annual payable by domestic parties and those payable by foreign parties? ground rent to the owner of the land or successors and assigns of There is no distinction between duties, royalties and taxes payable the owner except in the case of annual ground rent in respect of by domestic parties and those payable by foreign parties. However, mineral rights over stool lands, which should be paid to the Office specific mining companies have stability, development or investment of the Administrator of Stool Lands. With effect from 2013, the agreements, which protect those mining companies against adverse 2 annual ground rent has been increased from about US$0.25/km to effects from changes in laws including those regarding the fiscal 2 US$18.57/acre, which is equivalent to US$4,590.99/km . regime. The government has established a seven-member stability agree- 19 What tax advantages and incentives are available to private ment renegotiation committee with the aim of renegotiating some parties carrying on mining activities? of the terms of these agreements and to have standard agreements across the industry. The tax advantages and incentives available to private parties carrying on mining activities include reduced customs import duties Business structures in respect of plant, machinery, equipment and accessories imported specifically and exclusively for mineral operations (items named in 24 What are the principal business structures used by private parties the Mining List); transferability of capital; transferability of divi- carrying on mining activities? dends, deferment of stamp duty; immigration quotas in respect of The mining law requires that mining should be carried on only by the approved number of expatriate personnel; personal remittance bodies incorporated, registered or established under the Companies quotas for expatriate personnel free from any tax imposed by any Act or the Incorporated Partnership Act or any other enactment for enactment for the transfer of external currency out of Ghana and the time being in force. This is also true of mine-support businesses. alternative dispute resolution provisions.

25 Is there a requirement that a local entity be a party to the transaction? 20 Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force? There is no requirement that a local entity be a party to a mining business transaction. However, the government of Ghana is entitled The Minister of Lands and Natural Resources may as a part of a to statutory free carried interest of 10 per cent in all mining under- mining lease enter into a stability agreement with the holder of the takings and reserves the right to acquire additional interest on terms mining lease (subject to the ratification of parliament), to ensure that to be agreed on by the government and the mining company. the holder will not, for a period not exceeding 15 years from the date of the agreement be adversely affected by a new enactment, order, instrument or other action made under a new enactment or changes 26 Are there jurisdictions with favourable bilateral investment treaties to an enactment, order, instrument that existed at the time of the or tax treaties with your jurisdiction through which foreign entities stability agreement and subsequently be adversely affected by sub- will commonly structure their operations in your jurisdiction? sequent changes to the level of and payment of royalties, taxes, fees There are a number of countries with bilateral investment treaties and other fiscal imports, as well as laws relating to exchange control, with Ghana such as the United Kingdom, China, the Netherlands, transfer of capital and dividend remittance. Germany, Denmark, Malaysia and Switzerland. The Minister responsible for natural resources on the advice of Agreements have been signed with the following countries but the Minerals Commission may enter into a development agreement are awaiting ratification: Ivory Coast, Egypt, the United States, under a mining lease with a person where the proposed investment France, Zambia, Cuba, Mauritania, Guinea, South Africa, India, by the person will exceed US$500 million. A development agree- Benin and Burkina Faso. ment may contain provisions relating to the mineral right or opera- Countries with investment agreements pending include Korea, tions to be conducted under the mining lease, the circumstance or Canada, Pakistan, Ethiopia, Israel, Turkey, Jamaica, Nigeria,

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Belgium, Indonesia, the Philippines, the Czech Republic, Australia, 31 What restrictions are imposed on the import of funds for Singapore, Morocco, Togo, Finland and Spain. exploration and extraction or the use of the proceeds from the The United States signed three agreements between 1998 and export or sale of minerals? 2000: the OPIC Investment Incentive Agreement, the Trade and Import of funds for mining activities is subject to the foreign Investment Framework Agreement, and the Open Skies Agreement exchange laws of Ghana and the holder of mineral rights is required with Ghana. to transact through entities authorised to deal in foreign exchange, Ghana also has tax treaties with a number of countries includ- such as the banks. A holder of a mining lease is permitted to retain ing: France, the United Kingdom, Belgium, South Africa, Italy, not less than 25 per cent of net earnings in foreign exchange in an Switzerland, the Netherlands and Germany. external account for acquiring machinery and equipment, spare parts and raw materials as well as for debt servicing, dividend pay- Financing ment and remittance in respect of quotas for expatriate personnel. Some mining companies have agreements with the government of 27 What are the principal sources of financing available to private Ghana that allows them to retain up to 100 per cent of their net parties carrying on mining activities? What role does the domestic earnings for the same purpose. public securities market play in financing the mining industry? A holder of a mining lease is guaranteed free transferability, The principal source of financing available to private parties engaged through the Central Bank of Ghana or in the case of a net foreign in mining activities are equity and debt financing from both local exchange earning holder through the external account, in convert- and foreign sources. ible currency of dividends or net profits attributable to the invest- Currently, only two mining companies (South Africa-based ments of such convertible currency payments in respect of a loan AngloGold Ashanti Ltd and Golden Star Resources Ltd incorporated servicing where a foreign loan has been obtained by the holder for in Canada with its headquarters in Denver, Colorado) are listed on his or her mining operations and the remittance of foreign capital the Ghana Stock Exchange (GSE), with a significant contribution to in the event of sale or liquidation of the mining operations or any market capitalisation. The Ghanaian subsidiaries of both listed com- interest therein attributable to foreign investment. panies are, however, not listed on the GSE. The GSE therefore plays an insignificant role in financing the mining industry. Environment

32 What are the principal environmental laws applicable to the 28 Please describe the regime for taking security over mining mining industry? What are the principal regulatory bodies that interests. administer those laws? A mineral right cannot in whole or in part be transferred, assigned, The principal environmental laws applicable to the mining indus- mortgaged or otherwise encumbered or dealt in, in a manner with- try are the Environmental Protection Agency Act 1994 (Act 490) out the prior written approval of the Minister of Lands and Natural and the Environmental Assessment Regulations 1999 (LI 1652). Resources, which approval should not be unreasonably withheld or The Environmental Protection Agency is the regulatory body that given subject to unreasonable conditions. administers these laws. Where the Minister does not give written approval within 30 days, they are required, upon a request by the applicant, to give a written reason for the failure to approve within 14 days of the 33 What is the environmental review and permitting process for a receipt of the request for the reason. mining project? How long does it normally take to obtain the Any dispute arising from a disagreement over the right to extend necessary permits? the term, transfer, assign, mortgage or otherwise encumber a mineral Mining companies are required to be registered with the right will trigger the dispute resolution (alternative dispute resolu- Environmental Protection Agency (EPA) and obtain an environmen- tion) provision in the law. tal permit prior to commencement of their operations or project. The applicant is required to submit an application and pay the Restrictions requisite fees after which the EPA will carry out an initial assessment and issue a screening report for purposes of determining whether 29 What restrictions are imposed on the importation of machinery the application: and equipment or services required in connection with exploration • is approved; and extraction? • is objected to; There are no restrictions on the importation of machinery and • requires submission of a preliminary environmental report equipment or services. Under the mining law plant, machinery, (PER); or equipment and accessories imported specifically and exclusively for • requires the submission of an environmental impact statement mineral operations benefit from reduced customs import duties of (EIS). items on the mining list. Where the EPA is of the view that a significant adverse environmental impact is likely to result from the activities of any undertaking, 30 What restrictions are imposed on the processing, export or sale the applicant shall be asked to submit an EIS on the undertaking in of minerals? Are there any export quotas, licensing or other order that the environmental impact of the proposed undertaking mechanisms that prevent producers from freely exporting their can be assessed. production? Where an EIS is acceptable to the EPA, it will communicate this There are no restrictions on the processing of minerals. However, in writing to the applicant and issue the environmental permit. a person must obtain a licence in order to be able to export, sell or The law provides that the EPA should arrive at its decision dispose of any minerals. The licence may be granted with conditions. within 90 days from the date of receipt of the application form. The application for a licence to sell, export or dispose of minerals by There are exceptions to this time limit including where a hearing is a holder of a mining lease must be accompanied by copies of refining conducted and where a PER is required. The period does not also contract and sale and marketing agreements. include the period taken to prepare and submit an EIS. The environmental permit is valid for 18 months effective from the date of its issue. www.gettingthedealthrough.com 87 GHANA Kimathi & Partners, Corporate Attorneys

Update and trends

• The sharp decline in gold price and rising input costs led to the • The following laws are yet to be passed: loss of about 3,000 jobs through retrenchment and this is set to • the Mineral Development Fund Bill to make available more continue. financial resources to communities affected by mining; • A task force with representation from National Security, the Armed • the law on the Extractive Industry Transparency Initiative to Forces and the Ghana Police Service was formed with the backing give legal force to the imitative by mining companies to make of the Presidency to clamp down on illegal mining. This led to the more information available to the resource they contribute to arrest and prosecution of nationals without the requisite permits national development through taxation; and the deportation of foreign nationals involved in illicit mining. • a review of the Reclamation Bond regime under the • AngloGold Ashanti’s Obuasi mine may shut down (other options environmental laws embarked upon by the Environmental are being considered with support from the Government) for Protection Agency; rehabilitation or care and maintenance due to operational • the initiative by the Water Resources Commission to challenges. Its total output fell by 16 per cent in 2013 alone to introduce a licensing regime for construction of dams 239,052 ounces. including tailings dams. • The Energy Commission is set to introduce a new tariff regime in conjunction with the Public Utilities Regulatory Commission and With the passage of the Value Added Tax (VAT) 2013 (Act 870), the utilities as part of measures to implement the Wholesale financial services such as banking and insurance as well as real Electricity Market Regime under the Electricity Regulations, 2008 estate now attract VAT. Act 870 also increased the VAT rate by 2.5 per (LI 1937). cent, bringing the total VAT rate and National Health Insurance Levy to • The Bank of Ghana’s strict enforcement of the prohibition against 17.5 per cent. pricing/invoicing of goods and services in foreign currency in Act 870 has cost implications (additional banking and insurance 2014 (as part of measures to halt the sharp depreciation in the costs) for mining companies. The cash flows of VAT registered value of the Ghanaian cedi) may lead to foreign exchange losses mining companies would be more negatively impacted by the delays if there is a time lag between invoicing and payment for those with associated with surplus VAT refunds from the Ghana Revenue foreign exchange exposure. Authority.

A mining company will be required to obtain (upon payment • the Minerals and Mining Act 2006 (Act 703); of the requisite fees) an environmental certificate within 24 months • the Minerals and Mining Regulations (Health, Safety and of the date of the commencement of operations after the EPA has Technical) 2012 (LI 2182); approved a PER or an EIS and issued an environmental permit. • the Labour Act, 2003 (Act 651); and Companies that have received approval for either their PER • the Workmen Compensation Act 1987 (PNDCL 187). or an EIS are required to obtain an environmental management plan (EMP) within 18 months of commencement of operations The regulatory bodies include the Minerals Commission and the and thereafter every three years. The EMP is required to set out Labour Commission. steps that are intended to be taken to manage any significant environmental impact that may result from the operation of the project 36 What restrictions and limitations are imposed on the use of or undertaking. domestic and foreign employees in connection with mining activities? 34 What is the closure and remediation process for a mining The Minerals and Mining Act provides that a holder of a mineral project? What performance bonds, guarantees and other financial right shall give preference in employment to citizens of Ghana to the assurances are required? maximum extent possible and consistent with safety, efficiency and Mining businesses are required to submit reclamation plans to the economy. A foreign employee in the mining sector as in any other Environmental Protection Agency and are further obliged to post sector needs a work permit in order to work. Mining companies reclamation bonds regarding their reclamation plans and based on are required to meet immigration quota requirements regarding approved work plan for reclamation. the approved number of expatriate personnel. Under the Minerals On the termination of a mineral right, the former holder is and Mining Regulations (General) 2012 (LI 2173), mining compa- obliged to deliver to the Minister or as the Minister directs: nies are required to submit a localisation plan for approval by the • the records, which the holder is obliged under the Minerals law Minerals Commission regarding measures to ensure the eventual to maintain; replacement of expatriates by local or domestic employees. • the plans and maps of the area covered by the mineral right prepared by the holder or at the holder’s instructions; and Social and community issues • other documents, including in electronic format, if available that relate to the mineral right. 37 What are the principal community engagement or CSR (corporate social responsibility) laws applicable to the mining industry? What Failure to deliver the above within 30 days from the date of being are the principal regulatory bodies that administer those laws? called upon to do so by the Minister makes the holder criminally The principal community engagement laws applicable are the liable and the holder will be liable on summary conviction to a fine Minerals and Mining Act 2006 (Act 703) and the Minerals and of not more than the cedi equivalent of US$10,000 or imprisonment Mining Regulations. The Minerals Commission administers the for a term of not more than three years or both. Minerals Development Fund for purposes of developing communities affected by mining. Health & safety, and labour issues The Environmental Protection Agency Act 1994 (Act 490) and the Environmental Assessment Regulations 1999 (LI 1652) also have 35 What are the principal health and safety, and labour laws community engagement provisions. The Environmental Protection applicable to the mining industry? What are the principal Agency is the regulatory body that administers these laws regard- regulatory bodies that administer those laws? ing community involving programmes and projects to mitigate the The principal health and safety and labour laws applicable in the effect of mining on the environment. mining industry include:

88 Getting the Deal Through – Mining 2014 Kimathi & Partners, Corporate Attorneys GHANA

38 How do the rights of aboriginal, indigenous or currently or • the United Nations Framework Convention on Climate Change, previously disadvantaged peoples affect the acquisition or which entered into force in 1994, and finalised the Kyoto exercise of mining rights? Protocol related to that convention in 1997 (not yet in force). There are requirements under the mining law regarding the exercise of mining rights in a manner consistent with the reasonable and Ghana is a party to the 1981 UN Convention on the Law of the proper conduct of the operations concerned so as to affect as little Sea, several regional agreements on specific seas, and various other as possible the interest of any lawful occupier of the land in respect treaties addressing maritime pollution. of which such rights are exercised and the right of the lawful occupier of any licensed area to graze livestock upon or to cultivate the Foreign investment surface of such land in so far as such grazing or cultivation does not interfere with the mineral operations in the area. The law requires 40 Are there any foreign ownership restrictions in your jurisdiction companies to make fair, adequate and prompt compensation for any relevant to the mining industry? disturbance caused to the surface rights of the owner. Foreigners are prohibited from participating in small-scale mining Other than the above, there are no specific laws on the rights operations. These are reserved exclusively for Ghanaians. of aboriginal, indigenous, currently or previously disadvantaged people. They do not have any significant effect on the acquisition or International treaties exercise of mining rights. 41 What international treaties apply to the mining industry or an investment in the mining industry? 39 What international treaties, conventions or protocols relating to International treaties or conventions applicable to investment in CSR issues are applicable in your jurisdiction? the mining industry include the United Nations Commission on Ghana has ratified: International Trade Law, Multilateral Investment Guarantee Agency • the International Covenant on Economic, Social and Cultural Convention, Convention for the settlement of Investment Dispute rights (in 2000); between States and Nationals of other states, United Nations • the International Convention on the Elimination of All Forms of Convention on the Recognition and Enforcement of Foreign Racial Discrimination; Arbitral Awards, Convention on Biodiversity, and bilateral invest- • the African Charter on Human and Peoples’ Rights; the African ment promotion and protection agreements between Ghana and Charter on the Rights and Welfare of the Child; other countries. • the Protocol to the African Charter on Human and Peoples’ Rights on the Rights of Women in Africa; • the 2001 Stockholm Convention on Persistent Organic Pollutants; and

Michael Edem Akafia [email protected] Kimathi Kuenyehia Sr [email protected]

No. 6 Airport Road Tel: +233 302 770 447 Airport Residential Area, Airport Fax: +233 302 766 870 Accra www.kimathilegal.com Ghana

www.gettingthedealthrough.com 89 GREENLAND Nuna Law Firm Greenland

Peter Schriver Nuna Law Firm

Mining industry 5 How is the mining industry regulated? The mining industry in Greenland is regulated by an act passed by 1 What is the nature and importance of the mining industry in the Greenlandic Parliament in December 2009. Before the imple- your country? mentation of this act, mineral resources were regulated by a joint At present there are six exploitation licences in Greenland: a Greenlandic–Danish administration. Greenland now has full gold mine in south Greenland (under closure), an olivine mine authority to make decisions regarding principal investments in in west Greenland (under closure), a lead and zinc mine also in mineral resource activities, including the granting of licences. west Greenland, a molybdenum mine in east Greenland, an iron The rules and precedents applicable until 1 January 2010 – ore deposit in west Greenland and a gemstone deposit in west when the new act became effective – are generally carried on under Greenland of which the licences covering iron and gem stones are the new act. However, a number of important new rules have been granted in 2013 and 2014. At the moment none of the mines are introduced. operating, but it is expected that the gemstone mine will start production in the near future. Generally, mineral exploration activity has increased in the past few years as the world mining commu- 6 What are the principal laws that regulate the mining industry? nity has become more aware of Greenland’s mineral potential. It What are the principal regulatory bodies that administer those is therefore expected that several new mines will be opened in the laws? coming years and that the mining industry will become of great The principal law regulating the mining industry in Greenland is the importance to Greenland. Greenland Parliament Act of 7 December 2009 on mineral resources and mineral resource activities (the Mineral Resources Act). In December 2012 an amendment to the Mineral Resources Act was 2 What are the target minerals? passed by the Greenland Parliament. In addition, the Standard Terms The target minerals of the current mining and exploration projects for Exploration Licences for Minerals (Excluding Hydrocarbons) in are olivine, molybdenum, coloured corundum (ruby and pink sap- Greenland of 16 November 1998 issued by the Greenlandic and phires), eudialyte (zirconium and rare-earth elements), diamonds, Danish governments containing fixed terms applying to all granted iron, lead, zinc and gold. licences is still valid. It is expected that the autonomous government authorities will issue new standard terms in the near future. 3 Which regions are most active? The administration regarding mineral resources in Greenland is handled by the Mineral Licence and Safety Authority (MLSA) The regions of south-west Greenland and west Greenland are the under the Greenland autonomous government authorities. One of most active regions. the main tasks of the MLSA is the day-to-day administration of licences within the area of mineral resources. As of 1 January 2013, Legal and regulatory structure the MLSA is no longer responsible for environmental matters so 4 Is the legal system civil or common law-based? that decisions concerning the environment are now made by the Environmental Agency for the Mineral Resources Area. Except The legal system in Greenland is a civil law system primarily based from the area of environmental matters, the MLSA is responsible on written legislation. Greenland is part of the Kingdom of Denmark for all case-processing, and it remains the only authority the indus- and is subject to the Danish Constitution, but since 1979 has had try needs to contact in order to receive necessary licences (one-stop an independent status within the Kingdom of Denmark by the shop principle). Further information as to MLSA procedures con- implementation of the Greenland Home Rule Act. cerning the granting of licences and relevant legislation applying Greenland and Denmark have, by referendum, passed the Law to the area of mineral resources can be found at www.govmin.gl. on Greenlandic Autonomous government, which came into force on 21 June 2009. This means that Greenland can take over the administration of most areas, but not that Greenland has become 7 What classification system does the mining industry use for an independent state. reporting mineral resources and mineral reserves? The Danish government administers matters such as foreign and Article 1 of the Mineral Resources Act sets out the general over- defence policy, policing, courts and currency. Greenland’s govern- all stipulation that the Act aims to ensure that activities under the ment is responsible for all other areas of legislation, including leg- Act are performed in a sound manner as regards safety, health, the islation concerning mineral resources, which Greenland took over environment, resource exploitation and social sustainability, and shortly after the implementation of autonomous government. appropriately and according to the best international practices under similar conditions.

90 Getting the Deal Through – Mining 2014 Nuna Law Firm GREENLAND

In practice, this implies that the Greenlandic mining industry expenditure was made, qualify as fulfilment of the exploration may use any kind of standard they want, as long as it is in accord- obligations for one or more exploration licences. ance with good international practice. Exploration licence Mining rights and title Applications for an exploration licence shall be submitted to the MLSA, which registers the applications in either batch A (dating 8 To what extent does the state control mining rights in your between the first and 15th of the month) or batch B (dating between jurisdiction? Can those rights be granted to private parties and the 16th and the last day of the month). to what extent will they have title to minerals in the ground? If the case of competing applications – applications within the Are there large areas where the mining rights are held privately same batch and with overlapping licence areas – the Greenlandic or which belong to the owner of the surface rights? Is there a government will make a discretionary decision concerning the grant separate legal regime or process for third parties to obtain mining of the licence. rights in those areas? An exploration licence is exclusive, precluding the granting of Metallic minerals in the ground of Greenland belong to Greenland’s a similar licence in the same area to other parties. The exploration government, and prospecting and exploration for and exploitation licence is granted for a period of five years and at expiration of the of mineral resources in Greenland can only be carried out under first licence period the licensee is entitled to be granted a new licence licences granted according to the Mineral Resources Act. for the same area for five years. Pursuant to the Standard Terrms, at However, the resident population of Greenland may carry out expiration of the second licence period (years six–10), the licensee non-commercial collection of loose minerals without a licence being may be granted additional new three-year licences for years 11–13, required, but only with respect to exclusive licences for exploration 14–16, 17–19 and 20–22 for the same area, wholly or partly, pro- and exploitation of mineral resources granted to other parties. vided the terms of the licence have been complied with. However, the licensee is not entitled to have such licences granted. During the licence period the licensee is obliged to spend a fixed 9 What information and data is publicly available to private parties minimum of exploration expenses per calendar year calculated as that wish to engage in exploration and other mining activities? Is the sum of an amount per licence per year and an amount per square there an agency which collects mineral assessment reports from kilometre per year. private parties? Must private parties file mineral assessment reports? Does the agency or the government conduct geoscience Exploitation licence surveys, which become part of the database? Is the database If a licence holder of an exclusive exploration licence has found and available online? delineated a commercially viable deposit that the licensee intends to The MLSA provides advice and assistance to private parties who exploit and provided the terms of the licence have been complied wish to engage in activities of mineral exploration and development with, the licensee is entitled to be granted an exploitation licence. in Greenland. An exploitation licence regarding mineral resources will, as Moreover, the English website of the MLSA (www.govmin.gl) is a main rule, only be granted to limited companies domiciled in an important means of communicating relevant information to the Greenland, exclusively carrying out activities under the granted mining industry. On this website there is a wide range of information licences and not being taxed together with other companies. It is available, for example, information regarding relevant legislation, required that such companies may not be more thinly capitalised application procedures, licence terms, fieldwork, reporting and than the group of which the company forms part, but the com- current licences. pany’s loan capital may {must?} always exceed the shareholders’ The Geological Survey of Denmark and Greenland (GEUS), equity up to a ratio of 2:1. The licensee shall furthermore have the situated in Denmark, provides a wide range of geoscientific infor- necessary expert knowledge and adequate financial background mation, which can be obtained from their website (www.geus.dk). with respect to the exploitation activities in question. The licence is granted for 30 years. 10 What mining rights may private parties acquire? How are these Following the granting of an exploitation licence and prior to acquired? What obligations does the rights holder have? If commencement of development and production the licensee shall exploration or reconnaissance licences are granted, does such submit a development plan for MLSA approval – including a closure tenure give the holder an automatic or preferential right to acquire plan – and an environmental impact assessment. Furthermore, the a mining licence? What are the requirements to convert to a Mineral Resources Act stipulates that if an activity is assumed to mining licence? have significant impact on social conditions, a licence for the activity can be granted only when a social sustainability assessment has A licence issued according to the Mineral Resources Act will cover been approved by the MLSA. Finally, it is determined in the licence all mineral resources except hydrocarbons, radioactive elements and to what extent the licensee is obliged to enter into an impact ben- hydropower, unless otherwise stipulated in the licence. efit agreement imposing obligations for the licensee regarding use of Greenlandic labour and enterprises and also regarding education of Prospecting licence Greenlandic labour. The prospecting licence is non-exclusive, meaning that the granting of such a licence does not preclude the granting of similar licences to other parties and the licence lapses to the extent that exclusive 11 What is the regime for the renewal and transfer of mineral licences? licences may be granted later as regards the area and the resources The exploration licence is granted for a period of five years and at in question. Furthermore, the licensee has no right prior to other the expiration of the first licence period the licensee is entitled to be parties when applying for an exclusive exploration licence as regards granted a new licence for the same area for five years. Additional the area and the resources in question. new three-year licences may be granted for years 11–13, 14–16, The licensee will have no commitments and may surrender 17–19 and 20–22 for the same area, wholly or partly, however, the the licence at any time with written notice to the MLSA. However, licensee is not entitled to have such licences granted. under certain conditions expenditure made under a prospecting Any renewal of the licence is provided that the licensee has licence may, within three years from the calendar year in which the fulfilled all obligations according to the terms of the licence. The exploitation licence is granted for 30 years. www.gettingthedealthrough.com 91 GREENLAND Nuna Law Firm

Any direct or indirect transfer of a licence to a third party 17 Are any areas designated as protected areas within your requires approval by the Greenland government. Indirect transfer jurisdiction and which are off-limits or specially regulated? means any transfer of ownership interests that will affect the con- There are several areas in Greenland designated as protected areas trolling interest of the licensee. for the protection of the natural environment. Further information about the areas in question can be obtained by contacting the MLSA. 12 Is there any distinction in law or practice between the mining Duties, royalties and taxes rights that may be acquired by domestic parties and those that may be acquired by foreign parties? 18 What duties, royalties and taxes are payable by private parties There is no distinction between mining rights that may be acquired carrying on mining activities? Are these revenue-based or profit- by domestic parties and those that may be acquired by foreign parties. based? The right to perform mining activities is based on the exploitation 13 How are mining rights protected? Are foreign arbitration awards licence issued by Greenland’s autonomous government. Unless oth- in respect of domestic mining disputes freely enforceable in your erwise stated in the exploration licence preceding the exploitation jurisdiction? licence, the economic terms of an exploitation licence will be as Decisions, which according to stipulations of the licence depend on follows: the judgment or resolve of the Minister for Mineral Resources or • taxation according to Greenlandic legislation in force at any the MLSA, are not subject to arbitration. This stipulation does not time; exclude ordinary review by the courts. • payment of a fee of 100,000 Danish kroner to the MLSA at the In any other case disputes arising between the Greenlandic granting of an exploitation licence; and government and the licensee regarding questions concerning the • reimbursement of the MLSA’s expenses regarding regulation of licence will be finally decided upon a board of arbitration. the licensee’s activities. Concerning enforcement of foreign arbitration awards the New York Convention applies. In March 2013 a new government in Greenland was elected, and the ruling parties’ coalition agreement states that royalty payments will be introduced to the mining industry. In January 2014, the 14 What surface rights may private parties acquire? How are these government presented a proposal for an oil and mineral strategy rights acquired? for 2014–2018 which contains a recommendation to introduce In Greenland ownership to land cannot be obtained, as all land is a royalty model based on a combination of revenue and profit owned by the society. However, persons or companies, on applica- depending on the specific type of mineral and with a possibility tion, can obtain a right to use a piece of land for a defined purpose of deducting corporate and dividend tax within the calculated – for example, the construction of a building. When obtaining an royalty. It is therefore expected that exploration licences that are exclusive exploration and exploitation licence, the licensee acquires granted in future will contain provisions on the payment of royalty. the right to explore and exploit the minerals under the conditions of So far, no duties or royalties have been payable by parties carry- the licence terms for the area covered by the licence. ing out mining activities, but only taxation according to Greenland legislation in force at any time. However, the last two exploitation licences that were granted in October 2013 and March 2014 15 Does the government or do state agencies have the right to include an agreement between the government and the licensees on participate in mining projects? Is there a local listing requirement the payment of royalty. for the project company? As a main rule the government or state agencies do not have the right to participate in mining projects. However, according to the 19 What tax advantages and incentives are available to private Mineral Resources Act, section 17(2) a licence may prescribe that a parties carrying on mining activities? company controlled by the Greenland autonomous government will For companies carrying on mining activities, corporate taxation be entitled on specified terms to join as a participant in the activities amounts to 30 per cent whereas the taxation of other companies covered by the licence. amounts to 31.8 per cent. The tax on dividends for companies car- An exploitation licence regarding mineral resources will, as rying out mining activity is 36 per cent regardless of the municipality a main rule, only be granted to limited companies domiciled in in which the company is situated, as opposed to other companies Greenland, exclusively carrying out activities under the granted that pay a tax on dividends of 42 to 44 per cent dependent on their licences and not being taxed together with other companies. home municipality. Finally, companies carrying on mining activity can bring deficits forward without time limits where other companies have a time limit of five years. 16 Are there provisions in law dealing with government expropriation of licences? What are the compensation provisions? Expropriation is defined as the government taking over private 20 Does any legislation provide for tax stabilisation or are there tax property without the consent of the owner. stabilisation agreements in force? According to the Constitution of the Kingdom of Denmark No. Act, section 73, which also applies in Greenland, the legislature is authorised to make regulation on expropriation within the frame- 21 Is the government entitled to a carried interest, or a free carried work hereof. interest in mining projects? Expropriation is only possible if the legislation complies with the following conditions: As a rule the government is not entitled to a (free) carried interest in • that the owner of the property being expropriated is fully mining projects. However, according to the Mineral Resources Act compensated; section 17(2) a licence may prescribe that a company controlled by • that the alienation is motivated by the interests of the public the Greenland autonomous government will be entitled on specified good; and terms to join as a participant in the activities covered by the licence. • that the restraint is authorised by the Act.

92 Getting the Deal Through – Mining 2014 Nuna Law Firm GREENLAND

22 Are there any transfer taxes or capital gains imposed regarding If a lender financing the licensee’s development and exploitation the transfer of licences? of hydrocarbons stipulates as a condition for granting the loan that Capital gains on the transfer of licences are included in the calcula- this Licence or any part hereof shall be transferable to such lender tion of the corporate taxable income. at a later date, the MLSA may, in accordance with section 27 (now section 88) of the Mineral Resources Act, grant its prior approval of such transfer subject to specific conditions, without any amend- 23 Is there any distinction between the duties, royalties and taxes ments to the terms of this licence. payable by domestic parties and those payable by foreign parties? Notwithstanding such prior approval, it should be noted that if There is no distinction between the duties, royalties and taxes paya- and when the lender wishes to execute its right to a transfer of the ble by domestic licence holders and those payable by foreign parties. mining interests, an approval of an eligible nominee is to be obtained However there is an obligation to withhold tax related to royalties again in accordance with section 88(1). paid by a domestic company to a foreign beneficiary. Restrictions Business structures 29 What restrictions are imposed on the importation of machinery 24 What are the principal business structures used by private parties and equipment or services required in connection with exploration carrying on mining activities? and extraction? Exploration licences can be issued to any legal entity based in Some types of vehicles are subject to import duty. Otherwise, we are Greenland or outside Greenland. However, an exploitation licence not aware of any restrictions or limitations on the importation of that forms the basis of the right to carry out mining activities will, machinery and equipment or services required in connection with as a general rule, only be granted to limited companies domiciled mining activities in Greenland. in Greenland exclusively carrying out activities under the granted licences and not being taxed together with other companies. It is required that such companies may not be more thinly capitalised 30 What restrictions are imposed on the processing, export or sale than the group of which the company forms part, but the com- of minerals? Are there any export quotas, licensing or other pany’s loan capital may always exceed the shareholders’ equity up mechanisms that prevent producers from freely exporting their to a ratio of 2:1. These rules apply no matter whether the lender production? is a company within the same group or not, and whether such According to the Mineral Resources Act the licensee must use companies are domiciled in Greenland or abroad. Also, compa- Greenland enterprises for contracts, supplies and services unless nies holding exploitation licences are generally required to trade at Greenland enterprises are not technically or commercially competi- arm’s-length prices and on arm’s-length terms. tive. Also, it is possible when granting a licence to lay down the extent to which the licensee must process exploited mineral resources in Greenland. However, minerals may be processed outside Greenland 25 Is there a requirement that a local entity be a party to the if processing in Greenland would result in significantly higher costs transaction? or greater inconvenience. See question 24. Furthermore, it may be laid down in a licence to what extent the licensee must keep a part of the exploited minerals in Greenland for the purpose of sale to persons with permanent residence in 26 Are there jurisdictions with favourable bilateral investment treaties Greenland who intend to process the minerals in Greenland. or tax treaties with your jurisdiction through which foreign entities will commonly structure their operations in your jurisdiction? Greenland has tax treaties with Denmark, Norway, Iceland and 31 What restrictions are imposed on the import of funds for the Faroe Islands. Under certain circumstances it might be rele- exploration and extraction or the use of the proceeds from the vant for foreign entities established in these countries to structure export or sale of minerals? their operations in Greenland, but this will depend on the specific We are not aware of any restrictions or limitation on the import circumstances. of funds for mining activities or the use of the proceeds from the export or sale of metallic minerals. There are no restrictions on Financing foreign investments in Greenland.

27 What are the principal sources of financing available to private Environment parties carrying on mining activities? What role does the domestic public securities market play in financing the mining industry? 32 What are the principal environmental laws applicable to the The principal sources of financing available to private parties carry- mining industry? What are the principal regulatory bodies that ing on mining activities consist of equity raised on the international administer those laws? markets. There is no domestic public securities market in Greenland. The relevant environmental, health and safety laws applying to the mining industry are as follows: • a general environmental protection law; 28 Please describe the regime for taking security over mining • explosives regulations; interests. • technical regulations for flammable liquids; According to section 88(2), a licence under the Mineral Resources • Greenland Building Regulations; and Act cannot be attached by creditors, and no systems for perfection • the Law on Archaeological Sites and Artefacts. of security in mineral licences exist under the laws of Greenland. As an alternative, provisions stipulating that the licensee be Greenland has a ‘one-door’ system administering the country’s obliged to transfer its mining interests to a lender in case of default mineral resources, handled by the MLSA as the authoritative body may be considered. In respect of prior approval of transfers in con- for all administration. Thus, the mineral resources industry has to nection with financing, guidance may be found in the principles apply only to MLSA to obtain the necessary permissions, ensuring stipulated in article 23.03 of the model licence for hydrocarbons. efficient administration of mineral resources. www.gettingthedealthrough.com 93 GREENLAND Nuna Law Firm

33 What is the environmental review and permitting process for a mining project? How long does it normally take to obtain the Update and trends necessary permits? The Mineral Resources Act contains principles and rules for protec- The biggest mining news event in 2013 was the granting of an exploitation licence to London Mining Greenland A/S covering a tion of the environment and social sustainability. By the application world-class iron ore deposit. It is expected that the mine will be and administration of the provisions on protection of the environ- constructed and operating within the next five to six years. The ment, including prevention, reduction and control of pollution, great granting of an exploitation licence to True North Gems Greenland emphasis is placed on what is obtainable by use of the ‘best available A/S in March 2014 was also a major event. This mine is expected to start production in the near future. techniques’ for the activities. Over the past few years, the world mining community has Also, specific rules on climate protection and nature protection become increasingly aware of Greenland’s mineral potential, have been laid down. The Greenland government may issue specific in terms of both size and sophistication. Geologically, much of regulations on climate and nature protection, including provisions Greenland is ancient, and similar to many regions elsewhere in on the application of national or international rules, agreements the world that have proved fruitful for exploration. While the total number of exclusive exploration licences in 2003 was 19 covering or guidelines concerning climate protection and protection of the 5,714km2, the number has increased to 73 licences by April 2014 environment. covering 40,786km2. Furthermore, 10 applications for exclusive Prior to commencement of exploitation and development exploration licences and a number of prospecting licences are activities, a plan for the activities, including organisation of the presently being processed by the MSLA, which shows that there is an increasing interest in mineral exporation in Greenland. production and the production installations must be approved by the Greenland government. In this connection an environmental impact assessment (EIA) report must be prepared. The purpose of an EIA is to identify, predict and communicate potential envi- remedy any remaining damage to the terrain and vegetation caused ronmental impacts of a proposed mining project in all its phases by the activities. from before mine-start to after closure, and to propose measures to If the licensee does not comply with the obligations at the ter- address and mitigate these impacts. mination of the activities such measures may be carried out at the If an activity must be assumed to have significant impact on licensee’s expense and risk. social conditions, a licence for and approval of the activity can The MLSA may request that the licensee provides security for be granted only when a social sustainability assessment (SSA) has the fulfilment of their obligations at termination of the activities. been made of the performance of the activity and approved by the In practice, security for the estimated closure costs is almost always Greenland government. The SSA report must appropriately dem- required prior to commencement of development and production. onstrate, describe and assess the direct and indirect impacts of the activity on social conditions as well as the interaction between the Health & safety, and labour issues conditions, mutual impact between the conditions and cumulative 35 What are the principal health and safety, and labour laws effects on the conditions. applicable to the mining industry? What are the principal Provided that the licensee submits all relevant information with regulatory bodies that administer those laws? the application for an exploitation licence, it should not take more than approximately three to six months to obtain the necessary The relevant health and safety law applying to the mining industry permits. However, there are no rules guaranteeing a maximum is the Law on Labour and Working Environment. processing time. With regard to labour laws, the Salaried Employees Act and the provisions of the Holiday Act apply to the mining industry.

34 What is the closure and remediation process for a mining project? What performance bonds, guarantees and other financial 36 What restrictions and limitations are imposed on the use of assurances are required? domestic and foreign employees in connection with mining activities? The licensee shall within 12 months from the termination of the activities under the licence remove all installations, buildings, According to the Mineral Resources Act and the standard terms of stored items, etc, in the area that has been established for the activi- the licences, the licensee shall employ Greenlandic manpower as far ties under the licence, except when the non-removal of these instal- as possible. Where there is a lack of Greenlandic manpower with lations has been approved by the MLSA. Furthermore, the licensee appropriate qualifications, the licensee may employ personnel from shall carry out final clean-up activities in the affected area land other countries.

Peter Schriver [email protected]

PO Box 59 Tel: +299 321370 Qullilerfik 2, 6 Fax: +299 324117 3900 Nuuk www.nuna-law.gl Greenland

94 Getting the Deal Through – Mining 2014 Nuna Law Firm GREENLAND

Moreover, according to the Aliens Act, residence and work per- and extract mineral resources without requiring a licence under the mits can be issued to foreign nationals allowing them to live and Mineral Resources Act. However, the right to collect and extract work in Greenland for a specified period of time if there is no one mineral resources can only be exercised with respect of exclusive in Greenland who can perform a specific function. Also, salary and licences for exploration and exploitation of mineral resources employment conditions must correspond to Greenlandic standards. granted to others under the Mineral Resources Act. Residence and work permits are not required of Danish citizens or citizens from the other Nordic countries (Sweden, Norway, Finland 39 What international treaties, conventions or protocols relating to and Iceland). Residence and work permits are issued by the Danish CSR issues are applicable in your jurisdiction? Immigration Service. It should be noted that there are some exceptions from the requirement of residence and work permit in rela- Except for some ILO conventions we are not aware of any inter- tion to personnel carrying out activities falling within the scope of national treaties, conventions or protocols relating to CSR issues the Mineral Resources Act. applying to the mining industry in Greenland.

Social and community issues Foreign investment

37 What are the principal community engagement or CSR (corporate 40 Are there any foreign ownership restrictions in your jurisdiction social responsibility) laws applicable to the mining industry? What relevant to the mining industry? are the principal regulatory bodies that administer those laws? We are not aware of any foreign ownership restrictions in Greenland There is no such legislation directly regulating these issues. However, relevant to the mining industry. the process of preparing a social sustainability assessment is characterised by having a high degree of public participation. The aim International treaties is that all relevant stakeholders shall be heard in the process. Also, 41 What international treaties apply to the mining industry or an the impact benefit agreement that is negotiated between the licen- investment in the mining industry? see, the relevant municipalities and the government aims to ensure the social commitment through the lifetime of the project from the We are not aware of any international treaties applying to the min- parties involved. ing industry or an investment in the mining industry in Greenland.

38 How do the rights of aboriginal, indigenous or currently or previously disadvantaged peoples affect the acquisition or exercise of mining rights? According to the Mineral Resources Act, article 45, the resident population of Greenland may exercise their traditional right to collect

www.gettingthedealthrough.com 95 INDONESIA Soemadipradja & Taher Indonesia

Rahmat Soemadipradja, Robert Reid and Rachel Situmorang Soemadipradja & Taher

Mining industry 5 How is the mining industry regulated? The mining industry is regulated at each of the national, provincial 1 What is the nature and importance of the mining industry in your and regency or municipal levels of government through laws and country? regulations. There is a national law (that is, the Mining Law) that Indonesia continues to be one of the world’s top producers of gold, sets out the general provisions on mining, which is further imple- copper, nickel, tin and coal and is host to several world-class mines. mented through government, presidential, ministerial and regional Indonesian mines and mining companies are some of the world’s regulations depending on the delegation of authority contained in fastest growing and Indonesia is currently the world’s largest the law. exporter of thermal coal. The mining regime under the Mining Law is based on a licensing Given the extent of international demand for mining products, system, whereas the old mining regime was based on a combination the mining industry has become crucial to the Indonesian economy. of licensing and contract systems. The industry is a significant contributor to Indonesia’s export earn- Under the old regime, a ‘mining authority’ (KP) could only be ings, economic activity, employment and regional development. A granted to wholly owned Indonesian companies or nationals. A recent media release indicates that the Indonesian mining industry contract, or ‘contract of work’ (CoW) (for minerals) or ‘coal coop- is expected to generate 94.6 trillion rupiah in government revenue eration agreement’ or ‘coal contract of work’ (CCoW) (for coal) in 2014. was initially designed for foreign investors. Foreign investors could The passing of Law No. 4 of 2009 on Mineral and Coal Mining not carry out mining activities directly and were required to estab- (Mining Law) and its implementing regulations were perceived at lish a foreign investment limited liability company (a PMA com- the time to have provided a much greater degree of legal certainty pany) as a special purpose vehicle. The relevant PMA company was and significantly increased the appetite of both foreign and domes- the entity that entered into a CoW or CCoW with the government. tic investors to invest in the Indonesian mining sector, particularly The Mining Law abolished the KP, CoW and CCoW systems and coal. The level of M&A activity within the mining sector increased introduced a new simplified licensing system in the form of mining significantly as a consequence of the passing of the Mining Law. business licences (IUPs) (issued as exploration IUPs and production However, according to recent data released by the Investment operation IUPs), special mining business licences (IUPKs) (issued as Coordinating Board (BKPM), since the third quarter of 2013 exploration IUPKs and production operation IUPKs), and people’s Indonesia has experienced a significant investment downturn in the mining licences (IPRs). One significant feature of the Mining Law is mining sector. Investors remain cautious about the full impact of that there is now no distinction between the licences issued to local the Mining Law following the passing of a number of controversial investors and foreign investors. regulations and legal challenges to the constitutional validity of KPs issued under the old mining regime were initially honoured, certain important regulations, especially over the past three years. but were required to be converted to IUPs. The government has not yet finalised the process of determining a mining business licence 2 What are the target minerals? area (WIUP) for each registered IUP. Indonesia continues to produce significant levels of coal, gold, The Mining Law continues to recognise existing CoWs or copper, nickel and tin. Other minerals targeted by investors in CCoWs, which will continue to be honoured by the government Indonesia include silver, bauxite, iron sands, lead and zinc. until their expiry, subject to certain ‘adjustments’ being made to them to comply with the Mining Law. The CoW or CCoW amendments are still subject to negotiation between the CoW or 3 Which regions are most active? CCoW holders and the government, which the government has Kalimantan and Sumatra are the most active regions for coal mining indicated it aims to complete before the end of 2014. activities; Sulawesi and Maluku for nickel mining activities; Papua, Both the national government (through the minister of energy Nusa Tenggara, Sumatra and Sulawesi for gold and copper mining and mineral resources) and the regional governments (through activities; Bangka Island for tin mining activities; Bintan Island and governors at the provincial level, regents or mayors at the regency West Kalimantan for bauxite mining activities; and North Sumatra or municipal level) have the authority to issue mining licences. for lead-zinc mining activities. Whether the mining licences will be issued by the minister of energy and mineral resources, the governor or the regent or mayor (as Legal and regulatory structure appropriate) will depend on the type of material to be extracted, the area to be covered by the mining licence and whether the appli- 4 Is the legal system civil or common law-based? cant is a foreign-owned mining company. The national govern- Indonesia has a civil law system that was inherited from the Dutch ment (rather than the relevant regional governments) will issue all colonial system. new IUPs to foreign-owned mining companies (PMA companies),

96 Getting the Deal Through – Mining 2014 Soemadipradja & Taher INDONESIA although it is unclear how this will work in practice if the licensing Investment in Mineral and Coal Mining Business (MEMR process is conducted by the regional governments. Regulation No. 27 of 2013); Mining licences can only be granted over areas that have been • MEMR Regulation No. 28 of 2013 on Procedures for the determined by the national government (that is, the minister of Auction of Mining Business Licence Areas and Special Mining energy and mineral resources) as mining areas (WPs) and further Business Licence Areas for Metallic Mineral and Coal Mining designated as mining business areas (WUPs), state reserve areas Business Activities (MEMR Regulation No. 28 of 2013); (WPNs) or people’s mining areas (WPRs). However, in November • MEMR Regulation No. 32 of 2013 on Procedures for the 2012 the Constitutional Court revoked four articles of the Mining Granting of A Special Permit in the Mineral and Coal Mining Law, which specifically relate to the authority of the national gov- Sector; ernment to determine WPs, WUPs and WIUPs. The Constitutional • MEMR Regulation No. 1 of 2014 on Increasing the Added Court decision declared that the authority to determine WPs, WUPs Value of Minerals through Domestic Processing and Refining and WIUPs is vested in the regional governments. Following the Activities (MEMR Regulation No. 1 of 2014); Constitutional Court decision, the national government’s authority • MEMR Regulation No. 7 of 2014 on Reclamation of Mining in relation to WPs, WUPs and WIUPs would appear to have been Areas and Post Mining Activities for Mineral and Coal Mining seriously diminished. Businesses (MEMR Regulation No. 7 of 2014); and • MEMR Regulation No. 11 of 2014 on Procedures and 6 What are the principal laws that regulate the mining industry? What Requirements for the Grant of a Recommendation for the are the principal regulatory bodies that administer those laws? Export of Processed and Refined Minerals. The mining regime legal framework is built on the principle con- The mining industry is also subject to compliance with a wide range tained in article 33 of the 1945 Constitution of the Republic of of laws and regulations on regional governance, investment, forestry, Indonesia (Constitution), which states that land, water and natural land and the environment, which can have a significant impact on resources contained within Indonesia are controlled by the state and mining projects. must be used for the greatest benefit of the people. The principal mining regulatory bodies are: The laws and regulations that regulate the mining industry are • the MEMR; divided into those laws that directly regulate mining activities and • the Directorate General of Minerals and Coal (DGMC); those that do not specifically regulate mining, but must be followed • the Ministry of Forestry (for mining-related issues in forest when carrying out mining or related activities. areas); The principal law that directly regulates mining is the Mining • the Ministry for the Environment (for environmental documents Law. To provide specific guidance on the implementation of and permits); and the Mining Law, the government has issued the following main • regional governments (divided into provincial governments, regulations: regencies and municipalities).

Government regulations (GR) Mining companies that have foreign participation will also come • GR No. 22 of 2010 on Mining Areas; under the auspices of the BKPM. • GR No. 23 of 2010 on the Implementation of Mineral and Coal Mining Business Activities (Government Regulation No. 23 of 2010); 7 What classification system does the mining industry use for reporting mineral resources and mineral reserves? • GR No. 55 of 2010 on the Development and Supervision of the Implementation of Management of Mineral and Coal Business Indonesia does not have a standard classification system for report- Activities; ing mineral resources and mineral reserves. The most commonly • GR No .9 of 2012 on Categories and Tariffs for Non-Tax State used system in Indonesia is the Joint Ore Reserves Committee Code Revenue (GR No.9 of 2012); and Guidelines for Reporting of Identified Mineral Resources and • GR No. 24 of 2012 on the Amendment to GR No. 23 of 2010 Ore Reserves, which is a joint initiative of the Australasian Institute (GR No. 24 of 2012); and of Mining and Metallurgy, the Minerals Council of Australia and the • GR No. 1 of 2014 on the Second Amendment to GR No. 23 of Australian Institute of Geoscientists. 2010 (GR No. 1 of 2014). Mining rights and title Minister of energy and mineral resources (MEMR) regulations 8 To what extent does the state control mining rights in your • MEMR Regulation No. 18 of 2009 on the Procedures to Amend jurisdiction? Can those rights be granted to private parties and to Investment in the framework of Contracts of Work and Coal what extent will they have title to minerals in the ground? Are there Contracts of Work; large areas where the mining rights are held privately or which belong • MEMR Regulation No. 28 of 2009 on the Administration of to the owner of the surface rights? Is there a separate legal regime Coal and Mining Services Business (MEMR Regulation No. 28 or process for third parties to obtain mining rights in those areas? of 2009); • MEMR Regulation No. 34 of 2009 on the Prioritisation of Based on article 33 of the Constitution, the state is deemed to have the Supply of Minerals and Coal for Domestic Needs (MEMR title to the minerals in the ground and under the water. Development Regulation No. 34 of 2009); and utilisation of those minerals must be undertaken by the gov- • MEMR Regulation No. 17 of 2010 on the Determination of ernment (central and regional governments) through the mining Benchmark Prices for Mineral and Coal Sales; laws and regulations. • MEMR Regulation No. 12 of 2011 on Guidelines for the The Mining Law provides that the government may issue rel- Determination of Mining Business Areas and the Information evant mining licences (IUPs or IUPKs) to private parties that wish System for Minerals and Coal Mining Areas; to participate in mining activities. Holders of mining licences do not • MEMR Regulation No. 24 of 2012 on the Amendment to have title to the minerals in the ground. They will only have the MEMR Regulation No. 28 of 2009; right to ‘own’ the minerals or coal they mine after payment of all • MEMR Regulation No. 27 of 2013 on Procedures and royalties, dead rent and other necessary exploration and production Determination of Share Divestment Prices, and Changes to payments. www.gettingthedealthrough.com 97 INDONESIA Soemadipradja & Taher

Ownership of surface rights does not give ownership to the be further determined as ‘special mining business areas’ (WUPKs). minerals in the ground, nor does it automatically provide the sur- WUPKs can be further determined as ‘special mining business licence face rights owner with a licence to carry out mining activities. There areas’ (WIUPKs). Mining rights are granted by way of IUPs within is no separate legal regime that allows the holders of surface rights WUPs, IUPKs within WIUPKs or IPRs within WPRs. to automatically hold the mining rights if minerals are found on The Mining Law sets out the total areas that may be covered by their land. exploration or production operation IUPs or IUPKs. For metallic The grant of a mining licence is administered through either minerals, the maximum area for an exploration IUP is 100,000 the national government or the regional government, depending hectares, and 25,000 hectares for a production operation IUP. For on, among other matters, the location of the mining area. Mining coal, the maximum area for an exploration IUP is 50,000 hectares, licences do not automatically provide access to (or ownership of) and 15,000 hectares for a production operation IUP. the land that is the subject of the mining licence. The mining licence An IUPK is a mining licence granted over certain areas that have holder must enter into compensation agreements with the relevant been identified by the state to be WUPKs. Mining in WUPKs will be landholders. prioritised for state-owned and regional government-owned companies. The maximum areas covered by exploration or production 9 What information and data is publicly available to private parties operation IUPKs are the same as those for exploration or production that wish to engage in exploration and other mining activities? Is operation IUPs. there an agency which collects mineral assessment reports from An IPR is a mining licence for small-scale mining (maximum private parties? Must private parties file mineral assessment area 10 hectares). IPRs are granted following submission of an reports? Does the agency or the government conduct geoscience application to the relevant regent or mayor. Accordingly, applicants surveys, which become part of the database? Is the database for IPR areas do not go through a tender process. available online? For coal and metallic minerals, the grant of new IUPs or IUPKs is divided into two stages: first, the grant of the relevant WIUP There is currently no public data or information available to private or WIUPK; and second, the grant of the relevant IUP or IUPK parties (online or otherwise) in relation to mineral assessments. respectively. While IUP or IUPK holders and CoW or CCoW holders must submit periodic reports to the relevant government authority, the The tender process information contained in these reports is not publicly available. The grant of WIUPs is carried out by way of a tender process, The national government, through the DGMC, has established a and the winning bidder must then apply for an IUP. The relevant Sub-Directorate of Area and Information Planning for Minerals and authority to conduct the tender process for WIUPs will depend Coal (Sub-Directorate), which is intended to maintain centralised on the area to be covered by the WIUP. The tender process will data on Indonesian mining areas. be carried out by the MEMR (if the area straddles more than one The information provided by the Sub-Directorate is limited to province), the relevant governor (if the area straddles more than one information on existing IUPs, CoWs and CCoWs. This information regency) or the regent or mayor (if the area is in one regency or is not available online and private parties need to physically visit the municipality). Sub-Directorate. The relevant tendering authority is obliged to provide the public The national government does not currently conduct any geosci - with at least three months notice of the tender. In a WIUP tender, ence surveys (geophysical, geochemical, aeromagnetic or otherwise). various legal entities are permitted to participate, depending on the Mining Law states that the national government must carry out size of the relevant WIUP area as follows: mapping and identify the areas available for mining. Therefore, an • less than 1,000 hectares: regional government-owned compa- effective and comprehensive centralised data and information sys - nies, local private companies, cooperatives and sole partner- tem on current and available mining areas is expected to be available ships (including sole proprietorship, partnership and limited in the near future. partnership); Overlapping mining areas between other mining concession • between 1,000 and 5,000 hectares: state-owned companies, holders and other non-mining or forestry concession areas remain regional government-owned companies, national private com- a major concern for the mining industry. As a result, the national panies and cooperatives; and government, through the DGMC, has issued a ‘clear and clean list’, • over 5,000 hectares: state-owned companies, regional govern- which contains a list of companies and the IUPs held by such com - ment-owned companies and national private companies or panies. In practice, if an IUP appears on the clear and clean list this PMA companies. means that the IUP has been determined not to overlap with any other mining concessions and that the conversion from KP to IUP It would appear that a special-purpose mining PMA company has been made in accordance with the relevant laws and regulations. would need to be established in order for foreign parties to be able According to various media reports, as at 6 February 2014, to participate in a WIUP tender (or WIUPK tender under certain 6,042 IUPs were on the clear and clean list out of approximately limited circumstances), although this requirement is not specifi- 10,918 IUPs. cally addressed in MEMR Regulation No. 28 of 2013 (Tender The status of IUPs that do not appear on the clear and clean list Regulation). remains uncertain. In the case of WIUPKs, the MEMR will prioritise WIUPKs to be awarded to state-owned or regional government-owned companies. 10 What mining rights may private parties acquire? How are these If two or more state-owned or regional government-owned com- acquired? What obligations does the rights holder have? If panies seek a given WIUPK, a tender will be conducted. If no such exploration or reconnaissance licences are granted, does such companies seek a given WIUPK, the MEMR will offer it to private tenure give the holder an automatic or preferential right to acquire business entities through a tender. A private business entity may a mining licence? What are the requirements to convert to a include a PMA company. mining licence? An exception to the tender requirements applies for non-metallic Under the Mining Law, mining activities can only be carried out mineral and rock mining, in which the grant of WIUPs and IUPs can in those areas that have been identified as WPs, which are fur- be made by direct application of an interested party to the MEMR, ther divided into WUPs, WPNs and WPRs. WUPs can be further the governor or the regent or mayor (as appropriate). determined as WIUPs, while WPNs (which can be exploited) can

98 Getting the Deal Through – Mining 2014 Soemadipradja & Taher INDONESIA

Investment in existing mining companies the divestment shares to central or regional government entities Since the Mining Law requires that mining can only be carried out and private entities must be made by way of a tender. within a WP, no new mining licences can be issued until such time As no new IUPs or IUPKs have been issued (pending comple- as all the WPs have been determined. Based on recent information tion of the determination of the WPs), foreign parties that intend obtained from the DGMC, the procedure to determine WPs has been to engage in mining activities have invested by purchasing shares in completed. However, we understand that the government is still not existing companies that had KPs, which have been converted into issuing new mining licences due to the fact that as at February 2014, IUPs. Under this process, local Indonesian (non-foreign investment) there are still 4,876 ‘problem’ IUPs not on the clear and clean list. companies holding IUPs in which any foreign investment is made In the interim, investors who are interested in obtaining mining must be converted into PMA companies owing to the presence of rights have been acquiring interests in existing mining operations. foreign investors. Since the Mining Law appeared to prohibit the transfer of mining There are limitations on new foreign investment in any company licences to third parties, potential investors only sought to acquire that already holds an IUP or IUPK, whether such company is a local interests in entities that already held the relevant mining licence. GR Indonesian company (which must then be converted into a PMA No. 24 of 2012 now provides an exception to the prohibition on company) or a PMA company, so that: the transfer or assignment of an IUP or IUPK to another entity if the • for a company holding an exploration IUP, total foreign invest- IUP or IUPK holder owns at least 51 per cent of the shares of the ment in such company must not exceed 75 per cent; and other entity. • for a company holding a production operation IUP, total foreign investment in such company must not exceed 49 per cent. Transition from exploration licence to mining licence According to the Mining Law, the holder of an exploration IUP As a result of these new foreign ownership limitations: or IUPK ‘is guaranteed’ to be given a production operation IUP or • if an Indonesian-owned non-PMA company holding an explora- IUPK (which is the licence required to carry out mining, marketing tion IUP wishes to convert into a PMA company, its new foreign and sales) in respect of the same commodity within the same mining investors between them can only hold a maximum of 75 per cent area. This ‘guarantee’ is understood to be given on the basis that the of the total shares; holder has satisfied all its obligations under its exploration licence • if an Indonesian-owned non-PMA company holding a produc- conditions and is in compliance with all relevant regulations, tion operation IUP wishes to convert into a PMA company, its including satisfaction of all the specific requirements to obtain a new foreign investors between them can only hold a maximum production operation IUP or IUPK. of 49 per cent of the total shares (regardless of whether five years – let alone 10 years – of commercial operations have passed); and • if shareholders in a PMA company holding an exploration or 11 What is the regime for the renewal and transfer of mineral production operation IUP seek to transfer their shares in the licences? PMA company to new foreign investors, then the resulting The Mining Law provides that an IUP or IUPK (production opera- foreign investors between them will only be able to hold a tion) can be extended on expiry. The process to extend an IUP or maximum of 75 per cent or 49 per cent (respectively) of the IUPK is initiated by submitting an application or a written request shares, regardless of the amount of any original foreign invest- to the relevant issuing authority (that is, the MEMR, the governor ment in the particular mining project. or the regent or mayor, as appropriate) and the extension will be granted at the discretion of the relevant issuing authority. Any change in status from a non-PMA mining company into a PMA For metallic minerals and coal, the initial term of a production mining company (and vice versa) must be approved by the MEMR. operation IUP or IUPK is 20 years, with the opportunity to extend After the relevant mining company has secured approval from the the term twice, for a period of 10 years each time. MEMR for its change in status, it must also obtain approval from While the Mining Law appears to prohibit the transfer of min- BKPM and the minister of law and human rights. ing licences to third parties, GR No. 24 of 2012 now permits an IUP or IUPK to be assigned to another entity if the IUP or IUPK holder owns at least 51 per cent of the shares of such other entity. 13 How are mining rights protected? Are foreign arbitration awards in respect of domestic mining disputes freely enforceable in your jurisdiction? 12 Is there any distinction in law or practice between the mining The Mining Law provides that any dispute that arises in the imple- rights that may be acquired by domestic parties and those that mentation of IUPs, IUPKs or IPRs, must be resolved by the relevant may be acquired by foreign parties? district court or domestic arbitration. The Mining Law does not contain a distinction between domestic In addition, any challenges to the validity of any issued mining and foreign parties, that is, any party intending to engage in min- licences (including IUPs or IUPKs) can be brought to the relevant ing activities must obtain an IUP or IUPK. However, foreign par- state administrative court. ties wishing to engage in mining must establish a PMA company, Litigation in Indonesia can be a time-consuming and costly which can initially be wholly owned by a foreign party or parties process and the outcome is often unpredictable. Even in the case of (given the requirement for companies to have a minimum of two successful litigation, the enforcement of a court decision can be a shareholders). challenge in itself. Significantly, the Mining Law and regulations require a PMA Existing CoWs or CCoWs provide that any dispute between the company that holds a mining licence to gradually divest after five CoW or CCoW holder and the government will be resolved by way years of commercial production so that by the end of the 10th year of international arbitration and specifies the applicable arbitration of commercial production, Indonesian shareholders will own a rules. Again, even in the case of a successful international arbitration minimum of 51 per cent of the shares in the PMA company. award, enforcement can be difficult in Indonesia. The divestment shares must be offered to the national government, then to the relevant regional government. If the national and regional governments decline the offer, the divestment shares must 14 What surface rights may private parties acquire? How are these then be offered to central or regional government entities, and if rights acquired? those entities decline, to Indonesian private entities. The offer of Legal entities established in accordance with Indonesian law and domiciled in Indonesia (which would include locally owned www.gettingthedealthrough.com 99 INDONESIA Soemadipradja & Taher companies and PMA companies under certain limited circum- within protected forest areas (for underground mining only, except stances) can hold the following relevant land titles that must be for the 13 mining companies that have been permitted to carry registered with the National Land Agency: out open-pit mining activities under Presidential Decree No. 41 of • right to cultivate; 2004). No mining-related activities are permitted in conservation • right to build; and forest areas. • right to use. In addition, as part of the government’s efforts to tackle climate change and reduce deforestation and forest degradation, in 2011 In practice, these rights, particularly the right to build, are usually Indonesia agreed to implement a two-year moratorium on forest applied for by, and granted to, a mining entity for areas of land to be conversion in parts of the country (which was extended a further used for more permanent infrastructure, facilities and plant. two years to May 2015). The relevant Presidential Instructions sus- The land rights acquisition process for a given mining project pended the issuance of new permits to carry out activities (includ- depends on the status of the land titles held by parties in the required ing mining activities) in natural primary forest and peatlands land area. In general, the mining entity would need to obtain a loca- located in conservation, protection and production forests and tion permit to acquire rights to the land required to carry out any other utilisation areas. mining-related activities. Such rights may be usage rights, including Certain exemptions from the moratorium still exist, including short-term leases over parts of the land area, or registrable title over applicants who had already obtained in-principle approvals and the land area, including the right to build. vital national developments, including those in relation to electricity, A location permit is granted by the relevant regent or mayor oil and gas. under a decree and gives a right to the mining entity to negotiate with any party that the entity has identified to be a titleholder of the Heritage sites required land. Mining companies that carry out activities within heritage sites must Compensation for the rights to the acquired land may take the obtain relevant permits. Criminal sanctions will be imposed if such form of monetary compensation, substitute land, resettlement or a activities cause damage to heritage sites. combination of any of these or any other form of compensation that is agreed by the mining entity and the traditional community and Duties, royalties and taxes the relevant owners. 18 What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these revenue-based or 15 Does the government or do state agencies have the right to profit-based? participate in mining projects? Is there a local listing requirement The Mining Law provides that IUP or IUPK holders must pay ‘dead for the project company? rent’ during the exploration or production operation phase as well The Mining Law specifically provides that the government (through as production royalties at rates that will vary based on the mining state-owned companies or regional-owned companies) may be scale, production and commodities price. Production operation granted IUPs or IUPKs. Further, the government is given priority to IUPK holders of metallic minerals and coal must pay an additional carry out mining in WUPKs. royalty of 10 per cent of net profit commencing at time of produc- Even though the government is entitled to participate in min- tion, out of which the national government is entitled to 4 per cent, ing projects, there is no specific provision that requires the project and the remaining 6 per cent will be shared between the relevant company to be locally listed. provincial and regency governments. With the divestment regime under the Mining Law and regula- The dead rent rates for IUP or IUPK holders for mineral and tions comes the requirement for foreign shareholders to gradually coal mining activities are set out in GR No. 9 of 2012 and range divest portions of their shareholdings, making initial offers to the from US$1–44 per hectare per year. GR No. 9 of 2012 also sets out national government, then regional or municipal governments. (See the royalty rates for IUP or IUPK holders, which range from 1–7 per question 12 for more details.) cent of the sale price of the minerals or coal per annum, depending on the type of mineral or coal. 16 Are there provisions in law dealing with government expropriation CoW or CCoW holders pay dead rent, royalties and corporate of licences? What are the compensation provisions? income tax at rates specified in their CoWs or CCoWs. The Mining Law and regulations are silent on government expro- IUP or IUPK holders are subject to corporate income tax at the priation of licences. However, Law No. 25 of 2007 on Capital prevailing rate (currently 25 per cent). Investment (Investment Law) stipulates that the government will Delivery of goods and services is also subject to value added tax not nationalise or take over investors’ rights of ownership unless of 10 per cent, except for those goods and services that are exempt required by law. If the government does so, it is obliged to com- under the prevailing regulations. pensate the relevant investor in accordance with an amount that Mining entities must also withhold tax on payments of divi- is applicable to the market in which the assets are nationalised or dends, interest, royalties and most types of services. taken over. Minister of Finance Regulation No. 6 of 2014, effective 11 January 2014, imposes progressive export duties on certain limited processed mineral products that are permitted to be exported 17 Are any areas designated as protected areas within your (subject to compliance with various stringent conditions) until the jurisdiction and which are off-limits or specially regulated? end of 2016. Forestry areas Certain forestry areas are designated as off-limits and are subject to specific regulation. 19 What tax advantages and incentives are available to private Under Law No. 41 of 1999 on Forestry and the relevant regu- parties carrying on mining activities? lations, forestry areas are divided into three categories: production There are no general tax advantages available to private parties forest, protection forest and conservation forest. Mining companies carrying on mining activities. In certain circumstances, however, must obtain the relevant ‘borrow use permit’ issued by the minister domestic investment companies (PMDN companies) and PMA of forestry before carrying out any mining-related activities within companies may obtain exemptions on import duties for specified production forest areas (for open-pit and underground mining) or

100 Getting the Deal Through – Mining 2014 Soemadipradja & Taher INDONESIA capital equipment and materials, including machinery, goods and company has satisfied all these requirements, during its engagement raw materials. by the mining company it is obliged to subcontract part of the work to local or national mining services companies. The extent of such 20 Does any legislation provide for tax stabilisation or are there tax subcontracted work is not currently regulated. stabilisation agreements in force? There is no legislation that provides for tax stabilisation that would 26 Are there jurisdictions with favourable bilateral investment treaties prevent the government from introducing excessive increases in taxes or tax treaties with your jurisdiction through which foreign entities or imposing new taxes on mining operations. It is not common prac- will commonly structure their operations in your jurisdiction? tice for the government to enter into tax stabilisation agreements. Indonesia is a party to a number of bilateral investment treaties (BITs) and tax treaties with various countries, the conditions of 21 Is the government entitled to a carried interest, or a free carried which vary. Whether or not a particular BIT or tax treaty is favour- interest in mining projects? able depends on the counterpart jurisdiction and the structure of the proposed investment in Indonesia. The government is not entitled to any carried interest or free carried The government recently announced that it will terminate its interest in mining projects. It is, however, entitled to certain financial BIT with Netherlands effective from 1 July 2015 and apparently income obtained from mining projects, including taxes, duties and intends to terminate all of its 67 BITs. The government may seek to royalties. negotiate new BITs and or or free trade agreements.

22 Are there any transfer taxes or capital gains imposed regarding Financing the transfer of licences? 27 What are the principal sources of financing available to private The Mining Law does not set out any specific provisions regard- parties carrying on mining activities? What role does the domestic ing transfer taxes or capital gains regarding the transfer of licences. public securities market play in financing the mining industry? Generally a licence is not transferable. Historically, there were limited sources of financing for KP-related projects by private parties. Foreign parties that had an indirect inter- 23 Is there any distinction between the duties, royalties and taxes est in a KP project would usually raise funds through an offshore payable by domestic parties and those payable by foreign parties? stock offering or by the foreign party obtaining debt financing with Under the Mining Law there is no distinction between duties, roy- the proceeds being advanced to the KP-holder or the KP mining alties and taxes payable by wholly Indonesian-owned companies services contractor. and those payable by PMA mining companies. For CoW or CCoW companies, limited recourse project financing has been available from offshore lenders. Business structures More recently, Indonesian-listed mining companies have been able to successfully tap the equity, bond and loan markets to fund 24 What are the principal business structures used by private parties Indonesian mining projects. carrying on mining activities? Mining activities are usually carried out by limited liability compa- 28 Please describe the regime for taking security over mining nies established under the Company Law. Foreign parties that wish interests. to carry out mining must do so in the form of a PMA company. To participate in a tender for a mining licence, the qualifying bidder Land, moveable property, fixtures, receivables, securities (including must be an Indonesian party, whether in the form of an Indonesian shares), and certain after-acquired assets are among the objects that legal entity (including a PMA company), individual or cooperative. can be used as collateral for security. There is no recognised security instrument available to take security over operating or other licence rights (including IUPs or IUPKs) or concessions, entire enterprises, 25 Is there a requirement that a local entity be a party to the contractual or leasehold rights. transaction? For mining projects, the primary security interests that can be Foreign parties may initially own 100 per cent of the shares in the taken over such collateral are as follows. PMA company. As explained in question 12, foreign parties must begin to divest their interest in a mining PMA company after five Mortgage years of commercial production and so that by the end of the 10th A land mortgage is a security regulated under Law No. 4 of 1996 year of commercial production, Indonesian shareholders will own a on Rights to Mortgage Land and Fixtures on the Land. Mortgages minimum of 51 per cent of the shares in the PMA company. can be granted over certain types of rights over land, which in a mining project would most commonly include the right to build, the Mining services companies (contract mining) right to own land (for Indonesian citizens only), the right to cultivate The Mining Law and regulations now require that priority be given and the right to use land. Mortgages may also encumber fixtures on to the use of local and national mining services companies. ‘Local’ land. It is possible to have more than one debt secured by a single is understood to refer to mining services companies that operate mortgage and a debtor may give multiple mortgages over the same only within a specific region, municipality or province in which the land or fixtures. majority of the capital is owned from within the relevant region, municipality or province, whereas ‘national’ is understood to refer Fiduciary security to mining services companies that operate throughout Indonesia or In a fiduciary security, title to collateral subject to an instrument of outside Indonesia, but in both cases, 100 per cent of the sharehold- fiduciary security is transferred on a fiduciary basis to the secured ing composition of those companies must be Indonesian. party (fiduciary grantee or creditor), while the debtor or fiduciary The engagement of a mining services PMA company by a mining grantor is allowed to remain in possession of the collateral. Title will company to conduct mining services may only be in circumstances be automatically returned to the debtor by operation of law upon where, after making the required announcement or advertisement, full repayment of the underlying debt. there are no local or national companies that have met the required Moveable and certain immoveable assets (excluding land, ‘classification’ and ‘qualifications’. Even after a mining services PMA aircraft and vessels above 20 cubic metres), both tangible and www.gettingthedealthrough.com 101 INDONESIA Soemadipradja & Taher intangible, can be secured under an instrument of fiduciary secu- package included new regulations from the ministry of trade, reg- rity. The types of assets that can be secured by a fiduciary security ulating the export mechanism, and the ministry of finance, regu- include: lating export duties. • mining equipment, machinery, stock, inventory and other The new regulations reflect the government’s attempt to recon- unencumbered mining goods that can be owned and cile the many competing economic objectives (increasing domestic transferred; processing and hence future value-added exports and tax revenue, • receivables; as against preventing immediate export, revenue and employment • buildings and fixtures on land, which cannot be encumbered by reductions and a worsening of the current account deficit). mortgage rights and remain controlled by the fiduciary grantor; The framework established by the new regulations is essentially and as set out below: • insurance proceeds. • the export ban remains, with certain limited exceptions; • copper, iron ore, ilmenite, lead, manganese and zinc concentrates Objects of a fiduciary security do not need to exist at the time of may be exported without being fully refined until 10 January execution and can be acquired by the fiduciary grantor at a later 2017, provided the mining company meets minimum levels of date. processing and also secures a recommendation from DGMC and minister of trade approval. The requirements to obtain such Pledge a recommendation include that the relevant CoW or production The main regulations governing pledges are contained in the operation IUP holder must be able to demonstrate its ‘serious- Indonesian Civil Code. A pledge is an interest granted by an owner ness’ to construct a refining facility itself or by co-operating over moveable property (tangible and intangible) to a creditor as with another party by submitting a refining facility construc- security for a debt. Moveable property that can be pledged includes tion plan, accompanied by a feasibility study, approved envi- bank accounts in the form of time deposits and certain financial ronmental documentation, evidence of fulfilment of state instruments (including shares and securities such as government payment obligations, a clear and clean certificate, a construc- bonds and Bank Indonesia certificates). A pledge is a possessory tion schedule for the domestic refining facility, as well as a security in that the moveable property secured by the pledge must work plan and budget, and sales plan for processed product; be under the physical possession of the pledgee or mutually agreed • export duty will be imposed on the above processed minerals, third party. with the tax rate increasing progressively from 2014 (20–25 per cent) until the end of 2016 (60 per cent); and Restrictions • nickel, bauxite, tin, gold, silver and chromium must be fully refined before export, so the export ban applies to these metallic 29 What restrictions are imposed on the importation of machinery minerals immediately. and equipment or services required in connection with exploration and extraction? MEMR Regulation No. 1 of 2014 sets out the minimum levels of There are no material restrictions or limitations imposed on the processing and refining for the following six metallic minerals: importation of machinery and equipment used for mining activities. • copper: 15 per cent; Machinery and equipment imported under import duty and import • iron ore: 62 per cent; tax facilities must not be transferred or sold to other parties without • ilmenite: 58 per cent; the import duty or tax being paid. • lead: 57 per cent; • manganese: 49 per cent; and Mining services companies (contract mining) • zinc: 52 per cent. In addition to specific requirements for mining services companies, the current regulations also require: After 10 January 2017, the metallic minerals previously subject to • production operation IUP or IUPK holders must carry out their the minimum levels of processing may only be exported if refined in own actual mining activities (that is, digging) themselves and accordance with the required higher levels of refining under MEMR may only engage a mining services company to carry out strip- Regulation No. 1 of 2014. ping of overburden; Processing and refining can be carried out by way of coopera- • production operation IUP or IUPK holders must carry out tion between the holder of a production operation IUP or IUPK processing and refining activities in Indonesia. The Mining and another holder of a production operation IUP or IUPK and or Law and regulations also permit such holders to engage other or production operation IUP specifically for processing and refin- IUP or IUPK holders to carry out their processing and refining. The cooperation in processing and refining could be in the ing activities, or to contract with the holder of a production form of the sale and purchase of raw materials (ore) or concen- operation IUP specifically for processing and refining, follow- trate, or activities in carrying out processing and refining. ing prior approval by the MEMR, the governor, the regent or Such cooperation may only be carried out after obtaining mayor (as appropriate); and approval from the MEMR, the governor or the regent or mayor (as • IUP or IUPK holders are unable to discharge their mining oper- appropriate). ation liabilities in the relevant mining area by engaging the services of a mining contractor, and ultimately remain respon- Domestic market obligation (DMO) sible for meeting the obligations set out in their IUP or IUPK. The Mining Law and regulations contains DMO provisions, which control the levels of production and export of minerals and coal. 30 What restrictions are imposed on the processing, export or sale CoWs or CCoWs contain similar provisions. of minerals? Are there any export quotas, licensing or other The Mining Law and MEMR Regulation No. 34 of 2009 regu- mechanisms that prevent producers from freely exporting their late most aspects of the DMO including the minimum percentage production? of coal and the price at which coal mining companies must sell coal to the domestic market. With the export ban on unprocessed minerals and ores commencing on 12 January 2014, GR No. 1 of 2014 and MEMR Regulation No.1 of 2014 were issued on 11 January 2014. The regulatory

102 Getting the Deal Through – Mining 2014 Soemadipradja & Taher INDONESIA

31 What restrictions are imposed on the import of funds for The principal regulatory bodies that administer the Environmental exploration and extraction or the use of the proceeds from the Law are the Ministry for the Environment and the relevant regional export or sale of minerals? governments. There are no restrictions or limitations on the import of funds for mining activities. However, any offshore loan of a certain amount 33 What is the environmental review and permitting process for a that is received by an Indonesian party must be reported to Bank mining project? How long does it normally take to obtain the Indonesia (the central bank), the Ministry of Finance and the necessary permits? Coordinating Team for Offshore Loans. Furthermore, if the offshore Before commencing any mining-related activities, mining companies loan is obtained by a PMA company, the loan should be included must prepare and submit UKL documents and UPL documents or in the PMA company’s investment plan registered with the BKPM. AMDAL documents, as applicable, to the relevant authority for rec- Although there are no restrictions or limitations on the repatria- ommendation or approval. The Environmental Law introduces the tion or use of proceeds from the permitted export or sale of certain requirement to obtain an environmental permit in addition to an mining products, such as coal and metals domestically, Regulation AMDAL or a UKL and UPL. No. 14 or 25 or PBI or 2012 on Export Proceeds and Offshore Loan The Environmental Law sets out the general criteria for activities Withdrawals (BI Regulation No. 14 of 2012), imposes requirements that require an AMDAL. If the activities do not fulfil the criteria, then to use Indonesian bank accounts, including Indonesian branches of the companies must prepare a UKL and UPL. MfE Regulation No. offshore banks (foreign exchange banks), to receive any export pro- 5 of 2012 sets out further details on the specific criteria and require- ceeds and certain types of offshore loans (including non-revolving ments for activities that require AMDALs, while MfE Regulation loans). Interestingly, BI Regulation No. 14 of 2012 does not specify No. 13 of 2010 sets out further details on UKLs and UPLs. a period of time that the proceeds must remain in Indonesia. The Investment Law specifically allows foreign investors to AMDAL repatriate their funds overseas. There are no laws and regulations The Environmental Law provides that AMDAL documents consist currently in force that require approval to obtain or hold foreign of: currency in Indonesia or transfer foreign currency out of Indonesia. • terms of reference (ToR); However, there is a restriction on the transfer of rupiah overseas. • environmental impact assessment); All transfers of funds to and from abroad above US$10,000 or its • environmental management plan; and equivalent in rupiah must be reported to Bank Indonesia. • environmental monitoring plan. Any purchase of at least US$100,000 (or the equivalent in other foreign currency) per month must be supported by an underlying For a mining project, a ULK or UPL will be required for the explora- transaction. Evidence of such underlying transaction must be sub- tion phase, while an AMDAL will only be required when the project mitted to the relevant bank upon the purchase of any foreign cur- proceeds to production operation. rency of US$100,000 or more. The approval of an AMDAL is a two-step process: first, the com- Law No. 7 of 2011 on Currency (Currency Law), generally pany must submit the ToR to the relevant AMDAL Commission for requires the use of rupiah in many Indonesian transactions, but with review. A decision as to whether to approve or to reject the ToR significant exceptions. Until comprehensive regulations have been must be made within 30 business days after the ToR is received and issued, uncertainty remains regarding the scope of the exemptions. declared complete by the AMDAL Commission. Second, based on the approved ToR, the company must then prepare and submit the Environment AMDAL documents to the Minister for the Environment, the gov- 32 What are the principal environmental laws applicable to the ernor, the regent or mayor (as appropriate) through the relevant mining industry? What are the principal regulatory bodies that AMDAL Commission. The AMDAL Commission will review administer those laws? the AMDAL documents and notify the relevant company if any additional information or documents are required. A decision as to The principal environmental laws are: whether to approve the AMDAL documents must be made within 75 • Law No. 32 of 2009 on Environmental Protection and business days of the receipt of the completed AMDAL documents. Management, which came into effect on 3 October 2009 (Environmental Law); UKLs and UPLs • GR No. 27 of 2012 on Environmental Permits (GR No. 27 of In obtaining a recommendation for a UKL and UPL, the company 2012); must submit a UKL and UPL application to the relevant authorities • Minister for the Environment (MfE) Regulation No. 13 of 2010 (that is, the MfE, the governor, the regent or mayor (as appropriate), on Environmental Management Efforts (UKL), Environmental or other appointed relevant authorities). The relevant authorities Monitoring Efforts (UPL) and Environmental Management will assess the UKL and UPL application and will issue the recom- and Monitoring Ability Statement Letters as revoked by MfE mendation for the UKL and UPL within 14 business days after the Regulation No. 16 of 2012 on Guidelines of Preparation of UKL or UPL application is deemed complete. Environmental Documents; Every business or activity that has already obtained a business or • MfE Regulation No. 5 of 2012 on Types of Businesses or activity permit but has not yet obtained a UKL and UPL is required Activities that must be supported by an AMDAL (environmental to prepare (and submit to the relevant authorities) environmental impact assessment); management documents. • MfE Regulation No. 17 of 2012 on Guidelines of the Involvement of Community during the Preparation Process of AMDAL and Environmental permits Environmental Permit; Once an AMDAL approval or UKL or UPL recommendation has • MfE Regulation No. 2 of 2013 on Guidelines for Imposing been granted, the approval or recommendation will be used as the Administration Sanctions with respect to Environmental basis for an environmental permit. An environmental permit may Protection and Management; be granted by the MfE, the governor or the regent or mayor (as • MfE Regulation No. 3 of 2013 on Environmental Audit; and appropriate) and is a prerequisite to obtaining relevant business • MfE Regulation No. 8 of 2013 on Guidelines on the Assessment operation permits. and Examination of Environmental Documents and Issuance of Environmental Permits. www.gettingthedealthrough.com 103 INDONESIA Soemadipradja & Taher

Update and trends

Export ban regulation Recent media reports have also indicated that Japan intends to One of the most significant recent developments has been the file a complaint against Indonesia with the World Trade Organization implementation of the long-anticipated ban on the export of raw (WTO) on the basis that the export ban restrictions violate relevant materials and ores, commencing on 12 January 2014. Curiously, WTO rules. certain limited exceptions to the blanket export ban have been allowed for six metals – copper, iron, manganese, lead, zinc and ilmenite – as The KPK’s letter to the MEMR on state loss findings long as they have been processed to certain minimum concentrate On 21 February 2014, the Corruption Eradication Commission (KPK) levels. The government also introduced a controversial progressive sent a letter to the MEMR stating that the KPK had found state losses export duty on those six metal concentrates in the range of 20–60 per resulting from non-tax state revenues (PNBP) in the minerals and coal cent, from 2014 to 2016, after which those metals must be refined to sector. In the letter, the KPK stated that the PNBP loss arose because the statutory level before they can be exported. the 37 CoW and 74 CCoW holders had been paying royalties based on Owing to the export ban, more smelters in Indonesia will be the tariffs under their CoWs or CCoWs, which are lower than the tariffs essential for mining business activities in order to enable mining applicable to IUP holders. companies to meet their statutory processing or refining obligations. The KPK apparently considers that the MEMR should have However, the cost and logistics of establishing and operating new completed its renegotiation with the CoW or CCoW holders by no smelters remain challenging. later than one year after the promulgation of the Mining Law. The KPK Media reports have suggested two large PMA companies (CoW has asked the MEMR to accelerate the CoW or CCoW renegotiation holders) have indicated that they may be prepared to fight the process, but it is not clear if the KPK’s request will have any significant progressive export duty in respect of the ore export ban since such impact on the speed of this complex renegotiation process. duty is contradictory to the terms of their CoWs.

If an environmental permit is revoked, the relevant business or or MPE or 1993 on Implementation of Mines Inspection in activities permits that allow the relevant business to operate will also General Mining; and be revoked. • Minister of Manpower and Transmigration Decree No. KEP- The grandfathering provisions of GR No. 27 of 2012 provide 61 or MEN or 1983 on Implementation of Restrictions on the that if a company obtained approved environmental documents Employment of Expatriates in the Mining Sector and the Energy (AMDAL, UKL or UPL) before 23 February 2012, the company Sub-sectors of General Mining. will not be required to obtain an additional environmental permit (since the AMDAL, UKL or UPL will be treated as the environmen- The principal regulatory bodies that administer health and safety tal permit). for mining are the Ministry of Manpower and Transmigration and the MEMR. 34 What is the closure and remediation process for a mining project? What performance bonds, guarantees and other financial 36 What restrictions and limitations are imposed on the use of assurances are required? domestic and foreign employees in connection with mining GR No. 78 of 2010 introduces an obligation on IUP or IUPK and activities? existing CoW or CCoW holders to restore their relevant mining Companies engaged in mining activities may use domestic and areas to their original condition through a planned and sustainable foreign employees. programme upon completion of part of the entire mining operations. There are no restrictions or limitations imposed on the use of Under GR No. 78 of 2010, IUP or IUPK and existing CoW or domestic employees for mining activities. CCoW holders must submit a five-year reclamation plan (renewable For foreign employees, companies must obtain approval of a for five years). This regulation also requires that the IUP or IUPK and Foreign Manpower Work Plan. Expatriates must obtain the relevant CoW or CCoW holders provide a guarantee in accordance with the visas, residence and work permits. reclamation and mine-closure budget plan that has been approved Expatriates are only allowed to be employed by one Indonesian by the relevant government authority (the MEMR, the governor or company at a time. the regent or mayor, as appropriate). The guarantee can be in the Expatriates may not fill certain positions (such as human form of a joint account in a government bank, a term deposit in resources director or manager) and some expatriate positions in the a government bank, a bank guarantee, or an accounting reserve. mining sector have time limitations. MEMR Regulation No. 7 of 2014 provides further explanation about reclamation and post-mining activities. Social and community issues

Health & safety, and labour issues 37 What are the principal community engagement or CSR (corporate social responsibility) laws applicable to the mining industry? What 35 What are the principal health and safety, and labour laws are the principal regulatory bodies that administer those laws? applicable to the mining industry? What are the principal The Company Law and the relevant regulation (GR No. 47 of 2012 regulatory bodies that administer those laws? on Corporate Social Responsibility) provide that every mining The principal health and safety, and labour laws that apply to the company must meet CSR obligations included in the company’s mining industry are: annual work plan. • Law No. 13 of 2003 on Manpower; For IUP holders, the relevant IUP will contain provisions on • Law No. 1 of 1970 on Work Safety; community development. • GR No. 19 of 1973 on Regulation and Supervision of Work For CoW or CCoW holders, the relevant CoWs or CCoW will Health and Safety in Mining; usually contain provisions on community development as well. • Minister of Mines and Energy Decree No. 555.K or 26 or M.PE Currently there do not appear to be any specialised regulatory or 1995 on Work Safety and Health of General Mining; bodies that administer the CSR obligations. • Minister of Mines and Energy Decree No. 2,555.K or 201

104 Getting the Deal Through – Mining 2014 Soemadipradja & Taher INDONESIA

38 How do the rights of aboriginal, indigenous or currently or The minimum issued and paid-up capital is 2.5 billion rupiah previously disadvantaged peoples affect the acquisition or (or the equivalent in US dollars), and the minimum capital participa- exercise of mining rights? tion of a shareholder is 10 million rupiah (or the equivalent in US Community groups, including traditional (adat) communities, are dollars). recognised under the Mining Law as having the right to apply for Foreign investors must also comply with the regulation that IPRs provided that they obtain a recommendation from the relevant specifies which business lines are open to foreign investment with village head, community head or adat chief. conditions (commonly, imposing a maximum foreign investment percentage) and those business lines closed to investment (Negative List). Theoretically, any business lines not on the Negative List may 39 What international treaties, conventions or protocols relating to be 100 per cent foreign-owned. CSR issues are applicable in your jurisdiction? Neither the Mining Law nor the latest Negative List (effective Indonesia is not a party to any international treaties, conventions or from 24 April 2014) restrict a PMA company engaged in mining protocols on CSR issues. activities from being initially 100 per cent foreign-owned. MEMR Regulation No. 27 of 2013 imposes new limitations Foreign investment on foreign ownership in a local Indonesian company or a PMA 40 Are there any foreign ownership restrictions in your jurisdiction company that holds an IUP or IUPK for exploration or produc- relevant to the mining industry? tion operation, being 75 per cent and 49 per cent respectively. (See question 12 for more details.) Foreign investment in mining companies is governed under the Investment Law and can only be made through the establishment International treaties of, or investment in, a PMA company, which must be registered with the BKPM. For mining businesses, an MEMR recommenda- 41 What international treaties apply to the mining industry or an tion must be obtained before BKPM registration will be granted. investment in the mining industry? Under BKPM Regulation No. 5 of 2013 and No. 12 of 2013, the Indonesia is not a party to any specific international mining treaties, minimum investment capital in a PMA company is 10 billion rupiah but is a contracting state to the International Centre for Settlement (or the equivalent in US dollars), excluding land and buildings. of Investment Disputes and is a party to a number of bilateral and Notwithstanding the contents of BKPM Regulation No.5 of 2013, multilateral treaties on foreign investment. we understand that the BKPM has been applying a policy that the minimum investment capital in a PMA company is US$1 million (if the 10 billion rupiah equivalent is currently less than US$1million).

Rahmat Soemadipradja [email protected] Robert Reid [email protected] Rachel Situmorang [email protected]

Wisma GKBI, Level 9 Tel: +62 21 574 0088 JL Jenderal Sudirman No. 28 Fax: +62 21 574 0068 Jakarta 10210 www.soemath.com Indonesia

www.gettingthedealthrough.com 105 MOZAMBIQUE Miranda Correia Amendoeira & Associados – Sociedade de Advogados, RL Mozambique

João Afonso Fialho and Nuno Cabeçadas Miranda Correia Amendoeira & Associados – Sociedade de Advogados, RL

Mining industry rights. There are no objective criteria set out as to when a mining contract shall be entered into but rather they are adopted for large- 1 What is the nature and importance of the mining industry in scale mining projects. A mining contract can provide for modifica- your country? tions, variations or exemptions from the various mining legislative The mining industry is at the helm of Mozambique’s development requirements, taxes, custom duties and employment quotas. efforts and is arguably one of the most important economic sectors in the country. It is one of the main drivers of the Mozambican economy and its weight in the country’s GDP continues to increase. 6 What are the principal laws that regulate the mining industry? For the past few years, Mozambique has been developing a mineral What are the principal regulatory bodies that administer export promotion programme, primarily aimed at enhancing its those laws? depleted foreign exchange reserves. As a result, some major indus- The most important laws governing mining activities are the try players from South Africa, Russia, Australia, India and Brazil Mining Law (Law No. 14/2002, of 26 June 2002) and the Mining have acquired interests in mining areas throughout the country, Regulations (Decree No. 62/2006, of 26 December 2006). The legal underlying the importance of the mining sector in Mozambique. framework seeks to regulate the various mining titles provided for A significant number of high-profile mining projects are cur- exploiting mineral resources, the formalities for their concession and rently under way, boosting not only the industry itself, but also a respective time periods, as well as the rights offered to investors who considerable infrastructure development to support the export of wish to engage in mining activities. the mining output. The most visible face of this anchor effect of Other important statutes include: the mining industry in Mozambique is the upgrading of the Nacala • Regulations on Health and Safety for Mining Activity; Corridor Railway, which will greatly enhance Mozambique’s • Environmental Regulations for Mining Activity; competitiveness in the region by connecting the inland area to the • Basic Rules on Environmental Management for Mining Activity; port of Nacala – East Africa’s deepest natural port. • Law on Taxation for Mining Activities; • Regulations on Specific Taxes Applicable to Mining Activities; and 2 What are the target minerals? • Law on Tax benefits for Petroleum and Mining Activities. The geology of Mozambique is highly varied. The country has strategic reserves (being one of the largest producers) of tantalite and The main regulatory bodies of the mining industry are the Ministry beryllium. On the downstream side, Mozambique hosts one of the of Mineral Resources, which is essentially responsible for awarding world’s largest aluminium smelters, with an installed capacity to mining rights, and the National Directorate for Mining, an adminis- produce 560,000 tonnes of aluminium ingot a year. trative entity within the Ministry of Mineral Resources that oversees Copper, iron ore and lead, as well as high-grade bauxite, are all administrative procedures associated with mining activities. explored in the central part of the country. High-scale heavy mineral A new Mining Law is currently tabled for Parliament’s approval sands and titanium projects are also being developed in that region. and is expected to come into force within the next few months. Another important statute pending Parliament’s approval is the Law on the Taxation of Mineral Operations (the LTMO). The new 3 Which regions are most active? Mining Law and the LTMO will introduce significant changes in The central provinces of Tete and Manica are home to Mozambique’s the way the mining industry is regulated and taxed in Mozambique, most important mineral reserves. being an important part of a wider policy implemented by the government to reshape the legal framework for the exploitation of the Legal and regulatory structure country’s natural resources. The new Mining Law will need to be further regulated. New 4 Is the legal system civil or common law-based? Mining Regulations (which draft has not yet been made avail- Mozambique’s legal system is civil law-based. The core of the able for consultation) will also be enacted. Some of the principles, country’s legal infrastructure is based on the former Portuguese rules and regimes introduced by the new Mining Law will only be legal system. fully understandable and operational upon the approval of revised Mining Regulations. Still, a few provisions of the new Law will have 5 How is the mining industry regulated? an immediate impact on future mining projects and it seems appropriate to briefly describe them when the newly created regime signifi- The mining industry is primarily regulated at a national level by cantly deviates from the rules currently in force. nationwide laws (enacted by the Parliament) and implementing A word of caution is in order as to the Mining Law and regulations (approved by the government). Mining agreements are the LTMO: none of them has been formally approved yet and often entered into between the government and the holder of mining

106 Getting the Deal Through – Mining 2014 Miranda Correia Amendoeira & Associados – Sociedade de Advogados, RL MOZAMBIQUE amendments may still be made by the Parliament. The references Only one type of mineral right can exist over an area of land at any made to these statutes are based on the drafts known to the authors, one time. The acquisition, modification, transfer and termination of which are not in their final form. mineral licences are subject to registration. Reconnaissance licences permit a holder to survey an area on a non-exclusive basis; a mining certificate enables a holder to carry 7 What classification system does the mining industry use for out small-scale mining operations; and a mining pass is issued to reporting mineral resources and mineral reserves? Mozambican nationals for unsophisticated, artisanal mining activities. The Mozambican mining legislation does not impose a specific clas- The most important licences for medium and large-scale sification system for reporting mineral resources and reserves. projects are the prospecting and exploration licences (for the exploration phase) and the mining concessions (for the mining/ Mining rights and title production phase).

8 To what extent does the state control mining rights in your Prospecting and exploration licences jurisdiction? Can those rights be granted to private parties and Prospecting and exploration licences are initially granted for five to what extent will they have title to minerals in the ground? years for an area of up to 25,000 hectares. Prospecting and explo- Are there large areas where the mining rights are held privately ration licences permit the holder to access the licensed area and or which belong to the owner of the surface rights? Is there a carry out all activities ancillary to prospecting and exploration, separate legal regime or process for third parties to obtain mining such as erecting temporary structures and removing or selling sam- rights in those areas? ples and specimens. The Mozambican Constitution contains a fundamental principle Holders of prospecting and exploration licences must sub- that all mineral resources in the soil, subsoil and water are the sole mit annual reports, summarising the previous years activities and property of the state. The same principle is replicated in the Mining expenditure as well as a work programme and budget details for the Law. Under no circumstances may the holder of surface rights be forthcoming year. vested with title to minerals in the subsoil, except if specific mining rights are obtained from the state. Private prospecting, exploration Mining concessions and mining of mineral resources can only be carried out under Where a prospecting and exploration licence is currently in place, mining licences granted by the government (Ministry of Mineral only its holder may apply for a mining concession in respect of the Resources). area comprised in the licence. Mining concessions are granted for up to 25 years and permit the holder to extract the mineral from the licensed area and carry out 9 What information and data is publicly available to private parties all activities ancillary to extraction, such as erecting structures and that wish to engage in exploration and other mining activities? Is selling the mineral. A mining concession is exclusive to the holder. there an agency which collects mineral assessment reports from Mining concessions may be extended for a further 25 years. Before private parties? Must private parties file mineral assessment initiating extraction activities the holder of the mining concession reports? Does the agency or the government conduct geoscience must obtain an environmental licence and a DUAT (a form of land surveys, which become part of the database? Is the database concession). Both must be obtained within three years of the date of available online? issuance of the mining concession and prior to the commencement The National Directorate for Mining has several sets of mining data of extraction activities. Development must commence within two available for consultation to private entities considering investing in years and production within three years of the grant of the envi- the mining sector. A detailed registry of mining areas and existing ronmental licence or the DUAT, whichever is the later. mining licences is also available. In order to obtain a mining concession, a nominal fee must be The Ministry of Mineral Resources recently launched the paid and certain information must be provided to the Ministry of Mozambique Mining Cadastre Portal. This online tool was devel- Mineral Resources including a tax clearance certificate, an economic oped to comply with the standards of the Extractive Industries feasibility study (including a mining production plan) and details of Transparency Initiative and essentially seeks to improve transpar- the applicant’s technical expertise and financial resources to proceed ency in the mining sector. It is also an important instrument to with extraction (including the experience of personnel in managing promote and boost investment, as it provides potential investors the proposed operations). The mining production plan must include with clear and immediate information on the areas open to mineral details of the ore deposit, mine site design, the operations schedule, activities. Further, it includes a list of all the prospecting and explo- expected dates for commencement of development and commer- ration licences and mining concessions that have been awarded. cial production as well as environmental, health and safety plans. The Portal is regularly updated and is available for consultation at Provided that these requirements have been met and the licence http://portals.flexicadastre.com/mozambique/en/. holder has complied with its obligations under the prospecting and exploration licence, the Minister of Natural Resources must grant the mining concession for the time period requested. The Minister does 10 What mining rights may private parties acquire? How are these not have the discretion to refuse to grant the mining concession for acquired? What obligations does the rights holder have? If other reasons. exploration or reconnaissance licences are granted, does such In accordance with the latest draft of the new Mining Law tenure give the holder an automatic or preferential right to acquire that was made available by the Ministry of Mineral Resources, the a mining licence? What are the requirements to convert to a above rules appear to be modified in a fairly substantial manner. mining licence? Reconnaissance licences would cease to exist as an independent type There are five types of mineral rights or licences available: of mineral right and three new types of licences would gain way into • reconnaissance licences; the list of mineral rights that may be applied for: • prospecting and exploration licences; • mineral transformation licences; • mining concessions; • mineral processing licences; • mining certificates; and • marketing licences (which were already provided for in ancil- • mining passes. lary regulations and would now been ‘transported’ into the New Mining Law). www.gettingthedealthrough.com 107 MOZAMBIQUE Miranda Correia Amendoeira & Associados – Sociedade de Advogados, RL

Mineral transformation licences Under the Mining Law and the Mining Regulations, a trans- The latest draft of the Mining Law defines mineral transformation fer of a prospecting and exploration licence from one company to as the set of activities aimed at recovering (by means of physical another would require the prior approval of the Ministry of Mineral processes) the different components of the minerals with the view Resources but a transfer of the shares in the licence holder does not. of transforming them into mineral products with a value or an It should be noted, however, that Mining Contracts that may have independent utilisation. As a rule, holders of mining concessions, been entered into with the state may contain specific rules in this mining certificates and mining passes would be allowed to carry regard and provide for the need to obtain consent for the indirect out mineral transformation activities without having to apply for a (eg, by means of a sale of shares) transfer of titles and licences. mineral transformation licence. It appears that the new Mining Law will provide for stricter and The duration and other conditions of mineral transformation more restrictive rules in this regard. According to the latest draft, licences will be defined in ancillary regulations to be enacted under both the assignment of mineral rights and the transfer of shares in and pursuant to the new Mining Law. A draft of such regulations the rights holder are subject to the government’s prior approval and has not been made available yet. are conditional on all applicable tax obligations arising out of the transfer or assignment having been complied with. Mineral processing licences Mineral processing is defined in the latest draft of the new Mining Law as mineral operations throughout the extractive industry chain 12 Is there any distinction in law or practice between the mining carried out to obtain mining ore through physical, chemical, met- rights that may be acquired by domestic parties and those that allurgical and pyrometallurgical processes. Similarly to Mineral may be acquired by foreign parties? transformation licences, the duration and other conditions of min- There are two main distinctions between the mining rights that eral processing licences will have to be further regulated in ancil- may be acquired by Mozambican nationals and those that may be lary statutes. acquired by foreign parties: • mining passes (used for unsophisticated, artisanal mining activ- Marketing licences ities) may only be awarded to Mozambican individuals; and A marketing licence is required when the entity selling or exporting • mining concessions may only be awarded to companies incor- the minerals is not the same entity that has produced or mined them. porated under the laws of Mozambique – but such companies Please refer to question 30. can be held by foreigners, subject to the mandatory participa- The material terms and conditions of mining concessions will tion of Mozambican people, as further detailed below. also be revised in the new Mining Law. If the rules set out in the latest draft are approved, the most relevant changes will relate to The above distinction will in principle be furthered in the Mining the term of the concession and to the timeline to begin production. Law: as per the latest draft, any type of mineral right can only be • mining concessions would now been renewed as many times as awarded to Mozambican individuals or to companies incorporated needed (as opposed to a single 25-year renewal provided for in under the laws of Mozambique. Mining passes, mining certifi- the current Mining Law) to exhaust the economic life of the cates and marketing licences can only be awarded to Mozambican mine; individuals or to companies 100 per cent owned by Mozambican • production would now need to begin within 48 months of the nationals. The other types of mineral rights may be granted to date on which the mining concession is awarded (as opposed Mozambique-incorporated companies owned by foreigners – again, to the current timeline of three years from the date on which subject to the mandatory participation of Mozambican people, as the environmental licence or the DUAT is granted, whichever is further detailed below. later). 13 How are mining rights protected? Are foreign arbitration awards 11 What is the regime for the renewal and transfer of mineral in respect of domestic mining disputes freely enforceable in your licences? jurisdiction? Prospecting and exploration licences are valid for up to five years Mozambique has an independent judicial system and observes the and can then be extended for up to five further years on application principles of rule of law and due process. Mining rights’ protection to the Ministry of Mineral Resources. To obtain an extension, an and enforcement can be made through the local courts, though extension fee must be paid and the following documents must be specific knowledge of mining technical issues is not always pre- submitted to the Ministry of Mineral Resources: sent. Litigation in Mozambican courts tends to be an expensive • a tax clearance certificate confirming that all mining taxes have and time-consuming exercise. been paid; One possible alternative to local judicial courts is interna- • a report of the activities carried out over the previous five years tional arbitration. Mozambique is a party to the Convention on (including a summary of the investment that has been made); the Recognition and Enforcement of Foreign Arbitral Awards of and 1958 (New York Convention), having deposited its instrument of • a work programme for the following five years (together with accession with the Secretary-General of the United Nations on projected investment). 10 June 1998. As permitted by the New York Convention, when it acceded thereto Mozambique declared that it would apply the Provided that these requirements have been met and the licence Convention to the recognition and enforcement of awards made holder has complied with its obligations under the existing prospect- only in the territory of another contracting state, on the basis of ing and exploration licence, the Ministry of Mineral Resources must reciprocity. Therefore, only arbitral awards made in contracting extend the prospecting and exploration licence for the time period states benefit from the more favourable recognition and enforce- requested (ie, the law does not give the Minister discretion to refuse ment regime provided for in the New York Convention. Awards to grant the extension for other reasons). In practice, the key concern made in non-contracting states will have to undergo a (more bur- of the Ministry of Mineral Resources is that the licence holder has densome) judicial process of review and confirmation before they been actively operating and investing under the current prospecting can be enforced. and exploration licence and provided that this is the case, it is likely that the licence will be extended for a further five years.

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14 What surface rights may private parties acquire? How are these • the disposal shall be phased, but shall be completed by the fifth rights acquired? year after the exploitation phase of the project begins; Under Mozambican law, all land belongs to the state. Therefore, • the disposal shall be made by resorting to the services of the investors in mining operations cannot be the owner of the land banking network throughout Mozambican territory to ensure where the project is implemented. However, the investor may be the nationwide dispersal of the sale of stock in the project’s capi- granted with the right to exploit and use the land (using a DUAT) tal, thus favouring the economic inclusion of the Mozambican for a maximum of 50 years. A DUAT provides its holder with legal people in each project; and certainty that it will be entitled to use the land for the purposes for • the reference price for the sale of stock of non-listed compa- which the DUAT was granted, such as mining. Holders of a DUAT nies or consortia shall be determined by an independent entity become the owner of buildings, premises or other immoveable assets selected by tender. built on the land to which the DUAT relates. The holder of a mining concession has an automatic right to 16 Are there provisions in law dealing with government expropriation a DUAT, namely, has registered rights over the land. Still, the land of licences? What are the compensation provisions? registration process must be completed by the holder of a mining concession, by submitting the relevant application. A holder of a The Mining Law establishes the general principle that expro- prospecting and exploration licence is not entitled to have a DUAT priation can only occur for reasons of justified public interest (or registered rights) over the land. and the expropriated party will always be entitled to receive fair Where a DUAT is granted over a populated area and the pop- compensation. ulation has to be resettled, a relocation plan must be prepared. Compensation may be payable to a person who is evicted. The 17 Are any areas designated as protected areas within your compensation will be either a cash payment based on the value of jurisdiction and which are off-limits or specially regulated? the assets (for example, houses or crops) held by displaced local The Land Law (Law No. 19/97, of 1 October 1997) provides for communities or the cost of relocation and reconstruction elsewhere the existence of totally protected areas and partially protected areas. (or a combination of both). Totally protected areas are those reserved for nature conservation and state military activities. Partially protected areas include: 15 Does the government or do state agencies have the right to • sea and river beds; participate in mining projects? Is there a local listing requirement • the continental platform; for the project company? • an area of 100 metres from the sea line or river margins, or both; The state’s right to participate in mining projects is not provided • an area of 250 metres adjacent to dams and man-made lakes; for in the mining legislation, but rather in Law No. 15/2011 of 10 • railways and an area of 50 metres adjacent thereto; August 2011 (the Law on Public-Private Partnerships, Large Scale • highways and an area of 50 metres adjacent thereto; Enterprises and Business Concessions, also commonly known • a line of 2 kilometres along the land borders; as the Mega-Projects Law) and Decree No. 16/2012, of 4 July • airports and an area of 100 metres adjacent thereto; and 2012 (the Regulations on Public-Private Partnerships, Large Scale • military facilities and an area of 100 metres adjacent thereto. Enterprises and Business Concessions, also commonly known as the Mega-Projects Regulations). According to the Mega-Projects No rights are awarded over totally or partially protected areas, but Law, contracts shall allow public or private Mozambican corpo- a special licence can be obtained for carrying out specific and limited rate persons to take part in the share capital of the project or the activities. capital of the consortium, on terms to be negotiated and agreed between the parties. The Mega-Projects Regulations have gone Duties, royalties and taxes further and provide that in consideration for the award of exploi- 18 What duties, royalties and taxes are payable by private parties carrying tation rights over natural resources the state reserves the right to on mining activities? Are these revenue-based or profit-based? negotiate a gratuitous participation of no less than 5 per cent of the share capital during any phase of the project. Other than VAT and customs duties – which apply throughout the As regards the listing of project companies, and according to entire life-cycle of the mining project – duties, royalties and taxes the Mega-Projects Law, the contract shall provide for a participa- vary in accordance with the phase of the mining operations. tion in the share capital of the project or the consortium to be reserved, via the Stock Exchange on commercial market terms, for Prospecting and exploration phase the economic inclusion of Mozambican individuals, regardless of Holders of prospecting and exploration licences are required to pay whether or not foreign investment is involved. The rate of par- surface tax of a fixed amount per square kilometre of land com- ticipation will range between 5 per cent and 20 per cent of said prised in the licence. Surface tax is levied on an annual basis and is capital. Participation may be guaranteed via the state or another payable one month prior to the anniversary of the licence. public entity indicated by the state, which means that initially the relevant participation is transferred to the state or other such Amount payable in meticais per km² Year entity. Alternatively, the participation may be guaranteed by the Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 project vehicle, which unconditionally undertakes to dispose of it 10 at a later date. 250 250 625 1,300 1,300 1,500 2,000 2,500 3,000 3,000 The Mega-Projects Regulations have also added that: • the actual percentage of the participation – between 5 per cent and 20 per cent – will depend on the real buying capacity of the Holders of prospecting and exploration licences are also subject to offerees; corporate income tax at a 32 per cent rate on any profits they may • preference shall be given to an offering of stock in the capital of generate (though not likely to generate profits during the exploration the project via the Stock Exchange; phase, holders of prospecting and exploration licences are subject • the nominal value per share shall be of an amount that is to the rules applicable to the carry forward of accumulated losses affordable for purchase by the majority of the Mozambican set forth in the Corporate Income Tax Law and in the Corporate population with limited economic possessions; Income Tax Regulations). www.gettingthedealthrough.com 109 MOZAMBIQUE Miranda Correia Amendoeira & Associados – Sociedade de Advogados, RL

Mining/production phase • VAT and specific consumption tax that would be payable on the Surface tax above importations. Holders of mining concessions are required to pay surface tax of a fixed amount per km² of land comprised in the licence. Surface tax is levied on an annual basis and is payable one month prior to the 20 Does any legislation provide for tax stabilisation or are there tax anniversary of the licence. Surface tax is payable at a rate of 2,500 stabilisation agreements in force? meticais per km² for years one to five inclusive and 5,000 meticais Article 33.2 of the Mining Law sets forth that the fiscal regime in per km² for each year thereafter. force when the prospecting and exploration licence, mining concession or mining certificate were issued shall not be amended, except Production tax (royalty) if the amendments provide for more favourable terms to the hold- Holders of mining concessions are liable to pay a production tax ers of mineral rights or licences. (royalty) based on the value of the mineral extracted, as follows: The most recent draft of the new Mining Law does not contain a • diamonds – 10 per cent; similar provision. If no further amendments are made to the text, tax • precious metals (gold, plate and platinum) – 10 per cent; stabilisation will not, in principle, be guaranteed for mining projects • semi-precious stones – 6 per cent; structured and implemented after the new Law comes into force. • base minerals – 5 per cent; and • other mineral products – 3 per cent. 21 Is the government entitled to a carried interest, or a free carried interest in mining projects? The value is calculated based on the price at which the previous consignment of mineral was sold or, if no mineral has yet been sold, The Mega-Projects Regulations provide that in consideration for the market value of the mineral. Production tax is payable at the end the award of exploitation rights over natural resources, the state of the month during which the mineral was extracted. reserves the right to negotiate a free participation of no less than 5 per cent during any phase of the project. Corporate income tax Corporate income tax – a profit-based tax – is due at a 32 per cent 22 Are there any transfer taxes or capital gains imposed regarding rate. the transfer of licences? If approved in its current version, the LTMO will significantly A 32 per cent capital gains tax applies to the transfer of mineral change the tax regime applicable to the mining industry. This stat- rights or licences. ute seeks to consolidate special regimes governing production tax, Under the draft LTMO, capital gains would be due whenever the corporate income tax and fiscal benefits for the mining sector in a underlying transaction relates to a mining asset or rights located in single diploma. These were hitherto scattered across different legal Mozambican territory, regardless of where the transaction actually instruments. The most relevant issues addressed in or raised by the takes places (ie, even if it is concluded at the (offshore) parent com- draft LTMO are as follows: pany level). A similar rule is already provided for in the Corporate • mining activities carried out in Mozambique would be subject Tax Income Law, which was revised in January 2014. to a ring fencing principle, notably on a mineral right or licence basis; • new statutory rates for mining production tax and surface tax; 23 Is there any distinction between the duties, royalties and taxes • definition of the tax treatment of deductible costs for income payable by domestic parties and those payable by foreign parties? tax purposes, including a list of deductible and non-deductible No. costs; • a general 20 per cent withholding tax rate would apply on pay- Business structures ments made by (or attributable to) resident companies to non- resident service providers, regardless of where the services are 24 What are the principal business structures used by private parties effectively rendered; carrying on mining activities? • capital gains arising from transfers between non-resident enti- The main business structures through which mining activities are ties of equity interests or any other rights or participating carried out are locally incorporated companies and branches of interests involving mining assets/rights located in Mozambique foreign corporations. Mining concessions (under which the min- will become taxable, regardless of where the transaction takes ing or production phase is developed), however, are reserved to place; companies incorporated under the laws of Mozambique – though • introduction of a new windfall profits tax, applicable to mining such companies may be 100 per cent held by foreign nationals. The ventures with a net return before taxes ranging between 12 per concept of ‘trust’ does not exist and is not recognised by the laws cent and 18 per cent. The statutory rates of this new tax range of Mozambique. between 40 per cent and 50 per cent. In general, there is little operating difference between a branch and a subsidiary in Mozambique. The real differentiating fac- 19 What tax advantages and incentives are available to private tor between them is the tax efficiency of repatriation of profits. parties carrying on mining activities? Dividends distributed by a local company to its shareholders are subject to withholding tax in Mozambique, while the repatriation Mining projects are exempted (for a period of five years following of profits by the local branch of a foreign company is not. Other commencement of mining activities) from: important differences include the following: • customs duties payable on importation of equipment (both • a subsidiary is a separate legal entity, while a branch is not a for the prospecting and exploration and mining or production legal entity separated from the foreign company that sets it up – phases) classified under Class K in the Customs Schedule; namely, its head office; • customs duties payable on importation of equipment, which is • the liability of the shareholders of a company is limited to the not expressly classified under Class K in the Customs Schedule amount of the company’s share capital, while a foreign company is but is considered analogous thereto (a comprehensive list of fully responsible for the liabilities arising from the branch activities; which is attached to the Law on Tax benefits for Petroleum and • at least another shareholder (or two more, depending on the type Mining Activities); and of company chosen) is necessary to incorporate a Mozambican

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company – in the case of a branch of a foreign entity, it is only implemented in Mozambique. From a legal standpoint, the creation necessary to appoint a local representative; and the enforcement of security rights over mining interests would • as the branch and head office are the same legal entity, the com- always be subject to the authorisation of the Ministry of Mineral pany would be governed on corporate matters by one law only: Resources, meaning that the beneficiary of the security does not have the personal law of the company, typically the one where the an immediate right to execute the collateral in case of default of company has its registered offices; the underlying loan or financing arrangement – the intervention of • conversely, corporate documents issued by the foreign company the Ministry of Mineral Resources will always be required, with the at the head office level (minutes of shareholders’ meetings, board Ministry having full discretionary powers to authorise or refuse the resolutions, powers of attorney, etc) will always be subject to a enforcement of the collateral. more cumbersome and expensive procedure, involving translation and several tiers of legalisation; and Restrictions • the costs of registering a branch are broadly similar to those of incorporating a local company, although the latter are slightly 29 What restrictions are imposed on the importation of machinery higher. and equipment or services required in connection with exploration and extraction? The mining legislation does not impose specific restrictions on the 25 Is there a requirement that a local entity be a party to the importation of services and equipment. However, customs duties transaction? exemptions on the importation of equipment under the Law on Tax Yes. According to the Mega-Projects Law, the contract shall pro- benefits for Petroleum and Mining Activities will only be awarded vide for a participation in the share capital of the project or the if no equipment of comparable quality is produced in Mozambique. consortium to be reserved, via the Stock Exchange on commercial market terms, for the economic inclusion of Mozambican individuals, regardless of whether or not foreign investment is involved. The 30 What restrictions are imposed on the processing, export or sale rate of participation will range between 5 per cent and 20 per cent of minerals? Are there any export quotas, licensing or other of said capital. mechanisms that prevent producers from freely exporting their production? Entities extracting minerals under a mining licence may freely dis- 26 Are there jurisdictions with favourable bilateral investment treaties pose of the output of their production. A marketing licence is, or tax treaties with your jurisdiction through which foreign entities however, required when the entity selling or exporting the miner- will commonly structure their operations in your jurisdiction? als is not the same entity that has produced or mined them. The Mozambique has entered into double taxation treaties with the marketing licence is granted by the National Directorate for Mining. following countries: Portugal, Italy, the United Arab Emirates, Mauritius, South Africa, the Special Administrative Region of Macao (China), Vietnam, Botswana and India. 31 What restrictions are imposed on the import of funds for Mozambique has bilateral investment treaties with India, exploration and extraction or the use of the proceeds from the Vietnam, Belgium, Luxembourg, Finland, the United States, the export or sale of minerals? United Kingdom, Switzerland, France, Denmark, Germany, the The Mining Law sets forth that the state warrants to holders of min- Netherlands, Cuba, Sweden, China, Indonesia, Egypt, Italy, Algeria, ing licences the right to export and repatriate profits arising out of South Africa, Mauritius, Portugal, Spain and Zimbabwe. mining activities – including the proceeds from the export or sale of minerals, but subject to compliance with the applicable foreign Financing exchange regulations and procedures. In this regard, both the import of funds and the repatriation of proceeds from the export or sale of 27 What are the principal sources of financing available to private minerals qualify as foreign exchange operations under the Foreign parties carrying on mining activities? What role does the domestic Exchange Law and the Foreign Exchange Regulations. Foreign public securities market play in financing the mining industry? exchange operations are subject to a licensing process, consisting in Both the banking sector and the capitals market remain fairly unde- registration or approval by the Central Bank of Mozambique, the veloped and they lack the liquidity to finance medium or large scale country’s foreign exchange authority, or both. mining projects. Financing of mining activities is mainly obtained A recently introduced requirement is the obligation to convert from corporate loans advanced by foreign banks or through share- into local currency at least 50 per cent of export proceeds. This new holders’ loans. Another common financing option consists in listing feature is still recent and there is a certain degree of uncertainty as the parent company of the licence holder (typically, in the London to how and to what extent the Central Bank of Mozambique will Alternative Investment Market), which then passes the flotation seek to enforce it. proceeds down to the Mozambican company through which mining activities are carried out. Environment

32 What are the principal environmental laws applicable to the 28 Please describe the regime for taking security over mining mining industry? What are the principal regulatory bodies that interests. administer those laws? Subject to the prior approval of the Ministry of Mineral Resources, Mining environmental issues are mainly regulated by the physical assets used in mining activities may be mortgaged, pledged Environmental Law (Law No. 20/97, of 1 October 1997), the or otherwise used as collateral to secure loans obtained to finance Environmental Regulations for Mining Activity and the Basic Rules operations. For immoveable assets, the security rights created on Environmental Management for Mining Activity. thereon – a mortgage – must be documented in the form of a notary The environmental regulator in Mozambique is the Ministry for deed and registered with the property registry. Coordination of Environmental Affairs. It is highly debatable whether a direct pledge or mortgage over mining interests is permissible. In practical terms, this type of direct and immediate security over the interest is not typically www.gettingthedealthrough.com 111 MOZAMBIQUE Miranda Correia Amendoeira & Associados – Sociedade de Advogados, RL

33 What is the environmental review and permitting process for a The draft of the new Mining Law contains a somewhat generic mining project? How long does it normally take to obtain the provision on environmental matters. Mining operations would necessary permits? continue to be classified into three different levels (which are now The holders of mining licences are subject to several environment- called A, B and C levels) in accordance with a criterion that is similar related obligations. For the purposes of determining the specific to that currently in place. It further states that Level A activities are environmental requirements applicable, mining operations are subject to an EIA, Level B activities to a Simplified EIA and Level classified into three different levels according to the scope, scale C activities to an EM programme. These generic provisions would and sophistication of the equipment to be used in the operations. need to be coupled with the Environmental Regulations for Mining If the activities carried out are deemed to fall under Level I Activity and with the Basic Rules on Environmental Management activities, the mining project is merely subject to the Basic Rules on for Mining Activity, which may need to be amended for consistency Environmental Management for Mining Activity aimed at mitigat- with the new Mining Law. ing environmental damages and socio-economic impacts arising from mining activities, by ensuring the same are carried out through 34 What is the closure and remediation process for a mining simple methods intended to prevent air, soil and water pollution, project? What performance bonds, guarantees and other financial flora and fauna damages and to protect human health. assurances are required? If the activities carried out are deemed to fall under either Level II or Level III activities, the regime set out in the Basic Rules The Environmental Regulations for Mining Activity require the on Environmental Management for Mining Activity shall apply. provision of a financial bond for Level II and III activities, which Mining operations falling under Level II activities, including min- may be provided annually in the form of an insurance policy, bank ing operations in quarries or extraction and mining of other min- guarantee or bank deposit. This bond is intended to meet the eral resources for construction, exploration and mining activities decommissioning costs of the operations. involving mechanised equipment, as well as pilot-projects, are subject to the submission of an environmental management plan (EM Health & safety, and labour issues plan) and an emergency and risk situation control programme. 35 What are the principal health and safety, and labour laws The EM plan shall comprise a report on the initial conditions of applicable to the mining industry? What are the principal the mining area, a monitoring programme, a rehabilitation pro- regulatory bodies that administer those laws? gramme or a mine decommissioning and closure programme, or all of these. The EM plan usually includes provisions on backfilling, Health, safety and labour issues are mainly regulated by the Labour levelling and other measures as may be required to restore the land Law (Law No. 23/2007, of 1 August 2007) and the Regulations on to its original form. Where approved and signed by the relevant Health and Safety for Mining Activity. The Ministry of Labour is the authority the EM plan is deemed a statement of environmental main regulator. liability with which the company is required to comply. Operations falling under Level III activities – typically mining 36 What restrictions and limitations are imposed on the use of concessions – are subject to stricter environmental requirements. In domestic and foreign employees in connection with mining particular, prior to commencing operations the holder of a mining activities? concession needs to obtain an environmental licence issued by the There are no restrictions on the use of domestic employees in min- Ministry for Coordination of Environmental Affairs. To obtain an ing activities, except those relating to minimum employment age, environmental licence an environmental impact assessment (EIA) is maximum work schedules, mandatory rest days and similar matters. mandatory. The EIA report, which sets out the findings from the The rendering of work in Mozambique by foreigners must take EIA, shall also comprise an environmental management programme into consideration both labour and immigration issues. As a general (EM programme), as well as an emergency and risk situation con- rule, foreign employees are only entitled to work in Mozambique trol programme. The EM programme is required to cover a five-year under a Mozambican law employment contract entered into with period and contain an environmental monitoring programme and a Mozambican employer – either a Mozambican company or the a mine decommissioning and closure programme. Therefore, as a Mozambican branch of a foreign company. The employment con- rule, the EM plan also includes provisions on backfilling, levelling or tract is subject to a Ministry of Labour’s authorisation – which is other measures as may be required to restore the land to its original normally a more cumbersome process – or to a quota regime based form, or both. on a mere notification procedure. The statutory regime is primar- The procedure for obtaining an environmental licence involves ily set forth in the recently approved Regulations on the Hiring of a public consultation process with the local communities and the Expatriates for the Petroleum and Mining Sectors. licence holder must ensure that those local communities are given Pursuant to the Regulations on the Hiring of Expatriates for the opportunity to participate in the decision-making process. Before the Petroleum and Mining Sectors, an employer may have a certain the environmental licence is issued, the EIA report must be approved number of expatriate employees depending on the total number of by the Ministry for Coordination of Environmental Affairs follow- employees at its service. To this end, the concept of employee also ing a technical review conducted by the same in coordination with includes directors and branch managers. Under this quota regime, the Ministry of Mineral Resources. The environmental licence is in a company with more than 100 employees, 5 per cent may be valid for the period of the corresponding mining concession, but expatriates, in a company with more than 10 and less than 100 is subject to review every five years and may be issued subject to employees, 8 per cent may be expatriates and companies with up recommendations and conditions. In addition, the Environmental to 10 employees can only employ one expatriate. Expatriates hired Regulations for Mining Activity encourage stakeholders to enter into under the quota regime are subject only to a notification procedure a memorandum of understanding for a five-year period to provide to the authorities. The employer is required to notify the authorities for the parties’ agreement on the methods and procedures for the of the hiring of an expatriate under the expatriate quota within management of environmental, biophysical, social and economic 15 days of his or her admission by submitting a model applica- and cultural matters during the project and on decommissioning. tion that has been approved for this purpose and some additional Furthermore, each year an environmental management report documentation. containing the results of the environmental monitoring, both at a social, economic, cultural and biophysics level, has to be submitted to the Ministry for Coordination of Environmental Affairs.

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If this model application is submitted and the documentation is in order, the Labour Authorities shall promptly issue the work Update and trends permit certificate. The hiring of expatriates in a number that exceeds the relevant Mozambique has paved its way to become one the most important expatriate quota is also possible, but is subject to a special authori- destinations in Africa for mining investment. Companies looking at sation issued by the Ministry of Labour. The employer will have Mozambique’s mining potential will have to be prepared to operate within a legal and regulatory framework that already incorporates to submit an application stating its name, head office and business the country’s perceived potential and the interest that it raises in sector, the identification of the expatriate in question, his or her the international arena. With this in mind, local content across the job function and the grounds on which the employer is requesting entire value chain will be the hot topic in the years to come. the authorisation. Local participation in the exploitation of the resources has already been introduced by the Mega-Projects legislation, whereas The Ministry of Labour has a rather large discretionary margin the Regulations on the Hiring of Expatriates for the Petroleum and to allow or refuse the employment of foreign citizens above the Mining Sectors have created a restrictive regime for the hiring of expatriate quota to which each company is entitled. Such a deci- foreign employees, thereby promoting local content at the labour sion is often politically and socially driven and made taking into level. The new Mining Law contains a general principle according account what the Ministry sees as the ‘protection of the interests of to which foreign entities wishing to provide services to the mining industry need to associate themselves with Mozambican Mozambican employees’, which essentially translates into limiting companies or citizens. This seems to be the first step towards the the hiring of foreign workers. creation of a ‘Mozambicanisation’ policy for the services side of The other main features of the Regulations on the Hiring of the industry and closes the loop in the local content framework. Expatriates for the Petroleum and Mining Sectors can be summarised as follows: • when the mining contract provides for the possibility of hiring Social and community issues expatriates above the quotas established in the general regime, 37 What are the principal community engagement or CSR (corporate mining companies and their subcontractors are merely required social responsibility) laws applicable to the mining industry? What to notify the labour authorities of the admittance of those expa- are the principal regulatory bodies that administer those laws? triates, but they must first obtain the favourable opinion of the National Directorate of Mines on the hiring of the expatriates; There is no specific legislation regulating this matter in Mozambique. • non-resident subcontractors of mining concessionaires may assign their expatriates to Mozambique under the ‘umbrella’ 38 How do the rights of aboriginal, indigenous or currently or of their customers, provided that the concessionaire issues an previously disadvantaged peoples affect the acquisition or undertaking accepting responsibility for breaches of labour exercise of mining rights? legislation by those expatriates; There is no specific legislation regulating this matter in Mozambique. • the time limit for employing expatriates under the short term It must be pointed out, though, that if mining activities are carried work regime has been extended from 90 to 180 consecutive or out in a populated area and the population has to be resettled a non-consecutive days per year; and relocation plan must be prepared and compensation may be payable • the representatives (for example, a branch manager or director) to a person who is evicted. or attorneys-in-fact of mining companies or their subcontractors do not have to enter into an employment contract with a Mozambican entity and are only required to submit to the 39 What international treaties, conventions or protocols relating to labour authorities a copy of the power of attorney or corporate CSR issues are applicable in your jurisdiction? resolution conferring them representation powers. Mozambique has not entered into international treaties, conventions or protocols specifically applicable to these matters.

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Foreign investment International treaties

40 Are there any foreign ownership restrictions in your jurisdiction 41 What international treaties apply to the mining industry or an relevant to the mining industry? investment in the mining industry? Foreign ownership in the mining industry is limited by the provisions Mozambique has entered into several double taxation treaties and of the Mega-Projects Law, according to which a percentage ranging bilateral investments treaties, which provide for certain benefits that from 5 per cent to 20 per cent of the capital of a mining project must are also applicable to the mining industry. The full list of these legal be reserved for local participants. instruments is set out in question 26 above. A bilateral cooperation treaty for the mining sector was entered into between Mozambique and Angola in 2007. A similar cooperation treaty was entered into between Mozambique and Portugal in March 2014. Mozambique is a party to the Extractive Industries Transparency Initiative.

114 Getting the Deal Through – Mining 2014 Myanmar Legal Services Ltd MYANMAR Myanmar

Daw Khin Cho Kyi Myanmar Legal Services Ltd

Mining industry • Myanmar Gems Enterprise: gems, jade, and jewellery; • Myanmar Salt and Marine Chemical Enterprise: salt; and 1 What is the nature and importance of the mining industry in • Myanmar Pearl Enterprise: pearls. your country? As of April 2014, US$2.862 billion had been invested in 69 projects The two departments are the Department of Geological Survey and within Myanmar’s mining sector, accounting for 6.9 per cent of Mineral Exploration and the Department of Mines. The Department total foreign investment. Myanmar has metallic minerals including of Geological Survey and Mineral Exploration is responsible for geo- copper, gold, lead, tin, tungsten, zinc, nickel, silver and precious logical surveys and mineral exploration. The Department of Mines stones including jade, ruby sapphire and diamonds. Currently, is responsible for forming mineral policy, enforcing regulations and mining contributes less than 2 per cent of Myanmar’s GDP. environmental standards, and collecting royalties. The Ministry of Mines (MoM) has set up various mining enterprises to form joint venture companies to enter into bilateral partnerships for mineral exploring, developing, and exploiting the 6 What are the principal laws that regulate the mining industry? mineral resources of the country. What are the principal regulatory bodies that administer those laws? Laws governing mining in Myanmar include the Foreign Investment 2 What are the target minerals? Law (2012) (FIL); the Foreign Investment Law Rules (2013); the Myanmar has the largest jade deposits in the world, and ruby State-owned Economic Enterprises Law (1989); the Myanma deposits account for 90 per cent of the world’s supply. Copper Mining Law (1994); the Myanma Mining Rules (1996); the is the largest mining export, but other mineral products are also Gemstone Law (1995), and the Myanmar Pearl Law (1995). The widespread throughout the country, including gold, silver, lead, tin, Ministry of Mines is principally responsible for administering min- tungsten and antimony. Certain mining activities may be prohib- ing and the Myanmar Investment Commission oversees the Foreign ited based on the targeted mineral (see question 12). Investment Law. An amendment to the Mining Law was enacted in November 2013 which included a number of revised definitions and clarifi- 3 Which regions are most active? cations of the authority of the Ministry, Department and Mining Mineral exploration is active throughout the country. Currently, Enterprises. The Ministry is reported to have submitted a draft of a joint ventures mine gold in the Benmauk, Kani, Kyaukpadaung, new mining law to Parliament in October 2013. Yemathin Tagon, and Kyaukpons areas; copper in the Shangalon, Kani, Kyaukpadaung, Heho, and Monywa areas; tin in the Dawei river area; tungsten in the Dawei river area; nickel in the MweTaung, 7 What classification system does the mining industry use for Wuntho, and Taguang areas; iron in the Marliphant area; limestone reporting mineral resources and mineral reserves? in the Indainggyi area; and coal in the Ngaphe area. There is no legal classification system for reporting mineral resources and mineral reserves. Legal and regulatory structure Mining rights and title 4 Is the legal system civil or common law-based? The Myanmar legal system is based upon a mixture of common law 8 To what extent does the state control mining rights in your and civil law. jurisdiction? Can those rights be granted to private parties and to what extent will they have title to minerals in the ground? Are there large areas where the mining rights are held privately 5 How is the mining industry regulated? or which belong to the owner of the surface rights? Is there a The MoM regulates the mining industry. The MoM comprises six separate legal regime or process for third parties to obtain mining enterprises and two departments. rights in those areas? The six enterprises, which each focus on a specific area of min- According to the State-owned Economic Enterprises Law (SEE law), ing, include: the government has the sole right to carry out the exploration and • No. 1 Mining Enterprises: lead, zinc, silver, copper, iron, nickel, extraction of pearls, jade, precious stones and metals. The govern- chromite, and antimony; ment also has the sole right to export these minerals. However, the • No. 2 Mining Enterprise: gold, tin, tungsten, rare earth, tita- government may by notification, under section 3 of the SEE law, nium, and platinum; permit a private company to carry out mining activities. • No. 3 Mining Enterprise: coal, limestone, industrial metals, manganese, decorative stone; www.gettingthedealthrough.com 115 MYANMAR Myanmar Legal Services Ltd

9 What information and data is publicly available to private parties prohibited include prospecting, exploration and production of jade that wish to engage in exploration and other mining activities? Is and gemstones; small and medium-scale production of minerals; there an agency which collects mineral assessment reports from and mining of metallic minerals (including gold) in riverine areas. private parties? Must private parties file mineral assessment Activities that are allowed only in joint ventures with Myanmar reports? Does the agency or the government conduct geoscience citizens include prospecting for and exploration of industrial min- surveys, which become part of the database? Is the database erals and the large-scale exploitation and production of minerals. available online? Under the MIC Notification, ownership in mining activities is The MoM is responsible for maintaining information and data, as follows: which are presented at workshops from time to time. The MoM has • Category 1 – Small and medium-scale mineral production is a a website that is still in development (www.mining.gov.mm). prohibited activity for foreign investors under Category 1 of the MIC Notification, unless the MIC, at its discretion, approves such activities when the investment is in the interests of the state 10 What mining rights may private parties acquire? How are these and Myanmar citizens, particularly ethnic groups. Investment acquired? What obligations does the rights holder have? If must not exceed 80 per cent of the total equity capital, and exploration or reconnaissance licences are granted, does such FIL rules do not impose a maximum foreign ownership in tenure give the holder an automatic or preferential right to acquire joint ventures between foreign investors and the state, or state a mining licence? What are the requirements to convert to a organisations. mining licence? • Category 2 – Large-scale mining and the exploration and pro- The Mining Law Rules of 1996 state that a prospecting permit is duction of industrial minerals are permitted under Category 2 generally granted for one year with a 12-month extension available. of the MIC Notification, but only by way of a joint venture with However, under the current model of production-sharing contract Myanmar citizens (not the state). As with Category 1 mining (PSC), the MoM has provided two years for prospecting. An explo- activities, foreign capital must not exceed 80 per cent of the total ration permit is granted for no more than three years with a one-year equity capital. extension available upon submitting an application for extension. A • Category 3 – Both large-scale mineral production with an initial production permit is generally granted for 25 years with four exten- production period of 15 years, extendable by five-year terms and sions of five years available. The application to renew a production coal prospecting, exploration and production (which must be permit must be filed six months prior to the expiration of the permit. conducted through a joint venture with the state) are permit- The MoM currently encourages PSCs over joint venture agree- ted subject to recommendation and conditions from the relevant ments. A PSC is a straight split on total production. Alternatively, ministry under Category 3 of the MIC Notification. The permit- there can be a cost-recovery type of production sharing, where a ted investment in these activities varies depending on conditions certain percentage of total revenue is reserved before considera- set forth in relevant MIC notifications, and those imposed by tion of recovering the production costs. A straight split of the total the MoM. These activities also require an environmental and production is preferred in large-volume, low-price and low cost- social impact assessment (ESIA) prepared by the Ministry of of-production minerals, such as dimension stones, coal and other Environmental Protection and Forestry to be submitted as part industrial minerals. For more valuable metallic minerals such as of an application for an MIC permit. gold and copper, production sharing with cost recovery is preferred. The MoM is flexible on negotiating the terms of each arrangement. The sharing of production costs may be fixed for the term of 13 How are mining rights protected? Are foreign arbitration awards the agreement or on a sliding scale depending on the level of produc- in respect of domestic mining disputes freely enforceable in your tion. The government’s share of production can be inclusive of royalty, jurisdiction? valued upon a mutually agreed price, and sold back to the investor. Myanmar was a party to the Geneva Protocol on Arbitration A profit-sharing arrangement is primarily used for current pro- Clauses of 1923, but is not a party to the ICSID Convention or jects with active mines and plants. Parties may enter into a joint other international conventions relating to arbitration. On 17 July venture with a state-owned enterprise through competitive bidding 2013, Myanmar became a party to the New York Convention on or by entering into an agreement based on terms negotiated by both the Recognition and Enforcement of Foreign Arbitration Awards. parties. A new arbitration law is being drafted which will allow Myanmar court to enforce foreign arbitration awards. There is no public record of any international commercial arbi- 11 What is the regime for the renewal and transfer of mineral licences? tration cases having been conducted under the English law-based, Renewal of permits Myanmar Arbitration Act 1944. There have been very few interna- The MoM may renew a permit for prospecting, exploration, or tional commercial arbitration cases conducted in Myanmar. This production. Applications for renewing a permit must be submitted probably reflects Myanmar’s pre-1988 policy of minimising eco- to the MoM three months before the expiration of the permit. nomic relations with other countries. Since 1988, there have been a number of contracts between public and private sector Myanmar Transfer of permits parties and foreign companies, in which a foreign governing law and Permits may be transferred with the consent of the MoM and the foreign arbitration rules are prescribed. approval of the Myanmar Investment Commission (MIC). To Myanmar is a party to the ASEAN Investment Protection transfer a permit, a permit holder must submit a transfer applica- Agreement, 1987. tion with a copy of the draft transfer agreement. Myanmar became a member of ASEAN in 1997, and is obliged to ratify 14 key agreements prescribed by ASEAN. The Protocol on Enhanced Dispute Settlement Mechanism (2004) is one of these 12 Is there any distinction in law or practice between the mining agreements. rights that may be acquired by domestic parties and those that The arbitration provision in the Myanmar Companies Act may be acquired by foreign parties? states that: MIC Notification 1/2013 prohibits certain economic activities by • a company may by written agreement refer to arbitration, in foreign investors and requires some activities to be carried on in accordance with the Arbitration Act on existing or future differ- joint ventures with Myanmar citizens. Mining activities that are ences between itself and any other company or person;

116 Getting the Deal Through – Mining 2014 Myanmar Legal Services Ltd MYANMAR

• companies party to the arbitration may delegate power to the • where the permit holder is not able to pay in full the taxes and arbitrator to settle any terms or to determine any matter capable duties payable to the government, becomes insolvent or the of being lawfully settled or determined by the companies them- company is liquidated. selves, or by their directors or other managing bodies; and • the provisions of the Arbitration Act shall apply to all arbitra- 17 Are any areas designated as protected areas within your tions between companies and persons in pursuance of this Act. jurisdiction and which are off-limits or specially regulated? The arbitration procedure must always be in accordance with the A company is only allowed to mine in blocks for which the com- Arbitration Act, 1944. pany has received a permit- or production-sharing contract. Mining As a matter of government policy, most contracts between state- is banned on the riverbeds of the Irrawaddy, Thanlwin, Chindwin owned enterprises and foreign companies specify Myanmar law as and Sittang rivers. the governing law, and prescribe that disputes be settled by arbitration under the Arbitration Act. In general, the Attorney General’s Duties, royalties and taxes Office and the MIC do not allow foreign arbitration provisions 18 What duties, royalties and taxes are payable by private parties when the Myanmar government is a party to the contract. carrying on mining activities? Are these revenue-based or profit- In practice, disputes between contracting parties in Myanmar based? are settled by the Union of Myanmar Federation of Chambers of Commerce and Industry located in Yangon (when both disputing Royalty and dead rent parties are members of the Federation). The holder of a mineral production permit must pay royalties to the government according to the Myanmar Mining Law. The rates are as follows. 14 What surface rights may private parties acquire? How are these rights acquired? Royalty rates Private freehold land ownership by a foreign national or a for- • Gemstones – between 5 and 7.5 per cent. eign company is not available in Myanmar. After the Transfer of • Gold, silver, platinum, iridium, osmium, palladium, ruthenium, Immoveable Property (Restriction) Act, 1947 was enacted, non- rhodium, tantalum, columbium, cobalt, manganese and other citizens were disqualified from transferring all types of immoveable metallic mineral that the Ministry may, with the approval of the property, including land. Although that law was replaced in 1987, government, prescribe and publish by notification from time to most of the restrictions remained intact. Foreign nationals could time – between 4 and 5 per cent. only transfer by way of a lease, which could not exceed a one-year • Iron, zinc, copper, lead, tin, tungsten, nickel, antimony, alu- term. minium, arsenic, bismuth, cadmium, chromium, cobalt, man- There is no legal restriction that bars foreign nationals from ganese and other metallic mineral that the Ministry may, with transferring immoveable property through inheritance, leading to the approval of the government, prescribe and publish by noti- many questionable adoptions of Myanmar nationals aimed at cir- fication from time to time – between 3 and 4 per cent. cumventing the transfer by sale by making it appear as a transfer by • Industrial minerals or stones – between 1 and 3 per cent. inheritance. The government heavily scrutinises this practice. Since the new Foreign Investment law was enacted, foreign- Dead rent owned companies investing under an MIC permit are now entitled The holder of the permit shall pay dead rent for the land related to to lease land for an initial term of 50 years, which may be extended the permit in accordance with the rate specified. The dead rent shall for another 10 years twice, depending on the type of industry and be paid yearly in two instalments which shall be within the rates the amount invested. mentioned in the Mining Law. The rates are subject to the types of operations and minerals.

15 Does the government or do state agencies have the right to Five new tax laws were enacted on 28 March 2014, effective from 1 participate in mining projects? Is there a local listing requirement April 2014. Major amendments include changes to personal income for the project company? tax rates, expansion of the scope of commercial tax, and changes to Yes, the state has the sole right to carry out mining projects under stamp duty rates. the SEE law. However, the MoM may, by notification, allow private companies to carry out mining projects. Mining projects are usually Income tax either allowed via a permit- or production-sharing contract. Foreign Income tax rates depend on whether the joint venture company investors should expect to carry out projects with local Myanmar is a ‘resident’ (ie, formed under Myanmar law) or a non-resident companies. formed under a law other than Myanmar law, such as a ‘branch office’. For resident companies, the income tax rate is 25 per cent 16 Are there provisions in law dealing with government expropriation of profits. For non-resident companies, the income tax rate is 35 of licences? What are the compensation provisions? per cent. For enterprises or individuals permitted and operating under the Foreign Investment Law, and foreign organisations Rule 80 of the Mining Rules of 1996 states that the Ministry of engaged by special permission in a state-sponsored project, enter- Mines may suspend or cancel a permit. The rules do not have comprise or undertaking, the income tax is 25 per cent. Foreign indi- pensation provisions. A permit may be suspended or cancelled for viduals engaged by special permission in a state-sponsored project, the following reasons: enterprise or undertaking are subject to income tax at a 20 per • failure by the holder of a permit to make a required payment cent rate. under the law or the Mining Rules; • submission of false statements to the Ministry of Mines; Commercial tax • discovery upon investigation that the permit has been applied Notification No. 117/2012 prescribes commercial taxes of between for and obtained in contravention of the Mining Rules; 5 per cent and 100 per cent depending upon the different goods • after the death of the permit holder where the heirs are not qual- and services businesses concerned. The application for registra- ified to obtain the permit under the Law and the Rules; and tion must be in the prescribed form and filed one month before www.gettingthedealthrough.com 117 MYANMAR Myanmar Legal Services Ltd the commencement of business. Irrespective of the level of its sales • the right to pay income tax on the income of the above- at any time, a registered enterprise is required to comply with all mentioned foreign investors at the rates applicable to citizens the provisions of the law including submitting returns, paying tax residing within the country; monthly and keeping records, until its name is removed from the • the right to deduct from assessable income, expenses incurred register. Only registered enterprises are allowed to deduct input in respect to necessary research and development carried out taxes incurred on their purchases. within Myanmar; Schedule 7 of Notification No. 117/2012 prescribes commercial • the right to carry forward and set-off losses up to three consecu- tax at 5 per cent on 14 types of business activities. tive years after the year in which the loss was sustained; • exemption or relief from customs duty licensing requirements Stamp duties and internal taxes on the import of approved machinery and Stamp duties collected from the sale of judicial and non-judicial materials during the initial period or period of construction; stamps represent fees payable under the Court Fees Act. Non-judicial • exemption or relief from customs duty, licensing requirements stamp duty is levied on various types of instruments required to be and internal taxes on the import of raw materials imported stamped under the Myanmar Stamp Act. within the first three years of commercial production following start up or completion of construction; Withholding tax • exemption or relief from customs duty or other internal taxes Resident foreigner % Non-resident foreigner % on machinery, machinery components, instruments, equipment, spare parts and materials required for approved expansions dur- Interest 0 15 ing the permitted period; and Royalties for the use of 15 20 • exemption or relief from commercial tax on goods produced for licences, trademarks, patent rights, etc export. Payment for work done 2 3.5 by foreign contractors Additionally, the new FIL offers a large range of incentives and Payment made to 2 3.5 guarantees to foreign investors including the guarantee against contractors for goods nationalisation. and services purchased or performed in the Union 20 Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force? No tax stabilisation agreements are in force. However, the FIL 19 What tax advantages and incentives are available to private allows the Myanmar Investment Commission to grant exemptions parties carrying on mining activities? from income tax. The new FIL aiming at encouraging foreign investment into Myanmar was enacted on 2 November 2012, replacing the previous FIL (1998). Unlike the 1988 FIL preceding that, the new FIL defines 21 Is the government entitled to a carried interest, or a free carried investment as various kinds of property supervised by the investor interest in mining projects? within the state’s territory in accordance with the new FIL, and is The government is not entitled to a carried interest or a free carried to include: interest. • the right to be mortgaged and right to mortgage in accordance with the FIL in relation to moveable and immoveable property; • shares, stock and debentures of the company; 22 Are there any transfer taxes or capital gains imposed regarding • financial rights or activities under a contract determined as a the transfer of licences? value related to finance; A licence is not considered a capital asset and is thus not subject to • intellectual property rights in accordance with existing laws; and capital gains tax in Myanmar. However, the sale of a permit could • functional rights granted by the relevant law or contract, be considered an ‘other source of income’ and under Notification including the right of exploration and extraction of mineral 111/2012, the net profit realised would be taxed at 25 per cent. resources. 23 Is there any distinction between the duties, royalties and taxes The FIL covers many activities with the exception of those reserved payable by domestic parties and those payable by foreign parties? for the state under the SEE Law. However, if a foreign investor is interested in an activity not specified in a notification or defined in See question 18. Liability for income tax and witholding tax can the SEE, the investor can apply to the MIC stating its interest and vary between domestic and foreign parties. demonstrating that such an enterprise would be beneficial to the state. Once satisfied, the MIC may approve the application. Business structures The FIL offers a large range of incentives and guarantees to 24 What are the principal business structures used by private parties foreign investors. An enterprise permitted by the FIL enjoys a tax carrying on mining activities? holiday period of five years, inclusive of the year the enterprise commences commercial operations. In addition, the MIC may grant Mining is generally conducted through a limited company. A one or all of the following exemptions and reliefs: Myanmar investor wishing to carry on business in Myanmar • exemption or relief from income tax on the profits of the through a limited company may register a company under the business kept in a reserve fund and reinvested in the business Myanmar Companies Act. However, a Myanmar citizen-owned within one year after the reserve is made; company may not have any foreign shareholders or directors. • accelerated depreciation in respect of machinery, equipment, A foreign investor wishing to carry on business in Myanmar building or other capital assets used in the business, at an MIC- through a locally incorporated limited company may register the approved rate; company under the Myanmar Companies Act, unless the company • relief from tax on up to 50 per cent of the profits accrued from is a state-owned enterprise or involves the government, in which case the export of goods produced in Myanmar; it must be incorporated under the Special Companies Act (1950) and be approved in accordance with the FIL.

118 Getting the Deal Through – Mining 2014 Myanmar Legal Services Ltd MYANMAR

Under the Myanmar Companies Act, a foreign company, Myanmar Mining Law of 1994 states that one purpose of the law is whether 100 per cent foreign-owned, a joint venture or a branch to ‘fulfil domestic requirements and to increase export by producing or representative office, is required to obtain a Directorate of more mineral products.’ Investment and Company Administration (DICA) permit. DICA permits are generally renewable every five years (formerly, every 31 What restrictions are imposed on the import of funds for three years). The DICA permit is applied for at the Companies exploration and extraction or the use of the proceeds from the Registration Office and must be tabled at an MIC meeting. A export or sale of minerals? joint venture company with a state entity, formed under the Special Company Act 1950, is also required to obtain a DICA permit. Funds imported into Myanmar must be registered with MIC. As of Limited companies have memoranda and articles of associa- April 2014, the government has licensed 14 of the country’s 20 tion. The articles of association may include special voting rights private banks to hold currency accounts. and other minority shareholder protections. Care must be taken by Under the FIL, a person who has brought in foreign capital can foreign investors in prescribing the powers of the managing director, transfer the following: etc. There are no nationality or residence qualifications applicable to • their personal foreign currency entitlement; directors unless otherwise prescribed in the articles of association. • net profit after deducting all taxes and provisions; • foreign currency permitted for withdrawal by the MIC, which may include the value of assets on the winding-up of the busi- 25 Is there a requirement that a local entity be a party to the ness; and transaction? • a foreign employee may transfer his or her salary and lawful See question 12. income after deducting taxes and other living expenses incurred domestically.

26 Are there jurisdictions with favourable bilateral investment treaties Environment or tax treaties with your jurisdiction through which foreign entities will commonly structure their operations in your jurisdiction? 32 What are the principal environmental laws applicable to the Myanmar has investment promotion treaties with China, India, mining industry? What are the principal regulatory bodies that Laos, the Philippines, Thailand and Vietnam. The treaties with administer those laws? China, India, the Philippines and Thailand have come into force. Until 2012, there was no specific law protecting the environment in Myanmar currently has double taxation treaties with India, Laos, Myanmar. The 2008 Constitution does contain provisions guaran- Malaysia, Singapore, South Korea, Thailand, the United Kingdom teeing the conservation of natural resources and the prevention of and Vietnam. environmental degradation. Environmental impact assessments are not required for any projects, governmental or private. A number Financing of laws include short provisions prohibiting acts which adversely impact on the environment. 27 What are the principal sources of financing available to private However, MIC Notification 1/2013 requires ESIAs for Category parties carrying on mining activities? What role does the domestic 3 projects. Large-scale mining is a Category 3 project. public securities market play in financing the mining industry? The Environmental Conservation Law was enacted in March Most foreign investors will be required to import capital into 2012. Rules to implement the new law have not been announced. Myanmar. The availability of local capital is limited.

33 What is the environmental review and permitting process for a 28 Please describe the regime for taking security over mining mining project? How long does it normally take to obtain the interests. necessary permits? Given the restrictions on foreign ownership, security over land use See question 32. rights and government permits are an ongoing concern. In the event of default, investors fear that they may risk losing any required government licences. Forms of security available under British colonial 34 What is the closure and remediation process for a mining law are provided in the Burma Code. However, practice has taken project? What performance bonds, guarantees and other financial over in many respects. Most forms of security must be registered. assurances are required? MIC and Central Bank approvals must be obtained for offshore The holder of a permit may surrender the permit to close a mining security. process. The MoM must be given at least one month’s notice prior to the surrender of a permit. The MoM will then cancel the entire Restrictions permit if the surrender is with respect to the entire area or otherwise amend the permit accordingly. The permit holder has the right 29 What restrictions are imposed on the importation of machinery to remove from the permit area within six months of cancellation and equipment or services required in connection with exploration any building, machineries installed or other moveable property, and and extraction? mineral products that have been extracted prior to the cancellation Machinery and equipment may be imported into Myanmar subject of the permit. to customs duty. However, the MIC may exempt certain machinery from customs duty under the FIL. Health & safety, and labour issues

35 What are the principal health and safety, and labour laws 30 What restrictions are imposed on the processing, export or sale applicable to the mining industry? What are the principal of minerals? Are there any export quotas, licensing or other regulatory bodies that administer those laws? mechanisms that prevent producers from freely exporting their The Myanmar Mining Rules, chapters XVII – XXII, are the princi- production? pal rules for health and safety and labour laws applicable to the min- The State-owned Economic Enterprise Law provides that the ing industry. Generally, a mine employee must be older than 18 years government has the sole right to export minerals. However, the www.gettingthedealthrough.com 119 MYANMAR Myanmar Legal Services Ltd

50 per cent during the second year, and 75 per cent during the third Update and trends year. Myanmar citizens must perform all the unskilled work.

A new Mining Law has been drafted. No copy of the draft is Social and community issues available. On 15 June 2013, the United States and Myanmar 37 What are the principal community engagement or CSR (corporate announced a partnership under which the US would provide social responsibility) laws applicable to the mining industry? What technical assistance to Myanmar to meet the Extractive Industries Transparency Initiative (EITI) requirements. Myanmar is reported are the principal regulatory bodies that administer those laws? to be submitting its application for membership of the EITI in May See questions 35 and 36. 2014.

38 How do the rights of aboriginal, indigenous or currently or of age and must work no more than five days in a week. Employees previously disadvantaged peoples affect the acquisition or should work no more than eight hours per day and 40 hours per exercise of mining rights? week. If an employee is required to work for a whole day because of See question 12. the nature of his or her work, the employee may work no more than 48 hours per week. A permit holder must also provide on-the-job safety and health training and appoint a supervisor to ensure the safe 39 What international treaties, conventions or protocols relating to operation of the mine. CSR issues are applicable in your jurisdiction? Additionally, current labour laws in Myanmar include the None. Employment and Training Act, 1950; the Employment Restriction Act, 1959; the Employment Statistics Act, 1948; the Factories Foreign investment Act, 1951; the Labour Organisation Law, 2011; the Leave and Holidays Act, 1951; the Minimum Wages Law, 2013 (enacted but 40 Are there any foreign ownership restrictions in your jurisdiction not yet in force); the Payment of Wages Act, 1936; the Shops and relevant to the mining industry? Establishments Act, 1951; the Workmen’s Compensation Act, 1923; Under section 20 of the FIL Rules, in a joint venture carried out with and two recent laws, the Labour Dispute Settlement Law, 2012; and a citizen in prohibited or restricted business areas, foreign capital Social Security Act, 2012 (enacted but not yet in force). should not exceed 80 per cent of the total capital. This ceiling may These laws govern labour relations problems and deal with such be amended by the MIC by notification, from time to time, with the subjects as working hours, holidays, leaves of absence, female and permission of the government of the Union. child labour, wages and overtime, severance pay, workmen’s compensation, social welfare, work rules and other matters. There is International treaties a minimum wage only in certain fields (ie, agricultural workers). The Social Security Act established a fund with contributions by 41 What international treaties apply to the mining industry or an employers, employees and the government. investment in the mining industry? The Myanmar Special Economic Zone Law, 2014 and FIL 2012 An investment in a mining project may qualify for investment pro- prescribe special rules applicable to foreign employees, work per- tection under a bilateral investment treaty. Myanmar is also a mits, and minimum percentages of employees that must be citizens. party to the 2009 ASEAN Comprehensive Investment Agreement. Myanmar has been a member of the ILO since 1948. A Mining and quarrying, and services incidental thereto are listed as Myanmar tripartite delegation consisting of representatives of the one of the designated sectors to which the 2009 Agreement applies. government, employers and workers attend the ILO conference held However, Myanmar has an exemption to this agreement regarding annually in Geneva. the gemstone sector. During 2012, Australia, Canada, the EU, the UK and the US all relaxed various economic sanctions against Myanmar in light of 36 What restrictions and limitations are imposed on the use of recent reforms. However, attention must still be paid to the terms of domestic and foreign employees in connection with mining the relaxations of the sanctions, in particular the US prohibitions on activities? investments or the provision of financial services to persons on the A company registered under the FIL must recruit 25 per cent of its Treasury Department’s Specially Designated Nationals and Blocked skilled workforce domestically during the first year of operations, Persons list, and the new requirements for periodic reporting.

Daw Khin Cho Kyi [email protected]

Room 117, Inya Lake Hotel Tel: +95 1 657792 / +95 1 650 740 37 Kaba Aye Pagoda Road Fax: +95 1 650 466 Mayangone Township, Yangon www.myanmarlegalservices.com Myanmar 11061

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Executive Order dated 7 August 2013 bans the importation of • risk and impact assessments and mitigation; and jadeite and rubies into the United States. • payments to the government. US citizens are required to report on a range of policies and procedures with respect to their investments in Myanmar, including: US citizens are also under an obligation to notify the Department of • human, labour and land rights; State of any investment with Myanma Oil and Gas Enterprise, and • community consultations and stakeholder engagement; any contact with the military or non-state armed groups. • environmental stewardship; See www.treasury.gov/resource-center/sanctions/programs/pages/ • anti-corruption arrangements with security service providers; burma.aspx.

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Peter Frank Koep and Hugo Meyer van den Berg Koep & Partners

Mining industry and Energy, assisted by the Commissioner for Petroleum Affairs and the Chief Inspector of Petroleum Affairs; 1 What is the nature and importance of the mining industry in • the Petroleum (Taxation) Act 1991 (Act No. 3 of 1991), as your country? amended, administered by the permanent secretary of finance; Under the Constitution of Namibia, all natural resources belong to • the Mining (Salt Reservation) Proclamation 1994; the state. In terms of the Minerals (Prospecting and Mining) Act, • the Diamond Act 1999 (Act No. 13 of 1999), administered by all rights in respect of minerals vest in the state as well. Should a the diamond commissioner; prospector wish to prospect for minerals on private or state-owned • the Diamond Taxation Proclamation Repeal Act 1995 (Act land, an agreement for access and compensation has to be entered No. 21 of 1995), administered by the Permanent Secretary of into with the landowner before the exploration can take place. Finance; and Should there be a dispute regarding access, the matter would be • the Environmental Management Act 7 of 2007, administered referred to the Ancillary Rights Commission. by the Minister of Environment and Tourism, assisted by the The mining industry continues to make the largest contribution Environment Commissioner. to GDP. The mining sector continues to invest strongly in Namibia, with emphasis presently on uranium exploration and mining. 7 What classification system does the mining industry use for reporting mineral resources and mineral reserves? 2 What are the target minerals? The classification system used is the South African Code fore report- Namibia is a significant producer of diamonds, uranium, zinc and ing of Mineral Resources and Mineral Reserves. copper. The country is also a source of gold, lead, silver, tin, vanadium, gemstones, dimension stone, tantalite, phosphate, sulphur Mining rights and title and salt. 8 To what extent does the state control mining rights in your jurisdiction? Can those rights be granted to private parties and 3 Which regions are most active? to what extent will they have title to minerals in the ground? The west coast is most attractive for uranium and diamonds. Other Are there large areas where the mining rights are held privately minerals are spread throughout the whole country. or which belong to the owner of the surface rights? Is there a separate legal regime or process for third parties to obtain mining Legal and regulatory structure rights in those areas? Pursuant to the Constitution, all natural resources throughout 4 Is the legal system civil or common law-based? Namibia vest in the state. Furthermore, the Minerals (Prospecting The legal system of Namibia is civil law-based, with limited com- and Mining) Act 33 of 1992 vests all rights in respect of minerals, as mon-law influence. well as control over minerals, in the state. The state, acting through the Minister of Mines and Energy, may grant rights to search for and 5 How is the mining industry regulated? extract minerals to any person, provided that such a person is either a company or a Namibian citizen aged 18 or above. The ownership The mining industry is regulated by various statutes covering the of land does not include the ownership of the minerals in the land. various mining activities referred to in question 6. The most important of these for the mining industry is the Minerals (Prospecting and Mining) Act 33 of 1992, as amended. 9 What information and data is publicly available to private parties that wish to engage in exploration and other mining activities? Is there an agency which collects mineral assessment reports from 6 What are the principal laws that regulate the mining industry? private parties? Must private parties file mineral assessment What are the principal regulatory bodies that administer those reports? Does the agency or the government conduct geoscience laws? surveys, which become part of the database? Is the database The principal laws that regulate the mining industry in Namibia are: available online? • the Minerals (Prospecting and Mining) Act 1992 (Act No. 33 of All mining companies are obliged to make information gained in the 1992) as amended, administered by the Minister of Mines and course of operations available to the Ministry. This information is Energy, assisted by the mining commissioner and the Minerals kept and stored by the Geological Survey of Namibia and is avail- Board of Namibia; able online at www.mme.gov.na. • the Petroleum (Exploration and Production) Act 1991 (Act No. 2 of 1991) as amended, administered by the Minister of Mines

122 Getting the Deal Through – Mining 2014 Koep & Partners NAMIBIA

10 What mining rights may private parties acquire? How are these operations. With regard to a mining licence, the Minister may not acquired? What obligations does the rights holder have? If grant the renewal unless the holder of such licence proves to the exploration or reconnaissance licences are granted, does such satisfaction of the Minister that the mineral or group of minerals tenure give the holder an automatic or preferential right to acquire to which such licence relates still exists in the mining area in such a mining licence? What are the requirements to convert to a quantity that it can still be won, mined and sold or otherwise dis- mining licence? posed of on a profitable basis and unless the Minister has reason- Private parties may acquire mineral licences, such as reconnaissance, able grounds to be satisfied with the proposed mining operations exclusive prospective and mineral deposit retention licences, and and expenditure to be carried out or expended during the renewal eventually a mining licence. Subject to the specific requirements, period. Furthermore, the Minister may not refuse an application for other licences applicable are a non-exclusive prospecting licence, renewal of an exclusive prospecting licence or mining licence: reconnaissance licence and a mining claim. The licences afford the • if the holder of the licence has complied with all the terms and holder the opportunity of exploring the area over which the licence conditions of such licence, has complied with the proposed is registered, of applying for renewals and of eventually converting programme of prospecting or mining operations and has the licence to a mining licence. Application for any licence must be expended a sufficient amount in respect of such operations in made to the mining commissioner in such a form as may be deter- accordance with the terms of a mineral agreement; mined in writing by the commissioner. The Minerals (Prospecting • if the Minister has reasonable grounds to be satisfied with the and Mining) Act provides for application fees and also sets out proposed programme of prospecting or mining operations or what documentation must accompany the application. The the proposed expenditure in respect of such operations and that Minerals (Prospecting and Mining) Act also deals extensively with the person concerned has the technical and financial resources to the obligations of the licence holder. It is, however, a general term carry on such prospecting or mining operations; and and condition according to section 50 of the Act that the holder of • on the grounds thereof that such holder has contravened or failed a mineral licence must exercise all rights granted to him or her in to comply with any provision of the Minerals (Prospecting and terms of the Act reasonably and in such manner that the rights and Mining) Act or any term and condition of such licence, unless interests of the owner of the land are not adversely affected, except the Minister has informed such holder in writing of his or her to the extent to which such owner is compensated. intention to so refuse such application, has set out particulars A holder of an exclusive prospecting licence or exclusive of the contravention or failure in question and has required reconnaissance licence has a preferential right to acquire a mining such holder to make representations to the Minister in relation licence. A prospecting licence is not converted to a mining licence, to such contravention or failure or to remedy such contraven- but a new application for a mining licence is lodged. tion or failure on or before a date specified in such notice and In terms of section 125 of the Minerals (Prospecting and Mining) such holder has failed to so remedy such contravention or fail- Act, all applications made in terms of the Act must be considered ure or make representations. by the Minister (or the commissioner) in the same order as such applications have been received. All applications received on the 12 Is there any distinction in law or practice between the mining same day are deemed to have been received simultaneously. rights that may be acquired by domestic parties and those that may be acquired by foreign parties? 11 What is the regime for the renewal and transfer of mineral There is no restriction or prohibition on the ownership of mining licences? rights to be held by foreigners. It is not necessary, although it may No mineral licence may be transferred without the consent of be desirable, for a foreign party to have a domestic partner. The the Minister of Mines and Energy. Furthermore, no interest in a Minister of Mines and Energy, through the mining commissioner, licence may be granted, ceded or assigned without the consent has decided to make it a condition of the licence that a foreign party of the Minister. It is uncertain what exactly is meant by an ‘inter- must have a domestic partner. Whether the current legislation per- est’ in a mineral licence and whether this may be extended to an mits this has not been answered. interest in the holder of a licence. So, for example, it is uncertain whether or not the Minister’s consent is required to grant, cede or 13 How are mining rights protected? Are foreign arbitration awards assign any right in respect of the shares of the holder of a licence, if in respect of domestic mining disputes freely enforceable in your the licence holder is a company. In our view, the Minister’s consent jurisdiction? is not necessary. This is supported by the fact that it is a general term and condition of a mineral licence that the holder thereof notify the Mining rights are protected by the judicial system. Generally, a dis- Minister in the event of a change in shareholding of the holder. pute regarding any mining rights would be addressed to the High Application for the renewal of a licence must be made to the Court of Namibia. Namibia has an independent judicial system that Minister in the form determined by the commissioner and must adheres to the rule of law and due process. be accompanied by a renewal fee. Application forms are available Foreign court orders and foreign arbitral awards have to be online at www.mme.gov.na. The Minister may grant the renewal made an order of a Namibian court before they can be enforced. subject to such terms and conditions as he or she may determine. Namibia is not a signatory to the New York Convention. Reconnaissance licences may not be renewed. Application for renewal of an exclusive prospecting licence must be made at least 14 What surface rights may private parties acquire? How are these 90 days before expiry of the licence, and application for renewal rights acquired? of a mining licence must be made at least one year before expiry of The initial surface rights, which can be acquired by private parties, the licence. Applications may be lodged within a shorter period on allow such parties to prospect and explore. These rights can be good cause shown, but may not be lodged after expiry of the licence. converted to mining rights, but subject to the landowner’s rights The Minister has a discretion to grant or refuse the application for being protected as set out in question 1. The rights are acquired by renewal, but his discretion is limited by the Act. So, for example, making an application in prescribed forms to the relevant person in the Minister may not grant the renewal of an exclusive prospecting charge of this procedure (see questions 6 and 10). licence unless the Minister has reasonable grounds to be satisfied with the manner in which the programme of prospecting operations has been carried on or the amount of expenditure in respect of such www.gettingthedealthrough.com 123 NAMIBIA Koep & Partners

15 Does the government or do state agencies have the right to the owner of the land or, in the case of accessory works, the participate in mining projects? Is there a local listing requirement holder of the licence in terms of which the accessory works were for the project company? erected. Epangelo Mining Company (Pty) Limited was established in 2008 and was officially inaugurated on 3 December 2009. The govern- Finally, a holder of a mineral licence may not exercise his or her ment of the Republic of Namibia is the sole shareholder. Recently, rights: the state declared various minerals to be ‘strategic’ and gave • in, on or under any land in respect of which no person other Epangelo exclusive rights to these minerals. The minerals affected than the holder of a reconnaissance licence is, by virtue of a by this decision include uranium, gold, copper, coal, diamonds and notice issued in terms of section 122 of the Act, entitled to carry rare earth metals. As a result, the Ministry of Mines and Energy may, on any prospecting operations or mining operations; before issuing a licence or granting the renewal of a licence, require • in, on or under any land subject to a production licence, as defined the holder to enter into some sort of cooperation with Epangelo. in section 1 of the Petroleum (Exploration and Production) Act, The exact extent of this cooperation or what will be expected is 1991 (Act 2 of 1991), which existed at the time of the issue of uncertain, as there is no legislative framework that provides for the licence in question, without the prior permission in writing cooperation with Epangelo. of the holder of the production licence concerned; or There are no listing requirements for project companies. • in a way that will interfere with fishing or marine navigation, without the prior permission of the Minister granted, upon an application to the Minister in such form as may be determined 16 Are there provisions in law dealing with government expropriation in writing by the commissioner, by notice in writing and subject of licences? What are the compensation provisions? to such conditions as may be specified in such a notice. Article 16 of the Constitution of the Republic of Namibia deals with the constitutional right to property and expropriation. It states that The Minister may also exclude certain areas from mineral prospect- all persons have the right in any part of Namibia to acquire, own and ing if for instance the area is deemed to be environmentally sensitive. dispose of all forms of immoveable and moveable property individually or in association with others and to bequeath their property Duties, royalties and taxes to their heirs or legatees. Namibian courts have held that ‘property’ includes incorporeal property as well (and therefore may include 18 What duties, royalties and taxes are payable by private parties carrying mineral licences). This article is not limited to Namibian citizens on mining activities? Are these revenue-based or profit-based? only, but guarantees the right to property of all persons in Namibia. Royalties are revenue-based, whereas taxes are profit-based. This fundamental right to property is, however, not unlimited. Royalties in respect of rough and uncut minerals of the special stone Article 16 goes further to state that Parliament may by legislation group are payable at a rate of 10 per cent of the market value, where prohibit or regulate as it deems expedient the right to acquire prop- such value is determinable in terms of the Act. erty by persons who are not Namibian citizens. Article 16 further The royalty payable in respect of any rough or unprocessed min- states that the state or a competent body or organ authorised by eral of the dimension stone group is taxed at a rate of 5 per cent of law may expropriate property in the public interest subject to the the market value. payment of just compensation, in accordance with requirements A recent amendment to the Minerals (Prospecting and Mining) and procedures to be determined by act of Parliament. Act deleted the maximum percentage of royalties that the Minister can charge on all minerals excluding precious stones and dimension stone and also introduced the possibility of a windfall royalty. 17 Are any areas designated as protected areas within your jurisdiction The Minister, therefore, has a discretion regarding the royalty to and which are off-limits or specially regulated? be imposed as well as whether or not to levy a windfall royalty. A holder of a mineral licence may not exercise his or her rights in, Furthermore, the amendment introduces a type of penalty royalty, on or under: although the exact nature and extent of this royalty is uncertain. The • any town or village; legality of the extent of this amendment is disputed by some. • land comprising a proclaimed road, including such parts adjoining such road as may in terms of any law governing such road be regarded as the road reserve, aerodrome, harbour rail- 19 What tax advantages and incentives are available to private way or cemetery; or parties carrying on mining activities? • land used or reserved for any governmental or public purpose Tax advantages and incentives would have to be negotiated with the without the prior permission of the Minister. Ministry of Finance and the Ministry of Trade and Industry. Various advantages and incentives are possible. Furthermore, a holder of a mineral licence may not exercise his or her rights in, on or under private or state land: • used as a garden, orchard, vineyard, nursery, plantation or that 20 Does any legislation provide for tax stabilisation or are there tax is otherwise under cultivation; stabilisation agreements in force? • within a horizontal distance of 100 metres of any spring, well, There is no legislation providing for tax stabilisation and there are borehole, reservoir, dam, dipping-tank, waterworks, peren- currently no tax stabilisation agreements in force. nial stream or pan, artificially constructed watercourse, kraal, building or any structure of whatever nature; 21 Is the government entitled to a carried interest, or a free carried • within a horizontal distance of 300 metres from any point on interest in mining projects? the nearest boundary of any erf, as defined in section 1 of the Townships and Division of Land Ordinance, 1963 (Ordinance See question 15. 11 of 1963), if such erf has been surveyed for the purpose of inclusion in a township as defined in that section; or 22 Are there any transfer taxes or capital gains imposed regarding • on which accessory works were erected or constructed under the transfer of licences? this Act and that existed at the time of the issue of the min- Namibia does not recognise capital gains tax. However, a recent eral licence in question without the prior written permission of amendment to the Income Tax Act 24 of 1981 (the Income Tax

124 Getting the Deal Through – Mining 2014 Koep & Partners NAMIBIA

Third Amendment Act 15 of 2011) introduces a tax on income from 30 What restrictions are imposed on the processing, export or sale the alienation of a right or licence to explore, mine or retrieve natu- of minerals? Are there any export quotas, licensing or other ral resources in Namibia, irrespective of where the transaction is mechanisms that prevent producers from freely exporting their concluded or where the payment is made. This includes income on production? the sale of shares in companies that hold such a right. There are no such quotas; however, the export of minerals and royalty payments are controlled by the Ministry. The question of local beneficiation is under discussion. However, 23 Is there any distinction between the duties, royalties and taxes presently there are no specific restrictions or limitations imposed on payable by domestic parties and those payable by foreign parties? the processing, export or sale of metallic minerals, other than those There is no distinction between the duties, royalties and taxes imposed by the relevant legislation. See, however, the reference to the payable by domestic parties and those payable by foreign parties. penalty royalty in question 18. However, with respect to foreign parties there may be a withholding tax on dividends. All holders of mining licences are charged duties, royalties and taxes at the same rate. 31 What restrictions are imposed on the import of funds for exploration and extraction or the use of the proceeds from the Business structures export or sale of minerals? There are no restrictions for the importation of funds. It is in the 24 What are the principal business structures used by private parties interests of the investor to ensure that local requirements are met in carrying on mining activities? order to ensure the safe repatriation of funds, profits and dividends. The principal business structures used by private parties carrying An application will have to be made to the Bank of Namibia for on mining activities are private limited companies or joint ventures. the introduction of funds from abroad for mining activities. Subject to a withholding tax and the payment of tax, an importer of funds is able to repatriate such funds and the profits on such funds. 25 Is there a requirement that a local entity be a party to the transaction? Environment There is no such requirement in the Act. Despite this, however, the Minister has previously made it a condition of a mineral licence that 32 What are the principal environmental laws applicable to the a local entity be a party. mining industry? What are the principal regulatory bodies that administer those laws? 26 Are there jurisdictions with favourable bilateral investment treaties The Minerals (Prospecting and Mining) Act 1992 provides for or tax treaties with your jurisdiction through which foreign entities environmental controls. The Constitution also requires protection will commonly structure their operations in your jurisdiction? of the environment. The Regulations passed in terms of the Mines, Works and Namibia only has bilateral investment treaties with France, Germany, Minerals Ordinance of 1968 deal extensively with health and safety. the Netherlands, Switzerland, Spain and Austria. Various other laws might be applicable to the mining industry. These include the Soil Conservation Act 76 of 1969, the Hazardous Financing Substance Ordinance 14 of 1974, the Atmospheric Pollution 27 What are the principal sources of financing available to private Prevention Ordinance 11 of 1976, the Prevention and Combating of parties carrying on mining activities? What role does the domestic Pollution of the Sea by Oil Act 6 of 1981, the Forest Act 12 of 2001 public securities market play in financing the mining industry? and the Atomic Energy and Radiation Protection Act 5 of 2005. The body administering these laws is the Ministry of The principal sources of financing would be made available by the Environment, which forms part of the Ministry of Environment and commercial banks operating in Namibia. Tourism. It is also possible to list shares on the Namibian Stock Exchange On 6 February 2012, the Environmental Management Act 7 of and to raise funds there. 2007 came into operation. This Act has far-reaching implications for Depending on the structure and the partners involved, financing the mining industry. In terms of this Act, no person may undertake a could be obtained from other institutions such as pension funds and listed activity without an environmental clearance certificate. Listed the Development Bank of Namibia. activities include mining and quarrying activities. The Minister of Mines and Energy may not issue a mineral licence before the 28 Please describe the regime for taking security over mining applicant has obtained an environmental clearance certificate. interests.

See question 11. Security over a mining interest is possible with 33 What is the environmental review and permitting process for a the consent of the Minister. Security can take a number of forms, mining project? How long does it normally take to obtain the depending on what the subject of the security is. necessary permits? In terms of the Environmental Management Act 7 of 2007, the Restrictions Minister of Mines and Energy may not issue a mineral licence until 29 What restrictions are imposed on the importation of machinery the applicant has been furnished with an environmental clear- and equipment or services required in connection with exploration ance certificate. A person wishing to apply for an environmental and extraction? clearance certificate must lodge an application with the Minister of Mines and Energy, who is designated as the competent author- There are no restrictions or limitations imposed on the importation ity in terms of the Environmental Management Act. The applicant of machinery and equipment required in connection with mining must then hold public consultation, draft a scoping report and give activities. However, an import tax would have to be paid on these, interested and affected parties an opportunity to comment. The unless an exemption is applied for and obtained in terms of, for results of the public consultation, scoping report, a management instance, in an exclusive prospecting zone. plan and all comments and replies thereto must then be lodged with

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Health & safety, and labour issues Update and trends 35 What are the principal health and safety, and labour laws The Namibian uranium industry has shown considerable growth applicable to the mining industry? What are the principal over the last couple of years and Namibia may soon become one regulatory bodies that administer those laws? of the largest uranium producers worldwide. The Regulations passed in terms of the Mines, Works and Minerals Ordinance of 1968, which Regulations are still applicable in terms of the current legislation despite the repeal of this Ordinance, deal the Minister of Mines and Energy, who must then forward this to extensively with Health and Safety. Furthermore, the Labour Act 11 the environmental commissioner. of 2007 deals with all labour matters in Namibia. It is administered The environmental commissioner can then either issue the by the Minister of Labour. An extensive set of health and safety environmental clearance certificate, or request the applicant to regulations has also been passed in terms of the previous Labour conduct an environmental impact assessment before the clearance Act and is applicable in terms of the current Labour Act. certificate is issued. In terms of the Minerals (Prospecting and Mining) Act 1992, an environmental impact assessment study must be furnished to the 36 What restrictions and limitations are imposed on the use of Ministry of Environment before a mining project can proceed. In domestic and foreign employees in connection with mining terms of the regulations to the Environmental Management Act, activities? where an assessment is required in terms of any other law, and that As far as services in respect of labour are concerned, application other law or policy requires that information must be submitted or will have to be made to the Ministry of Home Affairs for work processes must be carried out that are substantially similar to infor- permits. Such an application will be judged on whether or not the mation or processes required in terms of these regulations of the skill applied for is available in Namibia and whether sufficient effort Environmental Management Act, the Minister of Environment and has been made to source skills locally. In terms of the Minerals Tourism must take steps to enter into a written agreement with the (Prospecting and Mining) Act, it is a standard term and condition authority responsible for administering the law or policy (such as of any mineral licence or mineral agreement that the holder of the the Minister of Mines and Energy) in respect of the coordination of licence must, in the employment of employees, give preference to the requirements of the law, policy and regulations passed in terms Namibian citizens who possess appropriate qualifications, expertise of the Environmental Management Act to avoid duplication in the and experience for purposes of the operations to be carried on in submission of such information or the carrying out of such processes terms of such mineral licence. The whole process will take about two to three months. Social and community issues 34 What is the closure and remediation process for a mining 37 What are the principal community engagement or CSR (corporate project? What performance bonds, guarantees and other financial social responsibility) laws applicable to the mining industry? What assurances are required? are the principal regulatory bodies that administer those laws? The Minerals (Prospecting and Mining) Act 1992 provides that the There are no laws that require community engagement or CSR. holder of a mining claim must take all steps to the satisfaction of the However, the Minister may make it a condition of a licence that Minister to remedy any damage caused by any mining activities. It is, a community be involved or that a community should in some however, not unusual in the case of larger mining operations for the way benefit from mining operations. The extent of this benefit will Minister to demand guarantees that could be used by the Ministry depend on negotiations between the holder, the Minister and the to remedy damage caused by mining activities. community in question.

Koep & Partners

Peter Frank Koep [email protected] Hugo Meyer van den Berg [email protected]

33 Schanzen Road Tel: +264 61 382 800 Windhoek 9000 Fax: +264 61 382 888 Namibia

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38 How do the rights of aboriginal, indigenous or currently or shall have to accommodate previously disadvantaged Namibians. previously disadvantaged peoples affect the acquisition or Furthermore, in terms of the Minerals (Prospecting and Mining) Act, exercise of mining rights? the Minister may grant a licence or the renewal of a licence subject See question 37. to such conditions as he may deem necessary. In the light of the above, licences are often granted subject to the condition that there must be some local ownership (which can 39 What international treaties, conventions or protocols relating to include joint holding with Epangelo). CSR issues are applicable in your jurisdiction? None as far as we have been able to ascertain. International treaties

Foreign investment 41 What international treaties apply to the mining industry or an investment in the mining industry? 40 Are there any foreign ownership restrictions in your jurisdiction This information is difficult to obtain. Namibia is a signatory to the relevant to the mining industry? Kimberley Process, as well as various international treaties regarding In terms of the Foreign Investment Act 27 of 1990, it may be a con- the International Atomic Agency and its safeguards. Namibia has dition for the granting of a licence or authorisation of an agreement also signed and ratified the SADC Protocol on Mining, 1997 and for the granting of rights over natural resources that the applicant various conventions relating to the prevention of pollution.

www.gettingthedealthrough.com 127 NIGERIA AE´LEX Nigeria

Sina Sipasi, Oluwaseun Akintola and Lionel Ebenibo AE´LEX

Mining industry Department (MECD), the Mining Cadastre Office (MCO) and the Artisanal and small-scale Mining Department. 1 What is the nature and importance of the mining industry in your Other relevant laws include the National Environmental country? Standards and Regulations Enforcement Agency (Establishment) Act The development of the mining industry through private investment (No. 25 of 2007), the Environmental Impact Assessment Act (Chapter has been identified by the federal government of Nigeria as a key E12 LFN 2004), the Nuclear Safety and Radiation Protection Act ingredient in economic diversification away from oil resources. It (Chapter N142 LFN 2004), the Explosives Act (Chapter E18 LFN offers excellent opportunities for growth and poverty reduction. 2004) and the Land Use Act (Chapter L5 LFN 2004). In 2004, the government received a credit from the International Development Association to execute the Sustainable Management of Mineral Resources Project. This project is aimed at increasing 7 What classification system does the mining industry use for the government’s long-term institutional and technical capacity to reporting mineral resources and mineral reserves? manage Nigeria’s mineral resources in a sustainable way. Key com- There is no specific code governing the reporting of mineral resources ponents of this project include legal, regulatory and fiscal reform and mineral reserves in the mining industry. An applicant for a min- coupled with capacity building and reinforcement of the governing lease is, however, required to prove that there exists a commer- ment sector’s supervisory institutions. Key initiatives include the cial quantity of mineral resources as a precondition to the grant of enactment of a new mining law in 2007 and a geological data the mining lease. The Regulations also specify that all mineral title acquisition campaign, which has so far indicated the occurrence of holders must submit a half-yearly technical report on every licence several minerals around the country. area held to the MID, the MECD and the MCO. The report should contain data on the topographical features and mineral deposits in the licence area. 2 What are the target minerals? A broad range of minerals are known to occur in Nigeria. The current Mining rights and title focus of the federal government, however, is the development of gold, coal, iron ore, limestone, lead/zinc, tantalite and barite extraction. 8 To what extent does the state control mining rights in your jurisdiction? Can those rights be granted to private parties and to what extent will they have title to minerals in the ground? Are there 3 Which regions are most active? large areas where the mining rights are held privately or which belong The most active regions are the north-west, south-west, south-east to the owner of the surface rights? Is there a separate legal regime and Middle Belt regions. or process for third parties to obtain mining rights in those areas? The Constitution of the Federal Republic of Nigeria and the Mining Legal and regulatory structure Act vests title to all mineral resources beneath or upon any land in Nigeria, including its continental shelf, territorial waters and 4 Is the legal system civil or common law-based? exclusive economic zone in the federal government. Mining titles The legal system is based on English common law. are granted by the federal government to private parties to search for and exploit minerals (see question 10 for types of mining titles). 5 How is the mining industry regulated? The grant of a mining title does not confer title to the minerals in the ground on a private party. Title to minerals is transferred from the Regulation of the mining industry is exclusively reserved by the federal government to a private party upon the lawful extraction of Nigerian Constitution for the federal government. such minerals by the private party. Mining rights do not belong to the owner of the surface rights. 6 What are the principal laws that regulate the mining industry? What are the principal regulatory bodies that administer those 9 What information and data is publicly available to private parties laws? that wish to engage in exploration and other mining activities? Is The principal laws for the regulation of the mining industry are there an agency which collects mineral assessment reports from the Nigerian Minerals and Mining Act 2007 (Chapter N162 Laws private parties? Must private parties file mineral assessment of the Federal Republic of Nigeria (LFN) 2004 (the Act or the reports? Does the agency or the government conduct geoscience Mining Act)) and the Minerals and Mining Regulations, 2011 (the surveys, which become part of the database? Is the database Regulations). They are administered by the Ministry of Mines and available online? Steel Development (MMSD) comprising the Mines Inspectorate The Nigerian Geological Survey Agency (NGSA) has the responsibil- Department (MID), the Mines Environmental Compliance ity of providing geological data to potential investors. It maintains

128 Getting the Deal Through – Mining 2014 AE´LEX NIGERIA a database of geological data that includes geological and mineral • conclude a community development agreement with its host resources maps, airborne magnetic and radiometric data and geo- community before the commencement of mine development or chemical maps. The NGSA also conducts geoscience surveys that extraction; and become part of the database. The database is completely digitised • keep in continuous employment a person who possesses ade- and the intention is to make it available online in the near future. quate professional qualifications and experience in mining to All titleholders are required to provide the NGSA with all supervise the mining operations. geo-scientific data acquired in the course of exploration or mining, including maps, coring and samples for storage and archiving. The Regulations also prescribe that applicants of mineral titles must: Titleholders are also required to provide the MCO with records of • provide evidence of technical competence. An applicant for an every mineral found and ore reserves calculated within a mining title exploration licence, mining lease, water use permit or recon- area. All such data shall be kept confidential until the earlier of a naissance permit must employ a person or persons who possess period of five years after its submission, relinquishment of a part or adequate qualification and experience in mining and must be reg- the whole of the mineral title area, or the revocation of the mineral istered or registerable with the Council for Mining Engineers and title. Geoscientists and any other relevant professional body. An applicant for a quarry lease or small-scale mining lease must employ a person or persons who possess minimum qualifications in mining 10 What mining rights may private parties acquire? How are these and quarrying-related fields; and acquired? What obligations does the rights holder have? If exploration • provide evidence of financial capability. or reconnaissance licences are granted, does such tenure give the holder an automatic or preferential right to acquire a mining licence? A holder of an exploration licence seeking a conversion to a min- What are the requirements to convert to a mining licence? ing licence shall in his application demonstrate that a commercial Private parties may acquire the right to search for or exploit metallic quantity of mineral resources exist in the area for which the appli- minerals through one of the following mining titles: cation is made. he must also show that he has fulfilled all necessary • a reconnaissance permit, required for carrying out reconnais- conditions of the exploration licence. The applicant will complete sance activities on a non-exclusive basis in any part of Nigeria; the prescribed form and pay the conversion fees. The MCO will • an exploration licence for carrying out exploration activities on either grant or deny the application within 45 days from the date an exclusive basis within an area not exceeding 200km²; of the application. • a mining lease for carrying out mining activities on an exclusive basis within an area not exceeding 50km²; • a small-scale mining lease, for carrying out small-scale mining 11 What is the regime for the renewal and transfer of mineral licences? within an area not exceeding 3km²; Renewal • a quarry lease for carrying out quarry activities within an area The holder of a mineral title licence may apply to the MCO for a not exceeding 3km²; and renewal of the licence. • a water use permit for the right to obtain and use water for Where an application for the renewal of a subsisting licence is exploration and mining operations. made, the licence shall remain in force until a new date is issued or the application for renewal is refused. Mining titles are granted on a first come, first served basis and, in Where an application for a renewal is to be denied, the minister some cases, may be granted further to a competitive bid. The holder must give the applicant notice of intention to deny the renewal, cit- of an exploration licence has the exclusive right to apply for one or ing reasons and inviting the applicant to take appropriate remedial more mining leases or small-scale mining leases in respect of any measures or to present a documented statement in defence of the part of its exploration area. Reconnaissance permits do not confer a default. preferential right to acquire a mining lease. A lease renewal applicant who is unsatisfied with the denial may Holders of mining titles are under an obligation to comply with appeal to the Minister in writing and if unsatisfied with the outcome all applicable legislation, regulations and conditions imposed on the of the appeal, approach the Federal High Court. title. In particular they must: • carry on exploration or mining operations in a safe and skilful Transfer manner and take all due precautions with regards to safety, envi- An application to transfer or assign any mineral title (excluding a ronmental degradation and pollution; reconnaissance permit) is made to the MCO upon the payment of • minimise and manage any environmental impact resulting from the processing fee. mining activities; Where an application for a transfer is denied, the MCO shall no • rehabilitate and reclaim all disturbed land to its natural or pre- later than 30 days from the date of application for transfer notify the determined state or to such state as the Act or regulations may applicant of the denial in writing. specify; and An applicant may appeal at the Federal High Court within 60 • pay the rents and royalties that may become due. days of the receipt of the denial. The law prohibits the transfer of reconnaissance permits. The holder of a mining lease is also required to: The consent of the minister must be obtained to transfer a • submit and obtain approval to an environmental impact assess- licence. This consent is obtained in the form of an approval being ment (EIA) report and work programme in respect of proposed given to an application for a transfer. However, consent is not mining operations within three years from the date of issue of a required where the transfer is being made to an affiliate company mining lease, in the case of a mining lease for exploiting mineral and the parent company or assignor guarantees the performance of resources, or within two years in the case of a mining lease for obligations under the title by the affiliate. exploiting mineral water; An application for transfer including details of the assignment • commence mine development within 36 months of the date of or transfer (instrument of transfer), terms and conditions of the obtaining approval to the EIA and the work programme in the transfer, acceptance of transfer or assignment attestation by trans- case of a mining lease for exploiting mineral resources, or within feree, payment of mineral title transfer fees and any other informa- 12 months in the case of a mining lease for exploiting mineral tion requested for by the MCO must be submitted in triplicate to water; obtain approval. www.gettingthedealthrough.com 129 NIGERIA AE´LEX

12 Is there any distinction in law or practice between the mining 15 Does the government or do state agencies have the right to rights that may be acquired by domestic parties and those that participate in mining projects? Is there a local listing requirement may be acquired by foreign parties? for the project company? Only Nigerian citizens, companies incorporated in Nigeria and min- The Nigerian Minerals and Mining Act 2011 and the Nigerian ing cooperatives registered in Nigeria are eligible to hold mining Minerals and Mining Regulations 2011 do not exclude the govern- titles. A foreign party that intends to acquire a title must incorporate ment or state agencies from participation in mining projects. a company in Nigeria for this purpose. Companies may be 100 per The federal government engages in mining projects through the cent foreign-owned and there is no distinction in law or in practice Nigerian Mining Corporation, a corporation established by law to between the mining titles that may be acquired by a 100 per cent engage in the mining and refining of minerals. foreign-owned company and the mining titles that may be acquired by a 100 per cent Nigerian-owned company. 16 Are there provisions in law dealing with government expropriation of licences? What are the compensation provisions? 13 How are mining rights protected? Are foreign arbitration awards Licences would be expropriated where the licence holders have in respect of domestic mining disputes freely enforceable in your breached applicable regulatory provisions. In such instance, licence jurisdiction? holders are not entitled to compensation. The Act provides clear rules and grounds for the suspension and revocation of mineral titles. Prior to suspension or revocation, the 17 Are any areas designated as protected areas within your affected mineral title holder must be notified of the impending sus- jurisdiction and which are off-limits or specially regulated? pension or revocation together with the grounds thereof and given a period of 30 days to remedy the breach or remove the grounds Exploration and mining is prohibited in the following areas: for suspension or revocation. • land set aside for military purposes; The rights granted to a mineral title holder under the Act are • land within 50 metres of any oil pipeline licence area, rail- protected by the judicial system, which is independent of the exec- way, public road, reservoir, dam and government or public utive and the legislature. The Federal High Court has jurisdiction buildings; in respect of all matters relating to mines and minerals, although • land occupied by a town, village, market or cemetery; investment disputes between a mineral title holder and the gov- • ancestral, sacred or archaeological sites; ernment may be referred to arbitration under the UNCITRAL • land subject to the provisions of the National Commission for Arbitration Rules. All other disputes may be referred to the Federal Museums and Monuments Act (Chapter N19, LFN 2004) and High Court. national parks; Nigeria is a signatory to the Multilateral Investment Guarantee • land upon which a mineral title has already been granted and is Agency Convention, the Convention on the Recognition and subsisting; and Enforcement of Foreign Arbitral Awards and the Treaty on the • any area designated as closed to mining operations. International Centre for the Settlement of Investment Disputes, which confer an obligation on domestic courts to recognise and Duties, royalties and taxes enforce foreign arbitral awards. 18 What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these revenue-based or profit- 14 What surface rights may private parties acquire? How are these based? rights acquired? Companies engaged in mining activities are liable to pay a corporate Mining titles in Nigeria confer both mineral and surface rights on tax of 30 per cent and an education tax of 2 per cent of their tax- their holders. able profits. A value added tax of 5 per cent is payable in respect The Land Use Act vests all land within the territory of a state of taxable goods and services. Certain goods and services including in the state governor. Private parties may only acquire a right of exports are, however, exempted from VAT. occupancy (which is akin to a leasehold interest). A requirement Minerals obtained in the course of mining or exploration are of land for mining purposes is regarded as a priority land use and subject to the payment of royalty at 3 to 5 per cent of the value of a matter of overriding public interest. A governor may therefore the minerals. The minister may waive payment of royalty for any revoke an existing right of occupancy where any land within the mineral exported solely for the purpose of analysis or experiment or state is required for mining purposes. This power is required to be as a scientific specimen. Also, the minister may, upon the approval of exercised within 60 days after the grant of a mining lease. the Federal Executive Council, defer payment of any royalty on any The consent of the landowner must be obtained before a min- mineral for a specified period. ing title can be granted over an area of land that is occupied under Stamp duties are payable on all dutiable transactions and docu- a right of occupancy. In the event that consent is not obtained, the ments. Stamp duties may also apply on registrable agreements. mining title area will exclude the land in question. Annual service fees are payable in respect of all mineral titles on Subject to the payment of compensation and surface rent, a the anniversary of the issuance of the mining title. In addition to this, mining lessee enjoys the following surface rights: the right to obtain the holder of a mining lease is required to pay surface rent at a yearly access to and enter the mining lease area; to exclusively use, occupy rate to be determined by the minister with respect to lands used by and carry out mineral exploitation on the land; to use water and it for mining operations. wood and other construction materials as may be necessary; and to grow plants or keep animals for use by its employees. 19 What tax advantages and incentives are available to private The holder of an exploration licence can enter the licence area to parties carrying on mining activities? carry out exploration activities and erect such plants and machinery as may be necessary. However, where any land within the area is The holder of a mineral title enjoys the following incentives: subject to a right of occupancy, he or she must give prior notice to • a tax holiday for the first three years of operation, which period the lawful occupier and the local government chairman of the area may be extended for another two years; where the land is located and pay compensation for damages caused. • capital allowance of 95 per cent of qualifying capital expenditure incurred on exploration, development and processing;

130 Getting the Deal Through – Mining 2014 AE´LEX NIGERIA

• annual indexation of the unclaimed balance of capital expendi- countries ‘fair and equitable treatment’ and ‘full protection and ture by 5 per cent (only applicable to mines that commence security’. production within five years of enactment of the Act); Nigeria has also entered into double taxation treaties with • carrying forward of losses; Belgium, Canada, China, the Czech Republic, France, Italy, the • exemption from customs and import duties on approved plants Netherlands, Pakistan, the Philippines, Romania, Slovakia, South and machinery, equipment and accessories imported specifically Africa and the United Kingdom. and exclusively for mining operations; • expatriate quota and resident permit in respect of the approved Financing expatriate personnel; • personal remittance quota for expatriate personnel for the 27 What are the principal sources of financing available to private transfer of external currency out of Nigeria; parties carrying on mining activities? What role does the domestic • free transferability of dividends or profits, payments in respect public securities market play in financing the mining industry? of servicing a foreign loan and remittance of foreign capital in The principal sources are equity and debt financing from local the event of sale or liquidation of mining operations in any and international lenders. Mining companies are now listed on the convertible currency; Nigerian Stock Exchange. • freedom from expropriation, nationalisation or acquisition by any government of the Federation unless the act is in the 28 Please describe the regime for taking security over mining interests. national interest or for a public purpose and under a law that makes provision for payment of fair and adequate compensa- Rights or interest in a mining title can be subleased, pledged, mort- tion and a right of access to the courts for the determination of gaged, charged, hypothecated or subjected to any security interest, the investors’ interest or right and the amount of compensation wholly or in part. to which he or she is entitled; and However, the transferor shall remain liable for the obligations • the right to a dispute settlement procedure under UNCITRAL under the title. He shall also be liable for actions arising out of Rules. securities made in respect of the title.

Restrictions 20 Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force? 29 What restrictions are imposed on the importation of machinery We are not aware of such regulatory provisions. and equipment or services required in connection with exploration and extraction? Generally, machinery and equipment imported into Nigeria must 21 Is the government entitled to a carried interest, or a free carried undergo inspection at the port of entry. interest in mining projects? As stated in question 19, machinery and equipment that are No. imported for mining operations are exempted from the payment of customs and import duties. A precondition to benefiting from this 22 Are there any transfer taxes or capital gains imposed regarding exemption is that the Mines Inspectorate Department must approve the transfer of licences? the machinery or equipment prior to its importation. Stamp duties and capital gains tax. 30 What restrictions are imposed on the processing, export or sale of minerals? Are there any export quotas, licensing or other 23 Is there any distinction between the duties, royalties and taxes mechanisms that prevent producers from freely exporting their payable by domestic parties and those payable by foreign parties? production? There is no distinction. The right of a holder of a mining lease to process, sell, export or otherwise dispose of mineral products resulting from mining opera- Business structures tions is subject to the payment of royalties on the minerals extracted. 24 What are the principal business structures used by private parties A mineral title holder who intends to export minerals must carrying on mining activities? register with the Nigerian Export Promotion Council, obtain an export clearance from the MMSD and comply with other custom The principal business structure used for mining activities is a requirements. Requirements for obtaining an export clearance limited liability company. Foreign companies are not permitted include evidence of payment of royalty and inspection by an officer to operate through a branch. They must seek incorporation as a of the MID of the minerals to be exported. separate entity in Nigeria.

31 What restrictions are imposed on the import of funds for 25 Is there a requirement that a local entity be a party to the exploration and extraction or the use of the proceeds from the transaction? export or sale of minerals? There is no requirement that a local entity must be a party to a Investors are required to import funds through an authorised dealer mining transaction. See question 12. (a bank or other corporate organisation appointed by the Central Bank of Nigeria) in the Autonomous Foreign Exchange Market 26 Are there jurisdictions with favourable bilateral investment treaties established by the Foreign Exchange (Monitoring and Miscellaneous or tax treaties with your jurisdiction through which foreign entities Provisions) Act (Chapter F34 LFN 2004). will commonly structure their operations in your jurisdiction? Dividends, profits or interest attributable to imported funds may Nigeria has entered into bilateral investment agreements with be unconditionally remitted through an authorised dealer only if the China, Egypt, India, Israel, Finland, France, Germany, Korea, the funds were imported through an authorised dealer and the investor Netherlands, Spain, Switzerland, Taiwan, Turkey, Uganda and the satisfies the documentary requirements. An investor may also remit United Kingdom. These agreements accord investors from these payments for servicing foreign loans, as well as proceeds and other www.gettingthedealthrough.com 131 NIGERIA AE´LEX obligations in the event of the sale or liquidation of the investment. The Act requires the Minister to establish an Environmental Access to foreign exchange is not tied to export performance. Protection and Rehabilitation Fund (EPRF) to guarantee the envi- Exporters of goods are required to open an export proceeds ronmental obligations of mineral title holders including obliga- domiciliary account with a Nigerian bank. All export proceeds must tions in relation to mine closure and remediation. Every mineral be repatriated and paid into this account within 90 days of the title holder is required to contribute to this fund in accordance shipment of the exported goods. with the amounts specified in its EPRP.

Environment Health & safety, and labour issues

32 What are the principal environmental laws applicable to the 35 What are the principal health and safety, and labour laws mining industry? What are the principal regulatory bodies that applicable to the mining industry? What are the principal administer those laws? regulatory bodies that administer those laws? The principal laws are the Mining Act, which is administered by Other than the laws stated in question 34, the principal laws that the MMSD; the National Environmental Standards and Regulations regulate health and safety and labour are the Labour Act, the Enforcement Agency (Establishment) Act, which is administered by Trade Disputes Act (Chapter T8 LFN 2004), the Trade Unions the National Environmental Standards and Regulations Enforcement Act (Chapter T14 LFN 2004) and the National Minimum Wage Agency; and the Environmental Impact Assessment (EIA) Act, which Act (Chapter N61 LFN 2004), all administered by the Ministry of is administered by the Federal Ministry of the Environment. Labour and Productivity; the Employees’ Compensation Act 2010, which is administered by the Nigerian Social Insurance Trust Fund; the Pension Reform Act Chapter (P4 LFN 2004), which is admin- 33 What is the environmental review and permitting process for a istered by the Pension Commission of Nigeria and the National mining project? How long does it normally take to obtain the Health Insurance Scheme Act (Chapter N42 LFN 2004), which necessary permits? is administered by the Governing Council of the National Health Every person embarking on a mining project must submit an EIA Insurance Scheme. report to the Ministry of Environment for approval. The minimum content of the report and the factors to be considered are specified in the EIA Act, the Sectoral Guidelines for Mining of Solid Minerals 36 What restrictions and limitations are imposed on the use of and the Minerals and Mining Regulations. After the report has been domestic and foreign employees in connection with mining submitted, the Ministry must invite comments from interested per- activities? sons. Where it is found that the project is likely to have a significant The Labour Act places some restrictions on the employment of adverse effect on the environment and this adverse effect cannot be women and persons under the age of 16 for underground work in a mitigated, or where public concern about the environment war- mine. The Labour Act also places certain restrictions on the engage- rants it, the project may be referred to mediation or a review panel. ment of women and persons under the age of 16 in night work. Thereafter a decision shall be taken as to whether or not the pro- Any company that intends to employ foreigners must obtain an ject will be permitted, either in part or in whole, or with or without ‘expatriate quota’ from the Ministry of the Interior. An expatriate conditions. quota permits a Nigerian company to employ a specified number of The approved EIA report and an environmental protection and non-Nigerians. rehabilitation programme (EPRP) must be submitted to the MECD prior to the commencement of operations or upon an application Social and community issues for extension of the term of a mineral title or upon its conversion. The environmental review process may take up to one year. 37 What are the principal community engagement or CSR (corporate social responsibility) laws applicable to the mining industry? What are the principal regulatory bodies that administer those laws? 34 What is the closure and remediation process for a mining The Mining Act requires holders of mining titles to conclude com- project? What performance bonds, guarantees and other financial munity development agreements (CDAs) with their host com- assurances are required? munities prior to the commencement of mine development and The EPRP to be submitted to the MECD should provide for spe- extraction. A CDA must contain undertakings with respect to the cific reclamation and rehabilitation actions, the estimated cost of social and economic contributions that the project will make to the rehabilitation and a timetable for rehabilitation. The EPRP must be sustainability of the community, such as educational scholarships, approved by the MECD. employment opportunities, contributions to infrastructural develop- A title holder that intends to abandon or permanently cease pro- ment, maintenance, monitoring and consultative frameworks. The duction from a lease area must give three months’ notice in writ- Regulations also require title holders to submit to the Ministry on ing of its intention to the MID, the MECD and the the MCO. The an annual basis, a progress report on the Community Development notification shall be accompanied by a report outlining details of Agreement with the host community, which should include a fair the intended abandonment and the reasons thereof together with a and honest assessment of the projects pursued in the Community, plan showing the workings of the mine up to the time of the notice. the achievements recorded and the constraints. Upon receipt of the notice, the relevant department shall make recommendations to the Minister with regards to the abandonment plan and the Minister shall, within 10 days of receiving the notice, 38 How do the rights of aboriginal, indigenous or currently or cause the matter to be investigated. If the Minister is satisfied with previously disadvantaged peoples affect the acquisition or the findings of the investigation, the abandonment will be approved exercise of mining rights? and the title holder shall be required to: The Mining Act recognises that it may be the custom of some com- • securely seal, fence or cover every mine shaft and undertake a munities to win salt, soda, potash or galena from certain areas. It safety audit; preserves the right of such communities to continue to win these • make safe all tailings and water retention areas; and minerals where such custom existed prior to the commencement of • demolish, fence or lock potentially hazardous buildings, struc- the Act. It further provides that where the right of such communities tures, plants and equipment. to win minerals is lost as a result of the grant of a mining lease to a

132 Getting the Deal Through – Mining 2014 AE´LEX NIGERIA third party, the holder of the mining lease must pay compensation to the members of the community for the loss of this right. Update and trends Lawful occupiers of any land subject to a mining title are entitled to compensation for any disturbance to their surface rights The government has recently commenced the reclamation and and for any damage done on the land, including damage to crops, privatisation of abandoned or inoperative mining sites across economic trees and buildings. Failure to pay compensation may the country. This will encourage foreign direct investment in the country with a move away from small artisanal mining and result in the suspension and eventual revocation of the mining title if its attending health, safety and environmental challenges, to the failure continues. Lawful occupiers are also entitled to payment mechanised mining. of compensation where their land has been compulsorily acquired Kogi Iron, an ASX listed company based in Perth, Australia, for mining purposes. commenced the development of an iron ore project located on the Agbaja plateau in Kogi State of Nigeria with a projection of five An applicant for a mining title may be required to provide secu- million tonnes of iron-ore per annum, an internal rate of return of rity for the payment of compensation in the form of a deposit or to 23.7 per cent and a pre-tax net present value of US$420 million. reimburse the federal government for any compensation paid to any The Abaja plateau project is uniquely positioned in close state government or lawful occupier in respect of the acquisition of proximity to the existing but underutilised Niger River and port any land subject to a mining title. infrastructure. The project will utilise the neighbouring river for transportation of iron ore concentrate by vessels for international The lawful occupier of any land within an area subject to a export. This would positively increase marine transportation in the mining lease retains the right to graze livestock upon and to culti- region and open up trade and investment in infrastructure projects vate the surface of the land insofar as the grazing or cultivation does by the government and interested stakeholders. not interfere with mining operations in the area.

Principles and Policies for the Mining Sector directive. The direc- 39 What international treaties, conventions or protocols relating to tive was issued to precede the introduction of a common mining CSR issues are applicable in your jurisdiction? policy and mining code for the West African subregion by the end Nigeria is not a signatory to any treaty, convention or protocol relat- of 2012. Its purpose is to provide guiding principles and policies for ing to CSR. It is, however, a signatory to several treaties, conventions the mining sector of member states to ensure that high standards and protocols relating to human rights and environmental damage are achieved in terms of sustainability, accountability, promotion of or degradation from which CSR issues may be inferred. human rights, transparency, social equity and environmental protection The directive also seeks to strike a balance between the need to Foreign investment attract investors with fiscal incentives and to maintain the industry and its resources as a viable source of revenue for the government. 40 Are there any foreign ownership restrictions in your jurisdiction Nigeria is also a party to several treaties and international relevant to the mining industry? agreements that aim to protect foreign investment. These include Foreign ownership is not restricted. However, such ownership must the Multilateral Investment Guarantee Agency Convention; the be through a company incorporated in Nigeria. See questions 12 Convention on the Recognition and Enforcement of Foreign and 25. Arbitral Awards; the Treaty on the International Centre for the Settlement of Investment Disputes; and bilateral investment agree- International treaties ments with China, Egypt, Finland, France, Germany, Korea, the Netherlands, Spain, Switzerland, Taiwan, Turkey, Uganda and the 41 What international treaties apply to the mining industry or an United Kingdom. investment in the mining industry? Nigeria is a member of the Economic Community of West African States, which recently issued the Harmonisation of Guiding

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www.gettingthedealthrough.com 133 PAPUA NEW GUINEA Gadens Papua New Guinea

Kym Livesley and Stephen Massa Gadens

Mining industry MDC be entered into. All major mining projects have been the subject of an MDC. 1 What is the nature and importance of the mining industry in Previously these were enacted as Acts of the National Parliament your country? (for example, the Mining (Ok Tedi Agreement) Act) but this practice The country is located to the immediate north of Australia in the has been discontinued. The national government recently entered Pacific Ring of Fire. It is highly prospective for copper, gold and zinc. into an MDC in respect of the Ramu Nickel project. This agreement Papua New Guinea is host to some world-class gold and copper contained special tax incentives and dealt with other issues relevant mines, including the Porgera gold mine, the Ok Tedi copper mine to the development. and the Lihir Island gold mine. Papua New Guinea is currently host The Mining Act 1992 is currently under review, and substantial to eight major operational mines (Lihir Island, Hidden Valley, Ok changes to the licensing regime are being considered. The review, Tedi, Porgera, Ramu Nickel, Simberi, Sinivit and Tolukuma) with which is being funded by the World Bank, is to commence a wide an additional mine, Solwara 1, currently in construction. Of these, consultative process in May 2009. Although the consultation pro- the Porgera gold mine, the Ok Tedi copper mine and the Lihir Island cess has concluded, no steps have yet been taken to introduce the gold mine exported a total of 163.8 tonnes of gold between 2004 new Act. and 2006. In the same period Ok Tedi Mining Ltd exported more than 510,000 tonnes of copper. 6 What are the principal laws that regulate the mining industry? What are the principal regulatory bodies that administer those 2 What are the target minerals? laws? Papua New Guinea’s principal mineral exports are gold, silver and The principal law is the Mining Act. Also relevant is the Environment copper, although more recently a wider range of minerals have been Act 2000. The Companies Act 1997 regulates the incorporation and targeted including chromite, nickel, iron, platinum-group metals and operation of companies. industrial minerals. The Mineral Resources Authority was established in 2006 as a statutory authority to promote, manage and regulate the mining industry. It replaced the Department of Mining, which is now 3 Which regions are most active? responsible solely for policy development. The Mining Advisory There are operating and developing mines spread fairly evenly Council makes recommendations to the Minister in relation to across Papua New Guinea. There is even a proposed deep-sea grants and renewal of licences and related issues. mining project in development offshore of Papua New Guinea, in the Bismarck Sea. 7 What classification system does the mining industry use for Legal and regulatory structure reporting mineral resources and mineral reserves? The Australasian Joint Ore Reserves Committee (JORC) Code is 4 Is the legal system civil or common law-based? used in Papua New Guinea for public reporting purposes. Papua New Guinea has a common law legal system. Laws affecting mining are made by the National Parliament, a single-chamber, Mining rights and title democratically elected legislature of 111 members elected from single-member constituencies with some regional seats. The decisions 8 To what extent does the state control mining rights in your of the courts (the National Court and the Supreme Court) interpret jurisdiction? Can those rights be granted to private parties and the law. The judiciary is independent and adheres to the rule of law to what extent will they have title to minerals in the ground? and due process. There are 22 provincial governments (including the Are there large areas where the mining rights are held privately National Capital District) with limited legislative powers. Provincial or which belong to the owner of the surface rights? Is there a governments, other than the Autonomous Bougainville government, separate legal regime or process for third parties to obtain mining do not have power to enact laws in relation to mining. rights in those areas? The state owns all minerals on or below the surface of the land in Papua New Guinea, including all minerals contained in any water 5 How is the mining industry regulated? lying on any land in Papua New Guinea. As the owner of all miner- Mining is regulated at the national level. The principal Act is the als, the state has absolute control of the mining rights and exercises Mining Act 1992 and regulations made under that Act. Under the these rights through the Mining Act. Third parties can be granted Mining Act, the state may enter into a mining development contract rights to explore and produce minerals through the system of ten- (MDC), consistent with the Act, to regulate a mining development. ements established under the Mining Act. All minerals lawfully The Minister may, in the case of a major project, require that an mined under a mining lease or a special mining lease (tenements that

134 Getting the Deal Through – Mining 2014 Gadens PAPUA NEW GUINEA grant rights to produce minerals) are owned by the holder of the 12 Is there any distinction in law or practice between the mining mining lease or special mining lease. rights that may be acquired by domestic parties and those that Papua New Guinea’s citizens may also obtain alluvial mining may be acquired by foreign parties? leases for surface rights on their traditional land. Applications are Only citizens or citizen-controlled companies may acquire rights to dealt with in order of receipt. alluvial mining. Otherwise there is no distinction between domestic or foreign applicants, either in law or in practice. 9 What information and data is publicly available to private parties that wish to engage in exploration and other mining activities? Is 13 How are mining rights protected? Are foreign arbitration awards in there an agency which collects mineral assessment reports from respect of domestic mining disputes freely enforceable in private parties? Must private parties file mineral assessment your jurisdiction? reports? Does the agency or the government conduct geoscience There is an independent judicial system that adheres to the rule of surveys, which become part of the database? Is the database law and due process. This system is established under and protected available online? by the Constitution. As noted in question 5, projects will typically A database of geoscientific information concerning Papua New have the benefit of an MDC with the state. An MDC generally Guinea’s mineral and geological resources is available to the public. sets out the agreed development of the project and may include infrastructure, financial or economic considerations relevant to the project. 10 What mining rights may private parties acquire? How are these Papua New Guinea is not a party to the New York Convention, acquired? What obligations does the rights holder have? If however, there is an Arbitration Act that regulates arbitration in Papua exploration or reconnaissance licences are granted, does such New Guinea. Papua New Guinea is a party to the Convention on the tenure give the holder an automatic or preferential right to acquire Settlement of Investment Disputes Between States and Nationals of a mining licence? What are the requirements to convert to a Other States under which the International Centre for Settlement of mining licence? International Disputes was established. In agreements with foreign Mining rights are basically rights to explore (exploration licences) developers, the government generally adopts the Arbitration Rules and to develop resources once discovered (special mining lease of the United Nations Commission on International Trade Law. for major projects, mining lease for smaller projects). Papua New Guinea’s citizens may also obtain alluvial mining leases for surface rights on their traditional land. Applications are dealt with in order 14 What surface rights may private parties acquire? How are these of receipt. rights acquired? The holder of an exploration licence is required to spend a The holder of an exploration licence has the right to enter and prescribed minimum amount on exploration in the licence area. occupy the land subject to the licence for the purposes of conducting Applications are considered by the Mining Advisory Council, which exploration for minerals on that land, to remove rock and overbur- is required to consider whether the proposed work programme is den, and divert or use water resources for exploration purposes. adequate and whether the applicant has the financial and technical The holder of a mining lease or a special mining lease has the resources to carry out the proposed programme. sole right to enter and occupy the land which is the subject of the The Mining Act gives preference to holders of exploration licence for the purposes of mining, and treating all minerals mined licences applying for mining licences in respect of the land the sub- from that land and related activities including tailings disposal, ject of an exploration licence. However, any person may apply for erection of accommodation, support services, etc. a mining licence in respect of land that is not already the subject of The holder of a mining lease or a special mining lease owns all a mining tenement. minerals lawfully mined on the land the subject of the licence. Generally, applicants for a mining lease will have an identified mineral resource. Applications for a mining licence are in a prescribed form and include details of the proposed tenement 15 Does the government or do state agencies have the right to boundaries and the applicants proposals in respect of the mining participate in mining projects? Is there a local listing requirement operations to be undertaken in connection with the tenement. for the project company? The state has a right, but not an obligation, to acquire, directly or through a nominee, up to a 30 per cent participating interest in any 11 What is the regime for the renewal and transfer of mineral mineral discovery made during the exploration phase. There is no licences? local listing requirement for mining projects. In respect of a renewal of a mineral licence, the licence holder is required to apply to the department in accordance with a prescribed form. An application fee will also be payable. The Minister, subject 16 Are there provisions in law dealing with government expropriation to the advice from the Mining Advisory Council, has discretion as of licences? What are the compensation provisions? to whether to renew the application or refuse the application. For The Constitution of Papua New Guinea provides that no property exploration licences, compulsory relinquishment of part of the ten- may be compulsorily acquired by the state unless it is in accord- ement may apply to a licence renewal. ance with a law, for a public purpose or is reasonably required in Generally speaking, the holder of a mineral licence may apply a democratic society and just compensation is subsequently paid. for a transfer of a mineral licence, or an interest in it, to a third party. In addition, where the proponent of the mining project is a for- The Minister has discretion as to whether to approve or refuse the eign investor, section 37 of the Investment Promotion Act prohibits transfer. In approving a transfer, the Minister has the power to vary expropriation, unless it is in accordance with the law, for a public the applicable licence conditions. Once a transfer has been approved, purpose and compensation is paid. it must then be registered to be effective. There is a general restriction, with some exceptions, prohibiting dealings with an exploration licence during its first two years.

www.gettingthedealthrough.com 135 PAPUA NEW GUINEA Gadens

17 Are any areas designated as protected areas within your 23 Is there any distinction between the duties, royalties and taxes jurisdiction and which are off-limits or specially regulated? payable by domestic parties and those payable by foreign parties? No. The Minister for Mining may, however, by notice in the National See above. A basic tax rate of 40 per cent applies to non-residents’ Gazette, reserve land from exploration, mining or non-mechanised income from mining sources as against 30 per cent for resident min- mining where the Minister considers such a reservation to be in the ers and 10 per cent dividend withholding tax (DWT) for mining best interests of the state. companies. A resident is broadly a company incorporated in or managed and controlled in Papua New Guinea. Duties, royalties and taxes Business structures 18 What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these revenue-based or profit- 24 What are the principal business structures used by private parties based? carrying on mining activities? A royalty of 2 per cent is payable on gross revenue from resource All business structures are available. Because projects are ring-fenced sales. Tax is imposed on a project basis (ie, ring-fenced). The basic for tax purposes, preference is often given to a locally incorporated tax rate is 30 per cent for income from mining for residents and 40 subsidiary to undertake development of a resource project. If devel- per cent for non-residents. Resident companies are liable to divi- oped by more than one party the usual vehicle is an unincorporated dend withholding tax of 17 per cent on dividends, reduced to 10 per joint venture. cent for dividends out of mining income. Special provisions apply to certain types of deductions. Interest paid to non-resident lenders 25 Is there a requirement that a local entity be a party to the by mining companies is not subject to interest withholding tax. transaction? Additional profits tax does not apply to mining projects, but can apply to designated gas projects. There is no obligation to partner with a local entity. However, the state is entitled to enter into an agreement with a mining company in relation to the development of a mine and may under that agree- 19 What tax advantages and incentives are available to private ment acquire a participating interest in that mining development. parties carrying on mining activities? See also question 15. These may be negotiated on a project-by-project basis. Recent projects have received tax holidays, exemptions from import duties 26 Are there jurisdictions with favourable bilateral investment treaties and other tax concessions. The mining sector enjoys the benefit of or tax treaties with your jurisdiction through which foreign entities special provisions granting allowable deductions for exploration will commonly structure their operations in your jurisdiction? and capex. The Papua New Guinea government has concluded nine bilateral tax treaties, called double tax agreements or DTAs. Papua New 20 Does any legislation provide for tax stabilisation or are there tax Guinea has concluded a DTA with each of the following coun- stabilisation agreements in force? tries: Canada, Australia, Singapore, the United Kingdom, Malaysia, Yes. The Resource Contracts Fiscal Stabilization Act 2000 provides China, Germany, Korea and Fiji. for the state and project developer to enter into an agreement for The DTAs apply to income taxes and other like taxes, such as the fiscal stability of all applicable taxes, duties, fees and other fiscal salary and wage taxes, but do not apply to goods and services tax. imposts. Fiscal stabilisation is available in respect of a mining project The DTAs also contain a range of rules as to how income or pay- for which a mining development contact has been executed. ments derived by residents of the respective treaty partner countries Under the Income Tax, Dividend (Withholding) Tax and Interest are to be treated. In the business context, they generally provide that (Withholding) Tax Rates Act (chapter 111), if a taxpayer is subject income derived by a resident entity of one country, from sources in to fiscal stabilisation under the Stabilization Act, an additional 2 per the other country, will not be taxable in that other country unless cent of income tax will be payable in addition to the rate of income the entity is considered to be operating through a permanent estab- tax otherwise payable by the taxpayer. lishment (or branch) in that other country. The general rule is then subject to a number of important conditions and exceptions.

21 Is the government entitled to a carried interest, or a free carried Financing interest in mining projects? The state is effectively carried until such time as the state elects to 27 What are the principal sources of financing available to private participate or not in a mining project. Where the state elects to parties carrying on mining activities? What role does the domestic participate, the consideration payable by the state is a percentage public securities market play in financing the mining industry? of the un-recouped sunk costs attributable to the licence holder’s Mining projects are by nature capital-intensive. Most major resource interest in the mining project equal to the percentage participating projects in Papua New Guinea involve substantial capital investment interest in the project being acquired by the state. See also ques- and in most cases even the most basic infrastructure has to be built tion 15. or provided by the developer. Construction costs in remote Papua New Guinea are significant. Offshore project finance is available but 22 Are there any transfer taxes or capital gains imposed regarding usually linked to a sponsor’s credit rating. A premium for political the transfer of licences? risk insurance will usually apply. The Australian public capital markets are used to raise limited amounts of funding for exploration in Stamp duty is imposed at a rate of 2 per cent in respect of the trans- Papua New Guinea. While there is a Port Moresby Stock Exchange, fer of a mining lease, while the transfer of a mineral exploration it is relatively undeveloped at this stage as a source of risk capital. licence or the transfer of exploration information may qualify for Special provisions apply to the insurance sector. Waivers are required concessional duty of 10,000 kina. There is no capital gains tax in in certain cases when risk is to be placed offshore and not offered to Papua New Guinea. the local market first. Thin capitalisation rules (a 3:1 debt to equity ratio) apply to restrict taxation deductions for interest payments.

136 Getting the Deal Through – Mining 2014 Gadens PAPUA NEW GUINEA

28 Please describe the regime for taking security over mining interests. 34 What is the closure and remediation process for a mining The Mining Act provides that, subject to compliance with the terms project? What performance bonds, guarantees and other financial of the Act, which are principally approval and registration, a legal or assurances are required? equitable interest in a tenement may be sold, transferred, mortgaged, This matter is not dealt with under the current Mining Act. Detailed charged or otherwise encumbered. proposals are to be introduced into the new mining act, which is In addition, a new security regime, the Personal Property Security currently being developed. Mine-closure obligations have in the past Act 2011 (PPSA) has been legislated for, but has not yet commenced. been dealt with on an ad hoc basis. The new proposals will require The PPSA will (when it commences) change Papua New Guinea’s the lodgement of funds into a mine-closure fund (or the provision established common law principles regarding ownership of personal of a bond or guarantee to fund), which will cover 100 per cent of property. While most mining tenements will fall outside the scope mine-closure costs at least six years prior to mine closure. All proof the PPSA, interests arising under joint-venture agreements, joint jects will need to develop, and continually update, a mine-closure operating agreements, shareholders agreements, farm-in arrange- plan. A conceptual mine-closure plan will need to be lodged with the ments and royalty streams (to name a few) will require registration initial application for development approval. Developers will also be on the Personal Property Securities register. required to establish and fund a socio-economic development plan, a future generations trust and a public infrastructure services trust. Restrictions Health & safety, and labour issues 29 What restrictions are imposed on the importation of machinery and equipment or services required in connection with exploration 35 What are the principal health and safety, and labour laws and extraction? applicable to the mining industry? What are the principal There are no such restrictions. regulatory bodies that administer those laws? The Mining (Safety) Act and the regulations made under it regulate health and safety in the mining industry in Papua New Guinea. 30 What restrictions are imposed on the processing, export or sale of The Mining (Safety) Act and its regulations are administered by the minerals? Are there any export quotas, licensing or other mechanisms Mineral Resources Authority. that prevent producers from freely exporting their production? There are no general restrictions or limitations on processing or export of minerals. When negotiating an MDC, some discussion 36 What restrictions and limitations are imposed on the use of domestic may be had about some processing being done in-country, although and foreign employees in connection with mining activities? this has never been made a requirement of the grant of any licence. Non-citizens require a work permit and a visa. Preference must be given to employees recruited in the area of the development, and secondly to citizens. 31 What restrictions are imposed on the import of funds for exploration and extraction or the use of the proceeds from the Social and community issues export or sale of minerals? The Bank of Papua New Guinea (the central bank) administers 37 What are the principal community engagement or CSR (corporate limited exchange controls. Approval is still required by resident social responsibility) laws applicable to the mining industry? What mining companies to open and maintain offshore bank accounts are the principal regulatory bodies that administer those laws? and to give guarantees in certain circumstances. There are report- See question 38. ing requirements in respect of movement of funds. Remission of funds offshore in excess of 200,000 kina requires a taxation clearance certificate. There are a number of scheduled tax haven coun- 38 How do the rights of aboriginal, indigenous or currently or tries where any remission of funds needs clearance. previously disadvantaged peoples affect the acquisition or exercise of mining rights? Environment Landowner issues are an important consideration in any proposal to undertake resource development in Papua New Guinea. Very little 32 What are the principal environmental laws applicable to the land is alienated or the subject of registered title and most of this is mining industry? What are the principal regulatory bodies that urban leasehold. The bulk of land is traditionally owned, and often administer those laws? disputed between tribes. Potential developers must be careful to Applications for development approval to undertake mining oper- ensure that proposed developments have the support of traditional ations that might have an adverse impact on the environment are landowners, and that appropriate compensation and benefit pack- required to prepare and lodge an environmental impact statement ages are negotiated. Business development opportunities for local with the Department of Environment and Conservation under the landowners should also be a key objective. Environment Act 2000. A development forum process, whereby all relevant stakehold- The director of environment must assess and either accept that ers (including landowners, provincial government and the national statement or refer it to the Environment Council. There is a period of government) discuss and agree on key issues for the development public consultation on the proposals. If the Environment Council is of a resource project has been developed in conjunction with the satisfied as to certain matters it can recommend to the Minister that he negotiation of an MDC, which is required to obtain a special min- or she approve the activities described in the development proposal. ing lease. The purpose of the development forum is to negotiate a memorandum of agreement, which includes important clauses on benefit sharing. 33 What is the environmental review and permitting process for a mining project? How long does it normally take to obtain the necessary permits? 39 What international treaties, conventions or protocols relating to See question 32. Applications can take up to six months, although CSR issues are applicable in your jurisdiction? for a non-controversial application a more likely time frame is three None. to four months. www.gettingthedealthrough.com 137 PAPUA NEW GUINEA Gadens

Foreign investment Update and trends 40 Are there any foreign ownership restrictions in your jurisdiction relevant to the mining industry? The current O’Neill government appears committed to a path of Although there are no foreign ownership restrictions, there are the state increasing its investment in the resources sector. It entitlements in respect of state participation in mining projects has increased its equity in the Ok Tedi mine and acquired equity in Oilsearch, both acquisitions being made outside the current (see questions 15 and 21). In addition, alluvial mining activities are statutory regime, allowing Papua New Guinea to acquire a 30 per restricted to citizens. cent stake in mining projects. Some concerns have been raised Foreign investors are required to be certified by the Investment that this may have adverse implications for foreign investment. Promotion Authority in accordance with the Investment Promotion Despite the initiative taken by the state regarding Ok Tedi, Act 1992 before carrying on business in Papua New Guinea. Australian mid-tier miner, PanAust, entered into an agreement to acquire the Glencore/Xstrata interests in the Frieda River copper/ gold prospect, considered a world class deposit – this was seen as International treaties a continued vote of confidence in Papua New Guinea. In 2013 a Tax Review Committee was established to 41 What international treaties apply to the mining industry or an comprehensively review Papua New Guinea’s revenue regime. The investment in the mining industry? first paper issued is on the mining (and petroleum) fiscal regime and is seeking stakeholder comment. The purpose is to ensure Papua New Guinea is a party to a number of investment protection PNG’s tax system is modern, robust and able to support the agreements with various states, and a number of double tax agree- country’s economic and social development objectives. ments. It is also a party to international conventions on the sale In 2014 we expect the current downturn in commodity prices of goods and settlement of international disputes. There are no to continue forcing producers to become more efficient, optimise their operations and drive down production costs. particular international treaties applicable to the mining industry.

Kym Livesley [email protected] Stephen Massa [email protected]

Level 5 Tel: +675 308 4600 BSP Haus, Harbour City Fax: +675 308 4699 Konedobu www.gadens.com Port Moresby NCD 121 Papua New Guinea

138 Getting the Deal Through – Mining 2014 Rubio Leguia Normand PERU Peru

Emil Ruppert Rubio Leguia Normand

Mining industry Legal and regulatory structure

1 What is the nature and importance of the mining industry in 4 Is the legal system civil or common law-based? your country? The Republic of Peru is a unitary state under the civil law system. Peru is a country widely recognised for its natural resources. Mineral However, in accordance with the Natural Resources chapter of the resources and the mining industry have historically been one of the Peruvian Constitution, mineral resources are the property of the main sources of economic development in Peru, given the coun- nation and the Peruvian state is sovereign in their administration. try’s ever expanding mineral potential. Therefore, providing a legal The government may establish by law the conditions for granting framework that promotes local and foreign investment in the mining exploitation rights and titles to individuals and legal entities. sector and creating regulations that facilitate participation has been a long-term priority in the national agenda. 5 How is the mining industry regulated? In 2013, Peru occupied a leading position in the global production of mineral commodities. Peru was the third-largest producer of The Peruvian territory is divided into regions, provinces and dis- copper, silver, zinc and tin, the fourth of lead and the sixth of gold. In tricts, within which jurisdictions the unitary government is executed Latin America, Peru is first in the production of bismuth, gold, lead, in a decentralised and non-concentrated manner. There are three tin, and zinc, and second in the production of silver, copper, molyb- layers of administrative authorities: central government; regional denum and selenium. In addition, Peru holds first place for global governments; and local governments. Regional and local govern- silver reserves, second place for copper, third place for tin and fourth ments have law-making powers as well as political, economic and place for lead (source: US Geological Survey). Peru’s mining industry administrative independence within their territorial jurisdiction. contributes almost 60 per cent of Peru’s total exports. Moreover, The main provisions regarding the execution and development recent economic studies reveal that the mining industry accounts for of mining activities in Peru are established in the Single Revised Text almost one-third of GDP. of the General Mining Law approved by Supreme Decree 014-92- Investments in the Peruvian mining sector during 2013 increased EM (General Mining Law). The mining industry is divided into by 15 per cent and amounted to US$9.7 billion. The country has 13 four segments according to production and beneficiation capacity. mine projects that have approved environmental impact studies Mining rights for the medium- and large-scale segments of the (EIA) and are under construction. A total investment of US$18 industry are granted through a system that is administered by cen- billion had been committed for these projects and the major min- tral government. Mining rights for the small-scale and artisanal ing companies involved are the subsidiaries of Anglo American segments are granted through systems that are administered by plc, Xstrata plc, China Minmetals Corp. and Aluminium Corp of each region. Therefore, the mining industry is regulated by both China Ltd. Furthermore, eight operating mines are in the process central government and regional governments. of expanding, and a total investment of US$9.3 billion has been committed for these expansions of existing operations. 6 What are the principal laws that regulate the mining industry? Today, Peru can claim to have several of the most productive What are the principal regulatory bodies that administer those and modern mines in the world, and yet still has an enormous laws? potential for growth. Recently, new mines have entered into produc- The principal laws that regulate mining activities are: tion and existing mines have increased their exports of minerals. • the Peruvian Constitution, enacted in 1993; • the Foreign Investment Promotion Law, Legislative Decree 662; 2 What are the target minerals? • the Framework Law for the Growth of Private Investment, The most important target minerals within the metallic minerals are Legislative Decree 757; gold, silver, copper, lead, zinc and tin. • the Organic Law of Sustainable Use of Natural Resources, Law 26,821; • the General Mining Law, Single Revised Text approved by 3 Which regions are most active? Supreme Decree 014-92-EM; The most active region is Apurimac, with investments of US$1.7 • the Regulations for the General Mining Law, Supreme Decree billion, 65.4 per cent more than the previous year (US$1 billion), 03-94-EM; followed by Junín and Arequipa, which recorded investments of • the Regulations for Mining Procedures, approved by Supreme US$4.5 billion, representing a increase of 80 per cent in relation to Decree 018-92-EM; the previous year (US$2.5 billion). The fourth most active mining • the Regulations on Mining Safety and Occupational Health, region is Cusco, followed by Ancash and La Libertad. approved by Supreme Decree 055-2010-EM; • the Regulations on Environmental Protection for Mining- Metallurgic Activities, approved by Supreme Decree 016-93-EM; www.gettingthedealthrough.com 139 PERU Rubio Leguia Normand

• the Environmental Regulations for Mining Exploration It should be noted that pursuant to Peruvian regulations, the afore- Activities, approved by Supreme Decree 020-2008-EM; mentioned concessions do not grant any right over the surface prop- • the Mine Closure Law, Law 28090; erty that it occupies and, vice versa, a property right over a certain • the Regulations on Mine Closure, approved by Supreme Decree area does not grant the right to exploit the natural resources that 033-2005-EM; may be found under it. • the Regulations on Citizen Participation for Mining Activities, Therefore, in Peru, since the times of the viceroyalty, the doc- approved by Supreme Decree 028-2008-EM; trine known as ‘dominalist’ has been followed, according to which • the Mining Royalties Law, Law 28,258; the state has title over natural resources. In that sense, the Peruvian • the Special Mining Tax Law, Law 29,789; Constitution provides that renewable and non-renewable natural • the Special Mining Burden Law, Law 29,790; and resources are the property of the nation and that the state is sover- • the Right to Prior Consultation to Indigenous and Tribal Peoples eign in their administration. Law, recognised in the Convention 169 of the International As a consequence of the foregoing, a concession is the method Labour Organization (ILO), Law 29785 and its Regulations, through which the state allows private parties for exploit the mineral approved by Supreme Decree 001-2012-MC. resources, but it does not grant per se rights over the surface lands within its boundaries. In that regard, concessionaires are required Likewise, the main international agreements to which Peru is a party to acquire such surface rights directly from the state or from private that might directly affect mining activities are: parties in order to execute their activities. • the Convention Concerning Indigenous and Tribal Peoples in An exploration and exploitation concession (mining conces- Independent Countries, C169; and sion) is granted for a minimum of 100 hectares and a maximum of • free trade agreements entered into between Peru and important 1,000 hectares. A mining concession qualifies as an in rem right to mining investor countries. the extent that its holder fulfils the obligations required to maintain its validity. The concession grants the holder the right to explore and The principal regulatory bodies that administer those laws are exploit mineral resources within a space of indefinite depth, limited the Ministry of Energy and Mines, the Geological, Mining and by vertical planes corresponding to the sides of a square, rectan- Metallurgical Institute (Ingemmet), the Ministry of Labour gle or closed polygon, whose vertices are referred to by Universal and Supervisory Agency for Investment in Energy and Mining Transversal Mercator coordinates. As stated above, a mining conces- (OSINERGMIN), among others, depending on the sector involved. sion does not grant its holder rights over surface land. A beneficial concession grants its holder the right to extract or concentrate the valuable part of an aggregate of rootless minerals 7 What classification system does the mining industry use for and to melt, purify or refine metals by means of a set of physical, reporting mineral resources and mineral reserves? chemical or physico-chemical processes. The mining concessionaires are required to report mineral resources A general mining labour concession grants its holder the right and reserves to the Ministry of Energy and Mines (MEM) through to provide ancillary services to two or more mining concessions. the Annual Consolidated Statement (DAC). The DAC format was Mining concessionaires do not require a general mining labour con- created by the MEM and does not follow any international system. cession to perform activities within the areas of their own mining However, the Venture Exchange of the Lima Stock Exchange concession. This type of concession is aimed at corporations looking (BVL) has approved the Australian JORC Code. The purpose of this to participate in mining activities by rendering services related to code is to standardise the criteria and guidelines to follow in the exploration and exploitation activities. preparation of geological reports to be submitted by junior compa- A mining transport concession grants its holder the right to nies for listing in the BVL Register, which are distributed for market install and operate a non-conventional mass continuous transport information. system for mineral products between one or various mining centres and a beneficiation plant or port, or a refinery or one or more of Mining rights and title these. Given the cost of building non-conventional mass continuous 8 To what extent does the state control mining rights in your transport systems such as mineral ducts, mining transport conces- jurisdiction? Can those rights be granted to private parties and sions are usually requested directly by mining concessionaires or by to what extent will they have title to minerals in the ground? a corporation that has already reached an agreement with a mining Are there large areas where the mining rights are held privately concessionaire to render transportation services. There is no legal or which belong to the owner of the surface rights? Is there a provision in place that forces a mining concessionaire to procure the separate legal regime or process for third parties to obtain mining services of a mining transport concessionaire if one should be near rights in those areas? the area of its concession. The performance of geological surveys, prospecting and commer- cialisation activities does not require any special governmental authorisation other than compliance with general environmental 9 What information and data is publicly available to private parties and civil laws related to surface land access. that wish to engage in exploration and other mining activities? Is Also, exploration, exploitation, beneficiation, general min- there an agency which collects mineral assessment reports from ing labour and mining transport activities can only be performed private parties? Must private parties file mineral assessment by individuals or legal entities that have obtained a concession. reports? Does the agency or the government conduct geoscience Concessions are granted for an established territory and therefore surveys, which become part of the database? Is the database new concessions must be obtained when activities are to be carried available online? out in different areas. In that context, parties wishing to perform Transparency is a general principle of government in Peru. Under the above-mentioned activities must procure the awarding of one or Law 27,806, in force since 2002, all information managed by the more of the following: state is public and free access is granted to every citizen. • a mining concession; This applies equally to legal proceedings relating to the mining • a beneficiation concession; industry. Exceptions are established in cases relating to national secu- • a general mining labour concession; or rity or supervision proceedings executed by governmental entities. • a mining transport concession.

140 Getting the Deal Through – Mining 2014 Rubio Leguia Normand PERU

The Ingemmet has a database with includes the mining rights minimum production level is not attained, the amount of the annual cadastre, available online (geocatmin.ingemmet.gob.pe). Although penalty and the causes of termination of mining concessions will be the database includes geological, geochemistry and geophysics those provided for concessions granted in 2008 and thereafter. surveys, geological risk assessments, geodynamic studies, satellite For concessions granted since 11 October 2008, the minimum images, etc, all of the information that the Ingemmet makes avail- production of the mineral concession is equivalent to one tax unit able should be used for reference purposes only. (approximately US$1,240) per year per hectare granted for metal- Mining concessionaries must file a monthly report with the lic minerals, and 10 per cent of one tax unit (US$124) per year per MEM, containing information regarding production, details of their hectare for non-metallic minerals. Under this penalty regime, the activities and investment issues. minimum production must be attained no later than the 10th year following the year that title to the mineral concession was granted. Failure to attain production will trigger an obligation to pay a pen- 10 What mining rights may private parties acquire? How are these alty equivalent to 10 per cent of minimum production, until the acquired? What obligations does the rights holder have? If year in which minimum production is attained. If production is not exploration or reconnaissance licences are granted, does such attained until the 15th year after the year that title to the mineral tenure give the holder an automatic or preferential right to acquire concession was granted, the mining concession will be terminated. In a mining licence? What are the requirements to convert to a exceptional circumstances, the mining concession can be extended mining licence? for five additional years, provided that the non-compliance of the The Peruvian mineral tenure is an administrative system, in opposi- minimum production level is caused by force majeure, or the min- tion to a contractual system where arrangements can be made on a ing concessionaire pays the annual penalty and devotes a minimum project or investor basis; mineral concessions are granted by appli- annual investment of up to 10 times the annual penalty for explo- cation on a first come, first served basis, in a non-discretionary ration or other related activities. If the minimum annual produc- administrative procedure conducted nationwide. tion is not attained by the end of this additional five-year term, the Mining concessions can be acquired by the following mecha- mining concession will be terminated. nisms: a request made to the relevant mining authority to recog- As stated under question 8, the mining concession grants the nise and grant a new mining concession for an area not previously holder the right to conduct works (explore and exploit) within the occupied or, an area which, though previously occupied, is con- internal boundaries of the mining concession, other than surveying sidered free due to non-compliance with legal requirements by a and prospecting. previous concessionaire; or the acquisition of an existing mining concession from a third party. The Ingemmet is the administrative entity in charge of granting 11 What is the regime for the renewal and transfer of mineral mining concessions. The procedure requires a mining claim to be licences? submitted for an area not previously granted or for an area which, As stated in questions 8 and 10, mineral licences (mining conces- having previously been occupied is considered free due to a previous sions) are granted for an unlimited period, subject to the fulfilment concessionaire’s non-compliance with legal requirements. The claim of certain obligations, and it is possible to directly acquire one or will be accepted if the area is not occupied. more concessions, or to buy shares in a mining company. As stated above, investors can also enter the Peruvian mining sec- In general, the mining agreements are subject to the regulation tor by acquiring concessions that have been already granted. In this of the civil law in all that is not contrary to the provisions of the context, it is possible to directly acquire one or more concessions, General Mining Law. Also, the mining agreements must be regis- or to buy shares in a mining company. No governmental authorisa- tered in the Peruvian Public Registry to take effect before the state tion is required to transfer mining concessions. As in other countries, and third parties. the execution of mining option and lease agreements (recognised in Specifically, the transfer agreement of mining concessions com- the General Mining Law) are frequently used in the mining indus- prises any contract under which there is a ‘domain transfer’ on try. The lessee has the right to perform exploration activities and mining rights. This transfer may be total or partial. According to eventually exercise the option (under a parallel option agreement) to regulations, a title holder may also transfer a mining claim. acquire the mining concession. No government authorisation is required to transfer mining Mining concessions are granted for an unlimited period, subject concessions. Furthermore, with respect to change of control of the to the fulfilment of certain obligations. General obligations appli- mining holder or its parent, it is not required to obtain government cable to mining concessionaires include the payment of an annual consent before this occurs. licence fee by 30 June of each year of US$3 per hectare, in order However, it should be noted that the only exception is estab- to keep the mineral right in good standing as well as to attain a lished by the Peruvian Constitution, which bans foreign nation- minimum production or the payment of a penalty fee if applicable. als from acquiring mining concessions, whether individually or in Failure to pay the licence fees or penalty for two consecutive years partnership, directly or indirectly, within 50 kilometres of an inter- will result in the forfeiture of the mineral right. national border, under penalty of losing the acquired right. This Regarding attaining a minimum production, it should be noted illegal acquisition would be deemed legally void. Exceptionally, that two different regimes apply depending on the date the conces- through a Supreme Decree approved by the Council of Ministers sion was granted. For mining concessions granted before 2008, the of State, this prohibition may be withdrawn provided that the mat- minimum annual production level is equivalent to US$100 per year ter is considered to be of public need. In that regard, the transfer per hectare for metallic minerals and US$50 per year per hectare to a foreign national of a mining concession located within 50 kilo- for non-metallic minerals. Under this regime, the minimum produc- metres of an international border must obtain government consent. tion level must be attained by no later than the sixth year following the year that title to the mineral concession was granted. Failure 12 Is there any distinction in law or practice between the mining to attain this production level will trigger an obligation to pay an rights that may be acquired by domestic parties and those that annual penalty equivalent to US$6 per year per hectare. If the mini- may be acquired by foreign parties? mum annual production level is not attained by the 12th year, then the annual penalty increases to US$20 per year per hectare. The Peruvian Constitution guarantees equal treatment of foreign The aforementioned regime will be applicable until 2019. and national investors, as well as free ownership of foreign currency. As from the first business day of 2019, provided that the annual www.gettingthedealthrough.com 141 PERU Rubio Leguia Normand

There are no legal restrictions on the entry or withdrawal of foreign the mining concessions must fulfil. Also, there are no local listing currency into the country. requirements established for the project company in order to carry As discussed under question 8, concessions are granted to indi- out mining activities. viduals or legal entities, whether national or foreign, without any distinction or privilege. The only exception, as stated under question 16 Are there provisions in law dealing with government expropriation 11, is established by the Peruvian Constitution, which bans foreign- of licences? What are the compensation provisions? ers from acquiring mines within 50 kilometres of an international border. Exceptionally, through a Supreme Decree approved by the Respect for property is reflected in the constitutional protection of Council of Ministers of State, this prohibition may be withdrawn property rights over mining concessions, which are real rights that provided that the matter is considered to be in the public interest. cannot be expropriated unless by an express law authorising the There is neither a specific procedure nor any timeframe in which the expropriation and provides for the prompt and full payment of the Council is requested to deliver its opinion. Also, it is not necessary appraised value, which must include compensation for potential for a foreign party to have a domestic partner. damages. It should be noted that the expropriation will only be viable on the grounds of national security or public need. Proceedings have been instituted before the judiciary to challenge the property 13 How are mining rights protected? Are foreign arbitration awards value established by the state in the expropriation procedure. in respect of domestic mining disputes freely enforceable in your jurisdiction? 17 Are any areas designated as protected areas within your The General Mining Law has designated an administrative author- jurisdiction and which are off-limits or specially regulated? ity, called the Mining Council, with jurisdiction to solve administrative problems related to mining rights. The decision of the Mining Effectively, there are areas designated by law as protected areas and Council can be appealed to the judiciary. they are specially regulated. According to the current legislation of In addition, the mining concessionaires have the alternative of natural protected areas, these areas are classified under a certain cate- resolving private disagreements by arbitration. There are institu- gory which determines its legal condition, purpose and permitted uses. tions that specialise in arbitration, such as the National Institute of Indirect use areas are those of intangible protection, which is not Mining, Oil and Energy, which has modern arbitration rules that allowed the extraction of natural resources and any modification of allow interested parties to submit their disputes to arbitrators with the natural environment. These areas allow only non-manipulative criteria in the areas of interest involved. scientific research and tourism, recreation, education and culture under properly regulated conditions. National parks, national sanctuaries and historical sanctuaries are indirect use areas. 14 What surface rights may private parties acquire? How are these On the other hand, direct use areas are those that allow the use rights acquired? of natural resources, mainly by local people, under the guidance of a The owner of the surface land can be a person, a private entity, a management plan approved and supervised by the National Service farming community, an irrigation project or the state, among oth- of Natural Protected Areas by the State (Sernanp). National reserves, ers. The right derived from a mineral concession is different and landscape reserves, wildlife refuges, community reserves, protection independent from the ownership or any other surface right over the forests and hunting areas are direct-use areas which are allowed to surface land under which it is located. exploit natural resources. Mining concessionaires need to negotiate with the surface owner In that regard, the holders of mining titles are allowed to develop in order to acquire surface rights or enter into a contractual ease- mining activities in the buffer zones of direct use natural protected ment that will allow him or her to conduct mining activities, request areas, subject to the implementation of the necessary protection and a mandatory easement to the government in order to conduct min- mitigation measures that prevent negative environmental impacts. ing activities in third parties’ land properties or obtain a right of way This also requires the favourable opinion of the Sernanp. The regu- that may be required in order to access an area that is blocked by a lation secures the exercise of property or other real rights, such as third party’s land or properties. the mining concessions, that pre-existed the creation of a natural It should be noted that for surface lands owned by farming com- protected area. However, these rights must be exercised in harmony munities, the sale, lease or other act of disposal of such land is sub- with the goals and purposes for which the protected natural area ject to the approval of an assembly composed of the members of was created. such communities, according to the following rules: The authority is extremely cautious in approving the develop- • for local farming communities located on the coast: approval of ment of extraction or related activities, as they consider they might not less than 50 per cent of members of the community attend- result in an imminent threat of significant environmental damage. ing the assembly is required; and Nevertheless, under Peru’s legislation, there is no express prohibi- • for local farming communities located in the highlands and the tion on carrying out mining activities in direct use natural protected Amazon region: approval of at least two-thirds of all members areas. of the community is required. Duties, royalties and taxes

15 Does the government or do state agencies have the right to 18 What duties, royalties and taxes are payable by private parties participate in mining projects? Is there a local listing requirement carrying on mining activities? Are these revenue-based or profit- for the project company? based? Pursuant to the Constitution, the Peruvian economic model is based The most important specific taxes applicable to the mining industry on a free market economy and the subsidiary role of the state. are the mining royalty, special mining tax and special mining burden. Authorised solely by an express law of Congress, the state would The mining royalty has been in force since 1 October 2011. only engage in economic activates, directly or indirectly, for reasons Mining title holders are required to pay a mining royalty to the of high public interest or manifest national convenience. Peruvian government for the exploitation of metallic and non-metal- In that regard, neither the government nor state agencies are lic resources. The amount of the royalty is payable on a quarterly entitled to participate in mining projects, as they benefit from basis and is equal to the greater of an amount determined in accord- the established taxes and mining obligations that the holders of ance with a statutory scale of tax rates (which is between 1 per cent

142 Getting the Deal Through – Mining 2014 Rubio Leguia Normand PERU and 12 per cent) based on a company operating profit margin and Public Treasury (in general terms, central government taxes) and applied to the company’s operating profit, during the applicable with respect to which the exporter acts as taxpayer; and quarter. The minimum amount payable for the mining royalty can- • by requesting a refund. The limit of the offset or refund is an not be less than 1 per cent of the revenues generated from the sales amount equivalent to 18 per cent of exports, given that the VAT of calendar quarter. rate is set at 18 per cent. Furthermore, according to the special mining tax in force since 1 October 2011, mining title holders are required to pay a spe- Special VAT recovery regimes cial mining tax to the Peruvian government for the sale of metallic There are two special regimes that allow the recovery of the sup- resources, regardless of the state in which they are sold. The special ported VAT, applicable to the mining title holders who have not mining tax payments will be deductible as an expense for income started production and who are at the preproduction stage or who, tax purposes in the fiscal year in which such payments are made. having started production, have a project at pre-production stage. This tax is payable on a quarterly basis and is calculated on the This is very important for a company that may be engaged in a basis of the operating profit derived exclusively from the sale of medium or large mining project that requires large purchases of metallic resources. The applicable special mining tax rate (which is local goods and services upon which VAT is levied and may take between 2 per cent and 8.4 per cent is determined by the quarterly over a year or two to complete. The regimes are as follows: operating profit margin of the company and such a rate is applied • VAT Early Recovery Regime for companies that have executed to the operating profit derived from the sale of metallic resources. agreements with the government for the exploration, develop- Since 1 October 2011, mining title holders who have executed ment or exploitation of natural resources, governed by Legislative a legal stability agreement and who enter into voluntary agreement Decree 973. In order to access this regime, the mining company with the government have been required to pay a special mining must have a project at preproduction stage and it must have burden on a quarterly basis. This will be deductible as an expense signed a sectoral stability agreement, among others. This regime for income tax purposes in the fiscal year in which the payments are implies the effective start-up of the production operations, so that made. The applicable special mining burden rate (which is between if the company does not start such operations as anticipated, it 4 per cent and 13.12 per cent) is determined by the quarterly operat- must refund the early recovered amounts to the government; and ing profit margin of the company. • VAT Final Refund Regime for mining title holders during the It should be noted that operating profit is obtained by deducting exploration phase, governed by Law 27623. In order to access from the income from the sales of mining resources of each quarter, this regime, the mining company, among other requirements, the cost of sales, and operating expenses incurred (with certain spe- must be fully at the pre-production stage (no project must be cific limitations). Furthermore, the aforementioned payments will be at the production stage). This regime is not contingent on the deductible as an expense for income tax purposes in the fiscal year effective start-up of the production operations, so that if the in which such payments are made. company does not commence operations, it need not refund On the other hand, since 2014 mining title holders are required the amounts earlier recovered from the government. In all these to pay a contribution to the regulatory agencies in charge of super- cases, the refund of the VAT is processed by the Peruvian Tax vising mining activities: the environmental supervisory body OEFA Administration and the refund is granted through negotiable and OSINERGMIN. The amount of the contribution is payable on credit notes, which may be redeemed in order to obtain a non- a monthly basis and is calculated on the basis of monthly sales at transferable check or they can be transferred to third parties. rates, for 2014, of 0.21 per cent for OSINERGMIN and 0.15 per cent for OEFA. Exemption from municipal taxes in rural areas Mining concessionaires are exempt from municipal taxes in rural areas (where most mining is carried out). 19 What tax advantages and incentives are available to private parties carrying on mining activities? Investment in infrastructure which constitutes public service Laws and regulations have been enacted to approve regimes and Investments made by the mining title holders in infrastructure which benefits in order to promote investment. The principal aspects of constitutes public service, will be deductible from taxable income, such regimes and benefits are explained below. as long as the investments have been previously approved. Assets Legal stability is given to mining title holders who sign stability whose purpose is to provide housing and welfare in favour of the agreements. workers who work in areas that are far away from the populations The export of goods, such as minerals, is not subject to the VAT referred to in the General Mining Law, do not form part of the tax and customs taxes. base of the mining title holders.

The regime of balance in favour of the exporter Treatment of the costs of concessions and of prospecting, Exports of goods and services – operations that are not subject to exploration, development and preparation expenses VAT – grant the right to recover the balance in favour of the exporter. The acquisition value of the concessions (price-paid or claim In normal conditions, VAT paid for goods and services used in the expenses) will be amortised as from the fiscal year when the mini- production process is recovered by the producer applying it against mum production must be accomplished, within a term to be deter- VAT to be paid for the goods and services it produces. However, mined by the mining concessionaire, based on the probable life of since VAT is not levied on minerals exported and sold abroad, it is the deposit, calculated and taking into consideration the proven and not possible to apply the VAT recovery method described above, so probable reserves and the minimum production according to law. the law provides for the regime of balance in favour of the exporter, Prospecting and exploration expenses until the date when mini- under which the exporter can recover the VAT levied on its acquisi- mum production must be accomplished can be considered, at the tions intended for the performance of operations levied with VAT discretion of the mining concessionaire as part of the acquisition or intended for export operations. This VAT can be recovered in the value of the concession in order to receive the treatment mentioned following order of priority: above or be deducted in the fiscal year in which they are incurred. • by deducting it from the gross tax for the month if taxes have Exploration expenses at minimum production stage may be been levied against the exporter’s internal operations; fully deducted in the fiscal year or amortised as from that fiscal year • by offsetting it against the exporter’s income tax; at the rate of an annual percentage based on the probable life of the • by offsetting it against any other tax, which is revenue of the mine, at the concessionaire’s own discretion. www.gettingthedealthrough.com 143 PERU Rubio Leguia Normand

Development and preparation expenses that allow for the 22 Are there any transfer taxes or capital gains imposed regarding exploitation of a deposit for more than one fiscal year may be fully the transfer of licences? deducted in the fiscal year when they are incurred or amortised in The transfer of mining concessions is levied with income tax because that fiscal year and in the following years up to two additional years it is a real property transfer that generates capital gains. Therefore, at most, at the concessionaire’s own discretion. this tax shall be as follows: • unusual individuals – who sell less than three real properties in the fiscal year – the transfer will be levied with income tax at a 20 Does any legislation provide for tax stabilisation or are there tax rate of 6.25 per cent on the profits obtained, qualified as second- stabilisation agreements in force? category income; Pursuant to the provisions set forth in the Peruvian Constitution, and • usual individuals or legal entities – with such activities consid- under the Foreign Investment Promotion Law (Legislative Decree ered as business transactions – the transfer will be levied with 662) as well as the Framework Law for the Growth of Private the income tax at a rate of 30 per cent on the profits obtained, Investment (Legislative Decree 757), the state guarantees legal stabil- qualified as third-category income; and ity to foreign investors looking to invest in Peru through the execu- • non-domiciled individuals or legal entities – the transfer will also tion of Legal Stability Agreements that have the status and force of be levied with income tax at a rate of 30 per cent on the profits law. These Legal Stability Agreements provide, among others: obtained, qualified as third-category income. • tax stabilisation, which implies a prohibition from applying new taxes, laws, amendments to the tax system and others, except if It should be noted that profits will be, without any proof to the con- the holder of the mining concession would like these changes to trary, the difference between the ‘transfer value’ of the mining con- apply; and cession minus the corresponding ‘acquisition cost’. In commercial • free disposal of the foreign currency generated by its exports. relationships, the parties may freely agree the transfer value of the mining concessions. However, for tax purposes, the transfer value Investors looking to participate in the mining sector may execute shall be the market value of the concession, which shall be calculated Legal Stability Agreements under the regime established by the based on technical studies that show the existence or non-existence General Mining Law as well as the general regime established by of proven or probable mineral reserves. Legislative Decrees 662 and 757, available to foreign and local investors looking to participate in the different sectors of the economy. 23 Is there any distinction between the duties, royalties and taxes Legal stability agreements regulated by the General Mining Law payable by domestic parties and those payable by foreign parties? A legal stability agreement can be accessed by a company incorpo- There is no distinction between duties, royalties and taxes payable rated or established in Peru intending to execute mining projects by domestic and foreign parties. in Peruvian territory. The General Mining Law provides for the execution of two types of agreements, differentiated by the require- Business structures ments for their execution, as well as the terms and benefits applicable in each case: 24 What are the principal business structures used by private parties • 10-year term agreement: if the project to be executed requires a carrying on mining activities? minimum investment of US$2 million; and The General Companies Law (LGS) regulates the incorporation and • 15-year term agreement: if the project to be executed requires conduct of business entities in general. The main two forms com- a minimum investment of US$20 million if the company has mercial entities with limited liability recognised in the LGS are cor- not performed mining activities yet, or US$50 million if the porations and limited liability companies. The most common type company already performs mining activities. of corporation used for carrying mining activities is the anonymous partnership, which limits the liability of the shareholders. Legal stability agreements regulated by Legislative Decrees 662 Another type of corporation used in Peru, also with limited and 757 liability, is the open anonymous partnership. This is usually a pub- These agreements may be accessed by investors looking to partici- lic corporation with a large number of shareholders. All its shares pate in any sector of the economy, provided they comply with the must be registered in the Lima Stock Exchange and it is subject to legal requirements established for their execution. The minimum the supervision of the Business and Securities National Supervisory investment required for the mining sector, in order to access these Commission. agreements, is US$10 million. In this case, there are two types of agreements differentiated by the subscribing parties: • investor agreement: executed by the local or foreign investor 25 Is there a requirement that a local entity be a party to the who contributes the minimum amount of US$10 million to a transaction? company incorporated or existing in Peru; and No, there is no legal provision requiring a local entity to be part of • investment recipient company agreement: signed by the com- the transaction. pany receiving the investment. The recipient company may only gain access to execute a legal stability agreement if its investor 26 Are there jurisdictions with favourable bilateral investment treaties has previously executed one. or tax treaties with your jurisdiction through which foreign entities will commonly structure their operations in your jurisdiction? Legal stability agreements regulated by Legislative Decrees 662 and 757 are executed by investors and the Agency for the Promotion of One of the most important is the free trade agreement between Peru Private Investment – Peru. and the United States of America, which has been in force since 1 February 2009. According to the provisions established in the agreement, 21 Is the government entitled to a carried interest, or a free carried ‘investment’ can include investments made in the mining industry. interest in mining projects? In this context, any and all assets that are the property of an inves- As stated in question 15, neither the government nor state agencies tor, or controlled by the investor, either directly or indirectly, which are entitled to participate in mining projects. maintain investment features, including commitments to contribute

144 Getting the Deal Through – Mining 2014 Rubio Leguia Normand PERU capital or other resources, expectation of future profits or earnings, third party, through a mining mortgage agreement, which consti- and risk assumption shall be deemed as investments in Peru. tutes a lien over the concessions during the term of such agreement In recent years, Peru has executed further free trade agreements to secure financing for the holder or as security for a creditor to and, in terms of investment, these basically reproduce the provisions whom the holder owes a debt. The mortgage agreement must be established in the free trade agreement between Peru and the United registered in the public registry in order to ensure its legality, validity States of America. These agreements are as follows: and enforceability. • the free trade agreement between Peru and Canada: in It should be noted that the mining mortgage does not originate force since August 2009, pursuant to Supreme Decree from the dispossession of the concession. The debtor or guaran- 013-2009-MINCETUR; tor mortgage at all times remains in possession of the mortgaged • the free trade agreement between Peru and the People’s Republic concessions, as there is a possibility of judicial enforcement of the of China: in force since 1 March 2010 pursuant to Supreme guarantee (taking possession of the creditor against the mortgaged Decree 005-2010-MINCETUR; mining concession for breach of the obligation of the debtor). The • the free trade agreement between Peru and Chile: in mortgage covers the principal debt, interest accrued, insurance pre- force since 1 March 1 2009 pursuant to Supreme Decree miums paid by the creditor and court costs. 010-2009-MINCETUR; The mortgage extends to all parts of the mortgaged property, • the free trade agreement between Peru and Singapore: in their accessories, and the amount of insurance compensation and force since 1 August 2009 pursuant to Supreme Decree expropriation, unless otherwise agreed. Unless otherwise provided, 014-2009-MINCETUR; a mining mortgage also affects buildings, facilities and other articles • the free trade agreement between Peru and Korea: in intended for the mining concession. force since 1 August 2011 pursuant to Supreme Decree 015-2011-MINCETUR; Restrictions • the free trade agreement between Peru and Mexico: in force 1 February 2012 pursuant to Supreme Decree 29 What restrictions are imposed on the importation of machinery 001-2012-MINCETUR; and equipment or services required in connection with exploration • the free trade agreement between Peru and Japan: in and extraction? force since 1 March 2012 pursuant to Supreme Decree There are no restrictions to the import of machinery and equipment 004-2012-MINCETUR; or services. • thefree trade agreement between Peru and Panama: in force since 1 May 2012 pursuant to Supreme Decree 008-2012-MINCETUR; and 30 What restrictions are imposed on the processing, export or sale • the free trade agreement between Peru and the European Union; of minerals? Are there any export quotas, licensing or other in force since 1 March 2013 pursuant to Legislative Resolution mechanisms that prevent producers from freely exporting their 29,974. production? There are no restrictions on buying, selling or exporting minerals. In In addition, Peru has treaties to avoid double taxation with Chile addition, pursuant to the General Mining Law, the commercialisa- and Canada, in force since 2004, as well as with Brazil, in force tion of minerals across the country and abroad is free and does not since 2010. Also, Peru is part of the Andean Community of Nations require the granting of a concession or any governmental authorisa- (CAN) that has provisions to avoid double taxation with individu- tion. Domestic and foreign companies are subject to the same rules als and legal entities domiciled in the countrys members of the CAN on commercial matters associated to minerals. (Ecuador, Bolivia, Colombia and Peru). Recently, the government has entered into conventions with Mexico, South Korea, Switzerland 31 What restrictions are imposed on the import of funds for and Portugal, which will be applicable since 2015. exploration and extraction or the use of the proceeds from the export or sale of minerals? Financing For the mining industry, there are no restrictions on the import of 27 What are the principal sources of financing available to private funds for investment in exploration and extraction of minerals or parties carrying on mining activities? What role does the domestic the use of the proceeds from the export or sale of minerals. public securities market play in financing the mining industry? Environment The most common source of financing are direct loans from banks. Most loans come from foreign banks through their local branches 32 What are the principal environmental laws applicable to the and usually more than one bank participates in the financing. This mining industry? What are the principal regulatory bodies that is because mining requires a high budget for the development of the administer those laws? project. Therefore, long-term financing requirements are covered in The General Environmental Law, created by Law 28,611 and the the Peruvian market. Law of the National Assessment and Environmental Control System For the mining sector, financing through the BVL is still incipi- approved by Law 29325 creates a legal framework for the general ent. Only a few junior companies have used this type of financing. environmental regulations that are applicable to all industries. A few years ago, the BVL became the only stock market in Latin In the mining sector, the Environmental Regulations for Mining America with a junior mining segment. This shows the importance Exploration Activities, approved by Supreme Decree 020-2008-EM, of junior companies in the BVL. Nowadays, the integration of the as well as the Regulations on Environmental Protection for Mining- Latin American Stock Exchange should encourage the financing of Metallurgic Activities, approved by Supreme Decree 016-93-EM, the mining sector. provide specific environmental regulation, which is subject to com- plementary regulation. 28 Please describe the regime for taking security over mining Pursuant to the regulations, the competent authority to interests. approve environmental certificates is the General Directorate Pursuant to the General Mining Law, a mining concession can be for Environmental Matters of the Ministry of Energy and Mines used as security to guarantee an obligation, on its own or with a www.gettingthedealthrough.com 145 PERU Rubio Leguia Normand

(DGAAM). The supervision of environmental regulations lies with In some cases in which qualified professional are needed for a the OEFA. given situation, these limitations can be detrimental to the mining industry.

33 What is the environmental review and permitting process for a Social and community issues mining project? How long does it normally take to obtain the necessary permits? 37 What are the principal community engagement or CSR (corporate The Environmental Regulations for Mining Exploration Activities social responsibility) laws applicable to the mining industry? What establish that there are two types of environmental licence for are the principal regulatory bodies that administer those laws? the exploration stage, depending on the degree of impact that the There are no legal regulations for CSR. Nevertheless, for mining exploration activities might produce. These are the Environmental companies CSR is a very important issue. The work of a mine in Impact Sworn Statement and Semi Detailed Environmental Impact a remote community generates, in fact, a set of expectations in the Assessment. population who perceive the company as the agent that will solve When mining title holders are about to start the exploitation their problems. The Citizen Participation Regulations, approved by phase, they must submit an environmental impact assessment for Supreme Decree 028-2008-EM and the rule governing the process of the development of the project to the Ministry of Energy and Mines. participation, approved by Ministerial Resolution 304-2008-MEM/ Article 5 of the Regulation for Environmental Protection in Mining DM, are the main legal mechanisms by which the mining company and Metallurgy Activities, approved by Supreme Decree 016-93-EM, makes contact with the community. This process must be considered establishes that each mining title holder is responsible for emissions in the EIA. As discussed in question 32, the DGAAM of the Ministry and waste resulting from their operations. To this end, the mining of Energy and Mines is responsible for verifying that the process has title holder must fulfil all of the environmental protection obligations been carried out. that are stated in its approved environmental impact assessment. As discussed in question 32, the DGAAM is the competent authority to approve environmental certificates. An EIA approval 38 How do the rights of aboriginal, indigenous or currently or process takes, on average, a year to be conducted. previously disadvantaged peoples affect the acquisition or exercise of mining rights? Peru has ratified ILO Convention No. 169 on Indigenous and Tribal 34 What is the closure and remediation process for a mining People in Independent Countries through Legislative Decree No. project? What performance bonds, guarantees and other financial 26,253. This convention provides indigenous and tribal people with assurances are required? a right of consultation. Pursuant to article 7 of the Law Regulating Mine Closures, the min- As a result, on 7 September 2011, Law 29,785 approved the ing title holder must file a mine closure plan with the DGAAM at Law of Prior Consultation for Indigenous or Aboriginal Peoples least one year after the mining project EIA is approved. The plan established by the 169 ILO Convention. It establishes that indig- conforms to technical and legal actions aimed at developing meas- enous peoples have a right to be consulted in advance regarding leg- ures to be taken to rehabilitate the area used or disturbed by mining islative or administrative decisions, which may directly affect their activities in order to reach an ecosystem healthy and suitable for collective rights, with regard to their existence, cultural identity, life development of life and landscape preservation. quality or development. It should be noted that the obligation of The mining title holder must provide guarantees on behalf of the prior consultation constitutes a state obligation. competent authority for covering the costs of rehabilitation meas- The Ministry of Culture has issued the Supreme Decree 001- ures for the periods of final closure and post closure. For this pur- 2012-MC, dated 3 April 2012 which regulates Law 29,785. This pose, the competent authority accepts bonds, performance bonds, regulation aims to conduct consultation processes in compliance trusts, pledges and mortgages. with the provisions of ILO Convention 169. Thus, with the creation of this regulation, the definition of administrative and legisla- Health & safety, and labour issues tive measures was further specified. Authorisations, licences, permits and concessions constitute administrative measures which, accord- 35 What are the principal health and safety, and labour laws ing to this new legislative framework governing prior consultation, applicable to the mining industry? What are the principal are considered part of the administrative measures to be consulted, regulatory bodies that administer those laws? to the extent they authorise the commencement of the activity or Law 29,783, the Occupational Safety and Health at Work Law project and to the extent they can directly affect the collective rights and its regulation approved by Supreme Decree 005-2012-TR, are of indigenous peoples. In the case of the mining sector, prior con- the general regulations on Health and Safety matters applicable to sultation is to be held by the Ministry of Energy and Mines, before all industries. The mining industry has a specific regulation in the obtaining the Authorisation for the Commencement of Activities Mining Occupational Health and Safety Regulation, approved (for exploration and development activities) or the Authorisation by Supreme Decree 055-2010-EM. Health and Safety regulations for Construction of a Beneficiation Plant. Indigenous peoples do not are administered by the Ministry of Labour (workers) and the have the right to veto or stop a mining project. Upon completion OSINERGMIN (mining facilities). of this prior consultation procedure, the Peruvian government can, at its own discretion, approve or reject the applicable legislative or 36 What restrictions and limitations are imposed on the use of domestic administrative measures. and foreign employees in connection with mining activities? It should be noted that, according to the recent practice of the Ingemmet, the granting of mining concessions does not qualify as an Pursuant to the Legislative Decree 689, domestic and foreign com- ‘administrative measure’ that potentially affects the rights of indig- panies are prohibited from hiring more than 20 per cent of foreign enous peoples because it does not grant a per se right to explore and workers and their remuneration must not exceed 30 per cent of the exploit mineral deposits. Accordingly, the granting of mining conces- total payroll for wages and salaries. In addition, contracts for foreign sions has not been included among measures that require consulta- employees shall be for a term not longer than three years and may tion procedures with indigenous peoples. be renewed successively for periods not exceeding three years. This regulation applies to all industries.

146 Getting the Deal Through – Mining 2014 Rubio Leguia Normand PERU

Update and trends

Although Peru is currently going through an economic growth, social filed constitutional claims in order to declare that the aforementioned conflicts with local communities continue to be a long-standing contribution is anti-constitutional and illegal because has a problem and represents one of the main challenge of the industry over confiscatory character, and should not be applied. the coming years. Different regions in Peru have experienced strikes Finally, the phenomenon of the illegal mining is a great challenge and protests related mainly to the environmental and social impacts for the government. Several regulations have been enacted against of mining activities, resulting in political tensions and commercial illegal mining across the country, which comprise: the creation disruptions in that area. In that regard, recent government policies and of a legal procedure in order to formalise illegal activities; the regulations are including measures which dealing with the persistent establishment of new crimes relating to illegal mining activities; and increasing social and environmental demands. and the confiscation and destruction of machinery, equipment and In that regard, in April 2013 the Peruvian government supplies used in the development of those activities. However, in approved regulations in order to strengthen the National System of recent months, social conflicts have arisen regarding the enacting Environmental Assessment and Enforcement, in charge of the OEFA, of the aforementioned legal framework. It should be noted that which included the increase of the maximum fine for serious violations approximately 50,000 miners directly exercise illegal mining activities of environmental regulations from 10,000 to 30,000 tax units and a total of 300,000 people directly or indirectly dependent on this (approximately US$40 million). activity. Furthermore, in December 2013 the Peruvian government For the aforementioned reasons, have a good relationship with established two different contributions to be paid by mining the local communities and stakeholders as well as deal with recent companies to the regulatory agencies in charge of supervising policies in response to illegal mining and socio-environmental unrest mining, energy and environmental activities (the OSINERGMIN and (including tax increases, stricter environmental, health and safety the OEFA). The contributions are calculated on the basis of monthly standards, greater rights and expectations for local communities and sales at rates of 0.21 per cent for OSINERGMIN and 0.15 per cent more proactive or interventionist government regulations) are the main for OEFA. It is important to note that several mining companies have challenges in the Peruvian mining industry.

39 What international treaties, conventions or protocols relating to However, as discussed in question 11, the only legal restric- CSR issues are applicable in your jurisdiction? tion for foreigners is that they are banned from acquiring mines, International treaties, conventions or protocols concerning CSR whether individually or in partnership, directly or indirectly, within that are in force in Peru are the Universal Declaration of Human 50 kilometres from the borders under penalty of losing the illegally Rights; the International Convention for the Eradication of all acquired right. The illegal acquisition is considered to be legally void. forms of Racial Discrimination; the United Nations International Exceptionally, through a Supreme Decree approved by the Council Convention on Civil and Political Rights; the United Nations of Ministers of State, this prohibition may be withdrawn provided International Convention on Economic, Social and Cultural Rights; that the matter is considered to be of public need. the American Convention of Human Rights Additional Protocol on Economic, Social and Cultural Rights; and the International Labour International treaties Organization, Convention 169 on Indigenous Peoples and Tribal Groups in Independent Countries. 41 What international treaties apply to the mining industry or an investment in the mining industry? Foreign investment As discussed in question 26, there are bilateral treaties that regulate commercial relationships between Peru and other countries. The 40 Are there any foreign ownership restrictions in your jurisdiction Ministry of Commerce and Tourism of the Peruvian government has relevant to the mining industry? played an important role in the signing of these treaties, which coin- The Peruvian Constitution guarantees equal treatment of foreign cides with the policy adopted by the former and current government. and national investors; therefore, concessions can be granted to All these treaties have a direct influence on the mining sector, as foreign nationals – as individuals or legal entities – without any the investment for the development of mining projects mainly comes distinction or privilege. from countries with whom Peru has signed free trade agreements.

Emil Ruppert [email protected]

Av Dos de Mayo 1321 Tel: +51 1 208 3000 San Isidro Fax: +51 1 442 3511 Lima www.rubio.pe Peru

www.gettingthedealthrough.com 147 PHILIPPINES SyCip Salazar Hernandez & Gatmaitan Philippines

Hector M de Leon Jr SyCip Salazar Hernandez & Gatmaitan

Mining industry 5 How is the mining industry regulated? The mining industry is regulated through laws and regulations 1 What is the nature and importance of the mining industry in issued by the national government. Local government units also your country? issue ordinances that may affect mining activities within their The Philippines is rich in mineral resources and the mining indus- respective jurisdictions. Mining companies listed on the Philippine try plays a significant role in the country’s economy. According to Stock Exchange must also comply with the rules of the exchange. the Philippine Department of Environment and Natural Resources (DENR): • the large reserves of various kinds of minerals in the country 6 What are the principal laws that regulate the mining industry? What puts the Philippines in the top five most mineral-rich countries are the principal regulatory bodies that administer those laws? in the world, third in gold reserves, fourth in copper, and fifth in The principal laws and regulations that regulate the mining nickel; industry are Republic Act No. 7942 (the Mining Act) and DENR • around 9 million hectares, or 30 per cent of the country’s total Administrative Order No. 21-10 (DENR Order No. 21-10). land area of 30 million hectares, are believed to contain impor- The Mining Act is a national law enacted by the Congress of the tant metallic mineral deposits and around 5 million hectares Philippines, while DENR Order No. 21-10 is the regulation issued are also known to be potential sites for non-metallic mineral by the DENR to implement the provisions of the Mining Act. reserves; and The DENR is the primary government agency responsible for • the country’s offshore areas, which cover around 2.2 million the regulation of the mining industry. The Mines and Geosciences km2, also contain placer minerals, including gold, magnetite and Bureau (MGB), a line bureau of the DENR, has direct charge of chromite-bearing sands as well as aggregate resources like sand the administration and disposition of mineral lands and mineral and gravel, decorative stones, and polymetallic sulphide deposits resources. The MGB also recommends to the DENR Secretary the (see www.denr.gov.ph/index.php/component/content/article/16. granting of exploration permits and/or mineral agreements to duly html). qualified persons. Local government units may also issue quarry permits to duly qualified persons. In 2013, the total production value for metallic minerals was 99.33 The MGB and the Environmental Management Bureau (EMB), billion Philippine pesos, a 0.30 per cent or 298 million Philippine another line bureau of the DENR, monitor the compliance of min- pesos increase in relation to the 99.04 billion Philippine pesos total ing companies with their respective obligations under applicable production value for metallic minerals in 2012 (see www.mgb.gov. environmental laws. ph/Files/ItemLinks/ThePhilippineMineralsIndustryAtAGlance.jpg).

7 What classification system does the mining industry use for 2 What are the target minerals? reporting mineral resources and mineral reserves? The Philippines has significant gold, copper and nickel deposits. The Philippine Mineral Reporting Code (PMRC) sets out minimum Other target minerals include chromite, silver, lead, zinc iron, cobalt standards, recommendations and guidelines for public reporting and platinum. Non-metallic resources found in the Philippines in the Philippines of exploration results, mineral resources and ore include sand and gravel, limestone, marble, clay and other quarry reserves. The PMRC is modelled substantially on the JORC Code materials. (2004) of Australasia and is compatible with the international codes from Australia, South Africa, the European Union, and Canada as well as the International Reporting Template (2006) by the 3 Which regions are most active? Committee for Mineral Reserves International Reporting Standards. Many areas in the Philippines are particularly mineral-rich. The provinces with significant mining activities include Benguet, Mining rights and title Compostela Valley, Davao, Palawan and Surigao. 8 To what extent does the state control mining rights in your Legal and regulatory structure jurisdiction? Can those rights be granted to private parties and to what extent will they have title to minerals in the ground? Are there 4 Is the legal system civil or common law-based? large areas where the mining rights are held privately or which belong The Philippine legal system is a civil law system. The Philippine Civil to the owner of the surface rights? Is there a separate legal regime Code is based on the Spanish Civil Code. However, certain Philippine or process for third parties to obtain mining rights in those areas? statutes are based on statutes of the United States. For example, the The state controls the grant of mining rights in the Philippines. Philippine Corporation Code and the Philippine National Internal Under the 1987 Philippine Constitution, the state owns all Revenue Code were based on the US models.

148 Getting the Deal Through – Mining 2014 SyCip Salazar Hernandez & Gatmaitan PHILIPPINES natural resources in the Philippines. Article XII, section 2 of the • a joint venture agreement, which is an agreement where a 1987 Philippine Constitution provides that ‘[all] lands of the public joint-venture company is organised by the government and domain, waters, minerals, coal, petroleum and other mineral oils, the contractor with both parties having equity shares. Aside all forces of potential energy, fisheries, forests or timber, wildlife, from earnings in equity, the government is entitled to a share flora and fauna, and other natural resources are owned by the state.’ in the gross output; and Furthermore, it provides that the state has full control and super- • a financial or technical assistance agreement (FTAA), which is vision of ‘the exploration, development, and utilisation of natural an agreement for the large-scale exploration, development and resources’. Since the state is the owner of all natural resources, the utilisation of mineral resources (ie, mining projects requiring a owner of surface rights does not own the minerals below the ground. minimum investment of US$50 million). The state may grant mining rights over an area to parties other than the owner of the surface rights. Subject to the fulfilment of certain conditions, mining rights are The state may grant private parties the right to explore, develop generally acquired on a first-come, first-considered basis. Under and utilise natural resources. In this regard, the state may enter into Executive Order No. 79, the grant of mining rights and mining co-production, joint venture, or production-sharing agreements with tenements over areas with known and verified mineral resources Filipino citizens, or corporations at least 60 per cent of whose capital and reserves, including those owned by the government and those is owned by such citizens. The President of the Philippines is also under expired tenements, will be undertaken through competitive authorised to ‘enter into agreements with foreign-owned corpora- public bidding. tions involving either technical or financial assistance for large-scale The holder of a mineral agreement or an FTAA is obliged to exploration, development, and utilisation of minerals, petroleum, conduct mining operations in accordance with the terms of the and other mineral oils’. agreement and applicable laws and regulation. Holders of exploration permits enjoy preferential rights in acquiring a mineral agreement or an FTAA over areas covered by 9 What information and data is publicly available to private parties the exploration permit. The exploration permit holder may, at his that wish to engage in exploration and other mining activities? Is or her choice, convert totally or partially the exploration permit to there an agency which collects mineral assessment reports from a mineral agreement or an FTAA for the purpose of undertaking private parties? Must private parties file mineral assessment detailed exploration, if the exploration activities indicate a resource reports? Does the agency or the government conduct geoscience discovery. For this purpose, the exploration permit holder must file surveys, which become part of the database? Is the database a letter of intent with the relevant MGB regional office and provide available online? a copy to the MGB central office. Upon compliance by the explora- The MGB regularly publishes the annual Directory of Philippine tion permit holder with all the pertinent requirements, including a Producing Mines and Quarries, Generation of Mineral Statistics (a field verification report by the MGB regional office confirming the monthly report on metallic and non-metallic mineral production, resource discovery and upon payment of the required conversion sales, employment, exports and prices), the Mineral Statistics Series fee, the application for conversion will be evaluated and approved (an annual report on local and international mineral production and subject to applicable laws and regulations. metal prices) and the Quarterly Review of the Minerals Industry. Geological maps and technical reports are also available at the MGB. Information is also available in other non-periodic publica- 11 What is the regime for the renewal and transfer of mineral licences? tions of the MGB and its website (www.mgb.gov.ph). Exploration permit Holders of exploration permits and mineral agreements are An exploration permit is valid for a period of two years, subject required to periodically submit reports to the MGB or the DENR. to renewal for periods of two years, up to a total of four years for The government conducts geoscience surveys, which become part non-metallic mineral exploration and six years for metallic mineral of the Mineral Resources Database System and National Geodetic exploration. The grantee of the permit may apply for further renewal Network Information System; however, these are not available of the exploration permit, which may be granted for another term online. of two years for the very purpose of preparing or completing the feasibility studies, and filing of the declaration of mining project feasibility and the pertinent mineral agreement or FTAA application. 10 What mining rights may private parties acquire? How are these The DENR Secretary, through the MGB Director, may grant the acquired? What obligations does the rights holder have? If exploration renewal after field verification by the MGB, and compliance with all or reconnaissance licences are granted, does such tenure give pertinent requirements, including payment of all required fees and the holder an automatic or preferential right to acquire a mining reporting requirements. Under the regulations, if all the require- licence? What are the requirements to convert to a mining licence? ments have been complied with and the exploration permit appli- Under the Mining Act, mining rights may be acquired through the cation for renewal is still awaiting approval one month after its following: date of filing, the said exploration permit application for renewal, • an exploration permit, which grants the holder the right to upon submission of an affidavit by the applicant attesting to the explore (subject to valid, prior and existing rights of any party full compliance with all the pertinent requirements, will be deemed or parties within the subject area); approved and the MGB Director must issue the renewed explora- • a mineral agreement, which may be in the form of: tion permit. • a mineral production-sharing agreement (MPSA), which is An exploration permit may be transferred or assigned to an agreement where the government grants to the contrac- another qualified person or persons subject to the approval of the tor the exclusive right to conduct mining operations within a MGB director. contract area and shares in the gross output. The contractor provides the financing, technology, management and per- Mineral agreement sonnel necessary for the implementation of the agreement; A mineral agreement has a term not exceeding 25 years from the • a co-production agreement, which is an agreement between date of its execution, renewable for another term not exceeding the government and the contractor wherein the government 25 years under the same terms and conditions, without prejudice provides inputs to the mining operations other than the min- to changes mutually agreed upon by the government and the con- eral resource; or tractor. After the renewal period, the operation of the mine may be www.gettingthedealthrough.com 149 PHILIPPINES SyCip Salazar Hernandez & Gatmaitan undertaken by the government or through a contractor. The contract legislation or regulations impairing its obligations under such min- for the operation of a mine will be awarded to the highest bidder in eral agreements. a public bidding; however, the contractor will have the right to equal The Mining Act established a system of arbitration for min- the highest bid upon reimbursement of all reasonable expenses of ing disputes. Thus, an arbitration panel would have exclusive and the highest bidder. original jurisdiction to hear and decide disputes involving rights to A contractor may file an application for the total or partial mining areas; disputes involving mineral agreements or permits; and transfer or assignment of its mineral agreement to a qualified person disputes involving surface owners, occupants and claim holders or upon payment of an application fee with the MGB regional office concessionaires. A party not satisfied with the decision or order of concerned for evaluation. The application should be accompanied the panel of arbitrators may appeal the decision, within 15 days of by the pertinent deed of assignment that must contain, inter alia, receipt, to the Mines Adjudication Board, which must resolve the a stipulation that the transferee or assignee assumes all obligations appeal within 30 days of submission thereof. An aggrieved party of the transferor or assignor under the agreement. Any transfer or may file a petition for review by certiorari with the Supreme Court assignment of rights and obligations under a mineral agreement is within 30 days from receipt of the order or decision of the Mines subject to the approval of the DENR secretary upon the recom- Adjudication Board. mendation of the MGB director. Any transfer or assignment will be Generally, foreign arbitration awards may be recognised and deemed automatically approved if not acted upon by the DENR enforced in the Philippines, which is a party to the New York secretary within 30 calendar days from official receipt thereof, Convention on the Recognition and Enforcement of Foreign Arbitral unless it is patently unconstitutional, illegal or where such transfer Awards. or assignment is in violation of pertinent rules and regulations.

14 What surface rights may private parties acquire? How are these Financial or technical assistance agreement rights acquired? An FTAA has a term not exceeding 25 years from the date of execution thereof, renewable for another term not exceeding 25 years In general, the Mining Act grants private parties holding mining under such terms and conditions as may be provided for by law and rights the following auxiliary rights in respect of the surface area: mutually agreed upon by the parties. • the right to cut trees or timber within the mining area as may be A contractor may file an application for the total or partial trans- necessary for mining operations, subject to forestry laws, rules fer or assignment of its FTAA to a qualified person upon payment and regulations; of an application fee with the MGB regional office concerned for • water rights for mining operations, upon approval of an appli- evaluation. The application should be accompanied by the pertinent cation with the appropriate government agency in accordance deed of assignment that must contain, inter alia, a stipulation that with existing water laws, rules and regulations promulgated the transferee or assignee assumes all obligations of the transferor or thereunder; assignor under the FTAA. Upon endorsement by the MGB director, • when mining areas are so situated that for purposes of more the DENR secretary may recommend to the president the transfer or convenient mining operations it is necessary to build, construct assignment of rights and obligations under the FTAA for approval. or install infrastructure on the mining areas or lands owned, Any transfer or assignment will be deemed automatically approved occupied or leased by other persons, the contractor, upon pay- if not acted upon by the president within 30 calendar days from ment of just compensation, is entitled to enter and occupy said official receipt thereof, unless it is patently unconstitutional, illegal mining areas or lands; and or where such transfer or assignment is in violation of pertinent rules • subject to prior notification, holders of mining rights may enter and regulations. private land and concession areas owned or held by surface owners, occupants, or concessionaires when conducting mining operations therein. However, the surface owner, occupant 12 Is there any distinction in law or practice between the mining or concessionaire must be compensated for any damage done to rights that may be acquired by domestic parties and those that his or her property by reason of such entry. If the surface own- may be acquired by foreign parties? ers of the land, occupants or concessionaires thereof refuse to The following agreements are available only to Philippine citizens allow the contractor or permit holder entry into the land despite or to corporations at least 60 per cent of whose capital is owned by receipt of the written notification or refuse to receive said writ- such citizens: ten notification, the contractor or permit holder can bring the • an MPSA; matter before the panel of arbitrators for proper disposition. • a co-production agreement; and • a joint-venture agreement. A mining contractor may also acquire other rights through the execution of agreements with the surface owner, occupant, or On the other hand, an exploration permit or an FTAA can be held concessionaire. by non-Philippine nationals or corporations that are 100 per cent foreign-owned. Corporations that are owned by non-Philippine 15 Does the government or do state agencies have the right to citizens or do not meet the minimum Philippine ownership usually participate in mining projects? Is there a local listing requirement enter into joint ventures with Philippine citizens or enter into an for the project company? FTAA with the government. The participation of the government and state agencies in mining projects depends on the terms and form of the mineral agreement. 13 How are mining rights protected? Are foreign arbitration awards Under the 1987 Philippine Constitution, the state may directly in respect of domestic mining disputes freely enforceable in your undertake the exploration, development, and utilisation of natural jurisdiction? resources, or it may enter into co-production, joint venture, or The Philippine Constitution establishes an independent judicial sys- production-sharing agreements with Philippine citizens, or cor- tem and guarantees adherence to the rule of law and due process. It porations or associations at least 60 per cent of whose capital is also guarantees that obligations of contracts will not be impaired owned by such citizens. The state may also enter into FTAAs with by subsequent legislation. Thus, the state, which is the counterparty non-Philippine nationals. of the private entity in mineral agreements, may generally not pass There is no local listing requirement for project companies.

150 Getting the Deal Through – Mining 2014 SyCip Salazar Hernandez & Gatmaitan PHILIPPINES

16 Are there provisions in law dealing with government expropriation Duties, royalties and taxes of licences? What are the compensation provisions? 18 What duties, royalties and taxes are payable by private parties The Mining Act does not have provisions dealing with government carrying on mining activities? Are these revenue-based or profit- expropriation of licences. In general, the government may revoke a based? mining licence or terminate the relevant agreement based on grounds provided by law or based on grounds provided in the permit or the Without prejudice to such fiscal incentives that may be available relevant agreement. In addition, the 1987 Philippine Constitution under existing laws, private parties carrying out mining activities provides that the state, in times of national emergency, when public are subject to taxes imposed under the National Internal Revenue interest so requires, may, during the emergency and under reason- Code and the Tariff and Customs Code, such as income tax, excise able terms prescribed by it, temporarily take over or direct the tax on minerals, value added tax and customs duties. They are also operation of any business affected with public interest. Moreover, subject to taxes imposed under the Local Government Code, such under the 1987 Philippine Constitution, private property may not as local business taxes and real property tax. Some of these taxes be taken for public use without fair compensation. are revenue-based and some are based on other criteria (eg, volume, actual market value of the gross output). Mining contractors must also pay occupation fees, computed 17 Are any areas designated as protected areas within your based on the size of the mining area, to the local government unit jurisdiction and which are off-limits or specially regulated? concerned. Under the Mining Act, the following areas are considered closed to Mining contractors operating within ancestral lands must also mining applications: pay royalties to the relevant indigenous cultural community based • military and other government reservations, except with prior on the gross output, while mining contractors operating within gov- written clearance from the government agency concerned; ernment mineral reservations must also pay royalties to the national • areas near or under public or private buildings, cemeteries, government based on the market value of the gross output of the archeological and historic sites, bridges, highways, waterways, minerals or mineral products extracted or produced. railways, reservoirs, dams or other infrastructure projects, public or private works including plantations or valuable crops, except 19 What tax advantages and incentives are available to private upon written consent of the government agency or private entity parties carrying on mining activities? concerned; • areas covered by valid and existing mining rights; Subject to the Investment Priorities Plan issued annually by the • areas expressly prohibited by law; Board of Investments, the contractors in mineral agreements and • areas covered by small-scale miners as defined by law unless FTAAs may be entitled to fiscal and non-fiscal incentives provided in with prior consent of the small-scale miners, in which case a the Omnibus Investments Code. These fiscal incentives may include royalty payment upon the utilisation of minerals must be agreed an income tax holiday for a certain number of years, exemption upon by the parties, said royalty forming a trust fund for the from certain taxes and special deductions from gross income. Non- socioeconomic development of the community concerned; and fiscal incentives may include simplified customs importation proce- • old growth or virgin forests, designated watershed forest dures and importation of consigned equipment for a period of 10 reserves, wilderness areas, mangrove forests, mossy forests, years and employment of foreign nationals in supervisory, technical national parks, provincial and municipal forests, parks, green- or advisory positions. Under the 2013 Investment Priorities Plan, belts, game refuge and bird sanctuaries as defined by law and mining and mineral processing projects are not entitled to an income in areas expressly prohibited under the National Integrated tax holiday. At present, the Investment Priorities Plan for 2014 is still Protected Areas System (NIPAS) under Republic Act No. 7586, in process. DENR Administrative Order No. 25, s. of 1992 and other laws. In addition, the Mining Act provides the following incentives: • Pollution control devices acquired, constructed or installed by Under Executive Order No. 79, applications for mineral contracts, contractors will not be considered as improvements on the land concessions, and agreements will not be allowed in the following: or building where they are placed, and will not be subject to • areas expressly enumerated under the Mining Act; property tax and other taxes or assessments. • protected areas categorised and established under the NIPAS • A net operating loss without the benefit of incentives incurred under Republic Act No. 7586; in any of the first 10 years of operations may be carried over as • prime agricultural lands, in addition to lands covered by a deduction from taxable income for the next five years imme- Republic Act No. 6657 (Comprehensive Agrarian Reform Law diately following the year of such loss. The entire amount of of 1988, as amended), including plantations and areas devoted the loss will be carried over to the first of the five taxable years to valuable crops, and strategic agriculture and fisheries develop- following the loss, and any portion of such loss that exceeds the ment zones and fish refuges and sanctuaries declared as such by taxable income of such first year will be deducted in a like man- the Secretary of the Department of Agriculture; ner from the taxable income of the next remaining four years. • tourism development areas, as identified in the National Tourism • Fixed assets may be depreciated as follows: to the extent of not Development Plan; and more than twice as fast as the normal rate of depreciation or • other critical areas, island ecosystems, and impact areas of min- depreciated at normal rate of depreciation if the expected life ing as determined by current and existing mapping technologies, is 10 years or less; or depreciated over any number of years that the DENR may hereafter identify pursuant to existing laws, between five years and the expected life if the latter is more than rules, and regulations, such as, but not limited to, Republic Act 10 years, and the depreciation thereon allowed as a deduction No. 7586. from taxable income.

Ancestral lands of the indigenous cultural communities are also The Mining Act also provides that the contractor will be entitled not open to mining operations unless the free prior and informed to the basic rights and guarantees provided in the 1987 Philippine consent of the relevant indigenous cultural community concerned Constitution and such other rights recognised by the government as is obtained. enumerated hereunder: • the right to repatriate the entire proceeds of the liquidation of the foreign investment in the currency in which the investment www.gettingthedealthrough.com 151 PHILIPPINES SyCip Salazar Hernandez & Gatmaitan

was originally made and at the exchange rate prevailing at the to preferential rates provided in income tax treaties between the time of repatriation; Philippines and the country where the non-resident recipient of the • the right to remit earnings from the investment in the currency dividends is domiciled. in which the foreign investment was originally made and at the exchange rate prevailing at the time of remittance; Business structures • the right to remit at the exchange rate prevailing at the time of remittance such sums as may be necessary to meet the payments 24 What are the principal business structures used by private parties of interest and principal on foreign loans and foreign obligations carrying on mining activities? arising from financial or technical assistance contracts; Private parties usually use a corporation to carry on mining activi- • the right to be free from expropriation by the government of the ties (except for small-scale mining which is usually conducted by property represented by investments or loans, or of the prop- individuals). erty of the enterprise except for public use or in the interest of national welfare or defence and upon payment of just com- 25 Is there a requirement that a local entity be a party to the pensation. In such cases, foreign investors or enterprises will transaction? have the right to remit sums received as compensation for the expropriated property in the currency in which the investment As discussed in item 12 above, a Philippine corporation wholly was originally made and at the exchange rate prevailing at the owned by non-Philippine nationals may hold an exploration permit time of remittance; or an FTAA. However, a mineral agreement (such as an MPSA) is • the right to be free from requisition of the property represented available only to Philippine citizens or to corporations at least 60 per by the investment or of the property of the enterprises except in cent of whose capital is owned by such citizens. Thus, the partici- cases of war or national emergency and only for the duration pation of Philippine nationals will be necessary for transactions thereof. Just compensation will be determined and paid either involving mineral agreements. at the time or immediately after cessation of the state of war or national emergency. Payments received as compensation for the 26 Are there jurisdictions with favourable bilateral investment treaties requisitioned property may be remitted in the currency in which or tax treaties with your jurisdiction through which foreign entities the investments were originally made and at the exchange rate will commonly structure their operations in your jurisdiction? prevailing at the time of remittance; and To date, the Philippines has signed more than 30 investment treaties, • any confidential information supplied by the contractor pursu- which encourage investments between the parties thereto through ant to the Mining Act and its implementing rules and regulations the creation of favourable investment conditions. Among the coun- will be treated as such by the DENR and the government, and tries with bilateral investment treaties with the Philippines are during the term of the project to which it relates. Argentina, Australia, Bahrain, Bangladesh, Belgium, Canada, Chile, China, the Czech Republic, Denmark, Finland, France, Germany, 20 Does any legislation provide for tax stabilisation or are there tax India, Indonesia, Italy, Japan, Korea, Myanmar, the Netherlands, stabilisation agreements in force? Pakistan, Portugal, Romania, Spain, Switzerland, Thailand, the There is no legislation providing for tax stabilisation on mining United Kingdom and Vietnam. operations. The Philippines also entered into several tax treaties with other countries (such as the US, Canada, Australia and China), mostly for the avoidance of double taxation and prevention of fiscal evasion 21 Is the government entitled to a carried interest, or a free carried with respect to income taxes. interest in mining projects? Generally, the government does not have a carried interest (or free Financing carried interest) in mining projects (unless expressly so provided in the relevant agreement). 27 What are the principal sources of financing available to private parties carrying on mining activities? What role does the domestic public securities market play in financing the mining industry? 22 Are there any transfer taxes or capital gains imposed regarding In general, the principal sources of financing used by private parties the transfer of licences? carrying on mining activities are equity and shareholder financing; Any gain received by an assignor is generally subject to income bank financing (including corporate financing or project financing); tax. However, the assignor of an exploration permit or mineral and public offering of shares. A number of domestic mining com- agreement do not generally receive monetary consideration for the panies are listed on the Philippine Stock Exchange. transfer of such exploration permit or mineral agreement, and the assignment is generally made upon the condition that the assignee will assume and perform the obligations of the assignor under the 28 Please describe the regime for taking security over mining interests. exploration permit or mineral agreement assigned. The issue of whether a security interest can be created over exploration permits, mineral agreements or FTAAs is not settled under Philippine law. 23 Is there any distinction between the duties, royalties and taxes payable by domestic parties and those payable by foreign parties? Restrictions Generally, there are no distinctions between duties, royalties and taxes payable by domestic parties and those payable by foreign 29 What restrictions are imposed on the importation of machinery parties. However, with respect to dividend income, dividends and equipment or services required in connection with exploration received by a Philippine corporation (which may be wholly and extraction? owned by non-Philippine citizens) or a Philippine branch of a non- In general, there are no restrictions and limitations imposed on the Philippine corporation from a Philippine corporation are not sub- importation of machinery and equipment or services required in ject to Philippine income tax. On the other hand, dividends paid connection with mining activities. However, to the maximum extent to a non-resident, non-Philippine corporation by a Philippine cor- compatible with efficient mining operations, the contractor must poration are subject to Philippine income tax, without prejudice

152 Getting the Deal Through – Mining 2014 SyCip Salazar Hernandez & Gatmaitan PHILIPPINES give preference to products, services and technologies produced A mining contractor must secure an environmental compliance and offered in the Philippines of comparable quality. In particular, certificate (ECC) from the EMB prior to the conduct of develop- the contractor must give preference to Philippine-owned construc- ment works, construction of production facilities, or mine production enterprises and use buildings that can be constructed through tion activities in the contract area. After the issuance of the ECC, materials and skills available in the Philippines, employ Philippine the contractor must also submit an environmental protection and sub-contractors for road construction and the transportation and enhancement programme (EPEP). In addition, the contractor must purchase of Philippine household equipment, furniture and food. submit, on a yearly basis, an annual environmental protection and enhancement programme (AEPEP) based on the approved EPEP. It usually takes several months to obtain the necessary environ- 30 What restrictions are imposed on the processing, export or sale of mental permits and clearances. minerals? Are there any export quotas, licensing or other mechanisms that prevent producers from freely exporting their production? There is no requirement that metallic minerals be processed or sold 34 What is the closure and remediation process for a mining in the Philippines. However, certain permits must be obtained for project? What performance bonds, guarantees and other financial certain types of activities, such as for mineral processing, ore trans- assurances are required? port, and mineral trading. Contractors must rehabilitate excavated, mined-out, tailings- covered and disturbed areas to the condition of environmental safety. The Mining Act requires each contractor to establish and 31 What restrictions are imposed on the import of funds for exploration and extraction or the use of the proceeds from the maintain a mine rehabilitation fund (MRF) as a deposit to ensure export or sale of minerals? availability of funds for the satisfactory compliance of commitments stipulated in the EPEP or AEPEP. The MRF is deposited as a Generally, there are no restrictions or limitations imposed on the trust fund in a government depository bank and is used for physi- import of funds for mining activities. However, the Mining Act cal and social rehabilitation of areas and communities affected requires FTAAs to contain a stipulation that, except for payments by mining activities and for research on the social, technical and for dispositions for its equity, foreign investments in local enterprises preventive aspects of rehabilitation. that are qualified for repatriation, and local suppliers’ credits and such other generally accepted and permissible financial schemes Health & safety, and labour issues for raising funds for valid business purposes, the contractor will not raise any form of financing from domestic sources of funds, 35 What are the principal health and safety, and labour laws whether in the Philippine or foreign currency, for conducting its applicable to the mining industry? What are the principal mining operations for, and in, the contract area. regulatory bodies that administer those laws? Proceeds from the export or sale of metallic minerals need not The Mining Act and the Labour Code (and their implementing be repatriated back to or used in the Philippines. Access to foreign regulations) are the principal health and safety and labour laws exchange is not tied to export performance. However, under section applicable to the mining industry (in addition to other local laws 72 of Republic Act No. 7,653, the Monetary Board of the Central of general application). DENR Order No. 21-10 contains detailed Bank, with the approval of the president of the Philippines, in the provisions on mines safety and health protection. The DENR has imminence of, or during, a foreign exchange crisis or in times of also issued separately the Mine Safety and Health Standards. national emergency, may require any person residing in or operating The DENR, the MGB, the EMB and the Department of Labour in the Philippines to deliver any foreign exchange obtained by such person to the Central Bank or to any bank or agent designated by and Employment are the principal regulatory bodies that administer the Central Bank, at the then effective exchange rate or rates. these laws.

Environment 36 What restrictions and limitations are imposed on the use of domestic and foreign employees in connection with mining activities? 32 What are the principal environmental laws applicable to the mining industry? What are the principal regulatory bodies that Pursuant to the Mining Act, a contractor must give preference to administer those laws? Philippine citizens in all types of mining employment within the country in so far as such citizens are qualified to perform the corre- The Mining Act and DENR Order No. 21-10 are the principal sponding work with reasonable efficiency and without hazard to the environmental law and regulations applicable to the mining safety of the operations. The contractor, however, is not to be hin- industry (in addition to other local environmental laws of general dered from hiring employees of his or her own selection, subject to application). DENR Order No. 21-10 contains detailed provisions the provisions of the Philippine Immigration Act (Commonwealth on environmental protection. The DENR, the MGB and the EMB Act No. 613, as amended), for technical and specialised work that, are the principal regulatory bodies that administer said laws. in his or her judgement and with the approval of the MGB direc- The other local environmental laws that may apply to mining tor, requires highly specialised training or lengthy experience in the operations include the Toxic Substance and Hazardous and Nuclear exploration, development or utilisation of mineral resources. Wastes Control Act of 1990, the Clean Air Act of 1999 and the Furthermore, section 2-A of the Anti-dummy Law Clean Water Act of 2004. (Commonwealth Act No. 108, as last amended by PD No. 715) contains a prohibition against the employment by any person, cor- 33 What is the environmental review and permitting process for a poration or association of any alien who will intervene in the man- mining project? How long does it normally take to obtain the agement, operation, administration or control thereof, whether as necessary permits? an officer, employee or labourer, where the exercise or enjoyment All applicants for exploration permits, mineral agreements and of the property of (or the franchise, privilege or business engaged FTAAs must submit an Environmental Work Programme (EWP) in by) such person, corporation or association is expressly reserved detailing the environmental impact control and rehabilitation activi- by the 1987 Philippine Constitution or local laws to citizens of the ties proposed during the exploration period (including the costs to Philippines or to corporations or associations at least 60 per cent enable sufficient financial resources to be allocated to meet envi- of the capital of which is owned by such citizens. There are only ronmental and rehabilitation commitments). two exceptions to this prohibition: first, where the Secretary of the www.gettingthedealthrough.com 153 PHILIPPINES SyCip Salazar Hernandez & Gatmaitan

Philippine Department of Justice (or his authorised representative) specifically authorises the employment of a non-Filipino as tech- Update and trends nical personnel; and secondly, the election of aliens as members of the boards of directors or governing bodies of corporations or On 21 February 2013, the DENR, through DENR Memorandum associations engaged in partially nationalised activities in proportion Order No. 2013-01, increased the capitalisation requirements for to their allowable participation in the capital of such entities. Please corporations applying for exploration permits, mineral agreements or FTAAs. Corporate mining applicants are now required to have an note that the Anti-dummy Law does not apply to a corporation that authorided capital stock of at least 100 million Philippine pesos holds an exploration permit or an FTAA (unless the corporation is and a paid-up capital of at least 6.25 million Philippine pesos. engaged in other partly nationalised activities such as landholding). On 7 March 2013, the DENR formally lifted the moratorium on the acceptance of mining applications. The moratorium or the suspension of acceptance by the MGB of all types of mining Social and community issues applications had been in effect since 18 January 2011. Please note, however, that the moratorium on the issuance or grant of new 37 What are the principal community engagement or CSR (corporate mineral agreements, pursuant to Executive Order No. 79, section social responsibility) laws applicable to the mining industry? What 2012, will remain in effect until a legislation rationalising existing are the principal regulatory bodies that administer those laws? revenue sharing schemes and mechanisms has been enacted. The principal community engagement or CSR laws and regulations are the Mining Act and DENR Order No. 21-10. DENR Order No. or IPs, the mining contractor would have to obtain a separate FPIC 21-10 contains specific provisions for the development of host and from the ICCs or IPs concerned for each major phase of the proposed neighbouring communities of a mining project to promote the mining project (eg, exploration, development, commercial operation). general welfare of their inhabitants. The DENR and the MGB, In connection with the procurement of an FPIC for a proposed with the participation of the local government units concerned, mining project, the parties will agree on the royalty payment to the are the principal regulatory bodies that administer these laws and concerned ICCs or IPs, which may not be less than 1 per cent of regulations. the gross output. The ICCs or IPs have the right to stop or suspend any mining project that did not satisfy the consultation process. 38 How do the rights of aboriginal, indigenous or currently or previously disadvantaged peoples affect the acquisition or 39 What international treaties, conventions or protocols relating to exercise of mining rights? CSR issues are applicable in your jurisdiction? The Indigenous People’s Rights Act (Republic Act No. 8371) pro- The Philippines is not a party to any treaty, convention or protocol vides that indigenous cultural communities (ICCs) or indigenous that specifically relates to CSR issues. peoples (IPs) have priority rights in the harvesting, extraction, development or exploitation of natural resources within their ancestral Foreign investment domains. A non-member of an ICC or a non-IP is allowed to take part in the development and utilisation of the natural resources for a 40 Are there any foreign ownership restrictions in your jurisdiction period not exceeding 25 years, renewable for a period not more than relevant to the mining industry? 25 years, through a written agreement entered into with the ICCs As mentioned in question 12 above, non-Philippine nationals or IPs concerned. The National Commission on Indigenous Peoples may hold only exploration permits and FTAAs. However, non- (NCIP) exercises visitorial powers and may take action to safeguard Philippine nationals may not hold mineral agreements (eg, MPSAs, the rights of the ICCs or IPs under this agreement. co-production agreements, joint venture agreements). Governmental departments and agencies are strictly enjoined from issuing, renewing, or granting any concession, licence or lease, International treaties or entering into any production-sharing agreement, without prior certification (Certification Precondition) from the NCIP that either 41 What international treaties apply to the mining industry or an the area affected does not overlap with any ancestral domain or the investment in the mining industry? mining contractor has obtained the free and prior informed consent The Philippines is not a party to any treaty that applies specifically to (FPIC) of the ICCs or IPs concerned in accordance with applicable the mining industry or an investment in the mining industry. regulations. Unless otherwise specifically stated in the memorandum of agreement between the mining contractor and the ICCs

Hector M de Leon Jr [email protected]

SyCipLaw Center Tel: +63 2 982 3500 105 Paseo de Roxas Fax: +63 2 817 3896 Makati City 1226 www.syciplaw.com Philippines

154 Getting the Deal Through – Mining 2014 Bowman Gilfillan SOUTH AFRICA South Africa

Claire Tucker Bowman Gilfillan

Mining industry considered in interpreting the MPRDA where there is no conflict between the MPRDA and common law. The principles must espe- 1 What is the nature and importance of the mining industry in cially be considered where the MPRDA does not contain provi- your country? sions on mineral resource issues. South Africa is renowned for being a mineral treasure trove with an abundance of resources. It owns and produces a significant propor- 5 How is the mining industry regulated? tion of the world’s minerals: nearly 90 per cent of platinum metals, 80 per cent of manganese, 73 per cent of chrome, 45 per cent of The MPRDA established the state as the custodian of all min- vanadium and 41 per cent of gold are located in South Africa. A eral resources in South Africa, through the Minister of Mineral substantial variety of other minerals are extracted, including iron Resources. The mining industry is regulated by the MPRDA, ore, copper, nickel, diamonds, coal, building materials and other through the national and regional offices of the Department of non-metallic minerals. Mineral Resources (DMR). South Africa’s wealth has been built on its vast resources and the mining industry is therefore crucial. South Africa’s valuable minerals 6 What are the principal laws that regulate the mining industry? are estimated to be worth close to 30 trillion South African rand. What are the principal regulatory bodies that administer those The mining industry is also South Africa’s biggest employer, laws? with over 510,000 employees and another 400,000 employed by The principal law that regulates the mining industry is the MPRDA. suppliers of goods and services to the industry. South Africa’s min- Other related environmental legislation includes: the National ing industry is probably the world’s most highly developed. With a Environmental Management Act 107 of 1998 (NEMA); the National strong background as a major mining country, its strengths include Water Act 36 of 1998; the National Environmental Management: high levels of technical and production expertise, as well as compre- Air Quality Act 39 of 2004; and the National Environmental hensive research and development activities. Management: Waste Act 59 of 2008. The country has some of the most highly developed primary The DMR is the principal regulatory body in the mining industry. processing facilities worldwide, covering the carbon steel, stainless steel, and aluminium industries, in addition to gold and platinum. It is also a world leader of new technologies. 7 What classification system does the mining industry use for The industry suffers, however, from price fluctuations due to reporting mineral resources and mineral reserves? shifts in world demand for mining products and, presently, the The South African Code for Reporting of Mineral Resources and absence of mineral beneficiation before export. Mineral Reserves (the SAMREC Code) sets out the classification system for reporting mineral resources’ and mineral reserves’ required minimum standards, recommendations and guidelines for 2 What are the target minerals? public reporting of exploration results, mineral resources and min- Several minerals are mined in South Africa, including platinum met- eral reserves in South Africa. als, manganese, chrome, vanadium, gold, coal, diamonds, iron ore, Public reports are prepared to inform investors or potential copper, nickel, building materials and other non-metallic metals. investors and their advisers according to the Code. They include but are not limited to company annual reports, quarterly reports 3 Which regions are most active? and other reports incorporated in the Johannesburg Stock Exchange Mining occurs throughout South Africa, particularly in the (JSE) circulars, or as required by the Companies Act. In certain Mpumalanga Province, North West Province, KwaZulu Natal instances the Code also applies to environmental statements, infor- Province, Limpopo Province and Northern Province. mation memoranda, expert reports, technical papers, website post- ings and public presentations. Legal and regulatory structure SAMREC was established in 1998 and modelled its Code on the Australasian Code for Reporting of Mineral Resources and Ore 4 Is the legal system civil or common law-based? Reserves. Mineral resource exploitation in South Africa is regulated by both The Code has been adopted by the Southern African Institute statute and common law. The Mineral and Petroleum Resources of Mining and Metallurgy, The Geological Society of South Development Act 28 of 2002 (the MPRDA) is the primary regu- Africa, South African Council for Natural Specific Professions, the latory framework legislation. The MPRDA specifically directs that Engineering Council of South Africa and the South African Council where there is a conflict between the MPRDA and common law, for Professional and Technical Surveyors and is binding on mem- the MPRDA will prevail. However, the MPRDA does not nullify bers of these organisations. It is also incorporated in the JSE Rules the common law. Accordingly, the common law principles must be regarding listing requirements and continuing obligations. www.gettingthedealthrough.com 155 SOUTH AFRICA Bowman Gilfillan

The Code classifies mineral resources into three subdivisions in Modifying factors will include considerations of mining, metal- order of increasing confidence of geoscientific evidence: inferred, lurgical, economic, marketing, legal, environmental, social and indicated and measured resources. Mineral reserves are a modi- governmental factors. fied subset of the indicated and measured mineral resources. Public reports must use one of the terms in respect of proved or prob- Mining rights and title able mineral reserves; measured, indicated and inferred mineral resources; and exploration results. 8 To what extent does the state control mining rights in your These terms are defined in the 2007 edition (as amended, July jurisdiction? Can those rights be granted to private parties and 2009) of the Code, as follows: to what extent will they have title to minerals in the ground? • mineral resource – a concentration or occurrence of material of Are there large areas where the mining rights are held privately economic interest in or on the earth’s crust in such form, quality or which belong to the owner of the surface rights? Is there a and quantity that there are reasonable and realistic prospects separate legal regime or process for third parties to obtain mining for eventual economic extraction. The location, quantity, grade, rights in those areas? continuity and other geological characteristics of a mineral As the custodian of mineral rights, only the state can authorise resource are known, or estimated from specific geological evi- exploitation of mineral resources and grant these rights through the dence, sampling and knowledge, interpreted from an appropri- minister. ately constrained and portrayed geological model; The minister has the right to cancel or suspend a mineral right • inferred mineral resource – that part of a mineral resource for in specified circumstances. These include: contravening the MPRDA which volume or tonnage (or both), grade and mineral content while conducting mining-related operations; breaching any material can be estimated with a low level of confidence. It is inferred term or condition of a mineral right; contravening an approved from geological evidence and sampling, and assumed but not environmental management programme (EMP); or submitting verified geologically or through analysis of grade continuity. It is inaccurate or misleading information to the DMR. The minister based on information gathered through appropriate techniques must, however, first give written notice to the holder, indicating the from locations such as outcrops, trenches, pits, workings and intention to suspend or cancel the mineral right and giving reasons. drill holes that may be limited in scope or of uncertain quality The holder must also be given a reasonable opportunity to show and reliability; why the right should not be suspended or cancelled. • indicated mineral resource – that part of a mineral resource for Owners of surface rights do not hold the mineral rights, unless which tonnage, densities, shape, physical characteristics, grade they make application to the state for such rights. and mineral content can be estimated with a reasonable level Mineral rights are commonly granted to private parties. A min- of confidence. It is based on exploration, sampling and testing eral right is a limited real right with various related rights attaching information gathered through appropriate techniques from to it. A holder and its employees may: locations such as outcrops, trenches, pits, workings and drill • enter the land to which a right relates; holes. The locations are too widely or inappropriately spaced • bring onto such land any equipment and construct any infra- to confirm geological or grade continuity but spaced closely structure required for the operations; enough for continuity to be assumed; • prospect, mine, explore or produce for its own account on • probable mineral reserve – the economically mineable mate- or under the land for the mineral for which a right has been rial derived from a measured or indicated mineral resource or granted; both, which is estimated with a lower level of confidence than • remove and dispose of any mineral found during operations; a proved mineral reserve. It includes diluting and contaminat- • subject to section 59B of the Diamonds Act 56 of 1986 (in the ing materials and allows for losses expected to occur when the case of diamonds) remove and dispose of any diamonds found material is mined. Appropriate assessments to a minimum of a during the course of mining operations; pre-feasibility study for a project, or a life-of-mine plan for an • subject to the National Water Act 36 of 1998, use water on the operation, must have been carried out, including consideration land; and of, and modification by, realistically assumed mining, metal- • carry out any other activity incidental to the operations, if it lurgical, economic, marketing, legal, environmental, social and does not contravene the MPRDA’s provisions. governmental factors. Such modifying factors must be disclosed; • proved mineral reserve – the economically mineable material No person may prospect for or remove or mine, any mineral or com- derived from a measured mineral resource that is estimated with mence with any work incidental thereto on any area without: a high level of confidence. It includes diluting and contaminat- • an environmental authorisation issued in terms of the MPRDA ing materials and allows for losses expected to occur when the (this provision is not yet operative and will come into effect on 7 material is mined. Appropriate assessments to a minimum of a December 2014) ; pre-feasibility study for a project, or a life-of-mine plan for an • a prospecting right or mining right; and operation, must have been carried out, including consideration • giving the landowner or lawful occupier of the land in question of, and modification by, realistically assumed mining, metal- at least 21 days’ written notice. lurgical, economic, marketing, legal, environmental, social and The MPRDA provides that the ,inister must, within 30 days of governmental factors. Such modifying factors must be disclosed; receipt of the application from the regional manager, refuse to grant and a prospecting right if the granting of such right will result in the con- • measured mineral resource: that part of a mineral resource for centration of the mineral resources in question under the control of which tonnage, densities, shape, physical characteristics, grade the application and their associated companies with the possible lim- and mineral content can be estimated with a high level of confi- itation of equitable access to mineral resources. This provision may dence. It is based on detailed and reliable exploration, sampling therefore be used to prevent one private entity holding a monopoly and testing information gathered through appropriate tech- over rights to a specific mineral across large areas. Some private enti- niques from material at locations such as outcrops, trenches, ties have however acquired mineral rights over large areas prior to pits, workings and drill holes. The locations are spaced closely the MPRDA’s commencement, such as the De Beers Namaqualand enough to confirm geological and grade continuity. Mine on the West Coast of South Africa.

156 Getting the Deal Through – Mining 2014 Bowman Gilfillan SOUTH AFRICA

Third parties cannot obtain mineral rights in the same area right for the same mineral and land and no prior application for a where rights have already been granted to another party for the prospecting right, mining right, mining permit or retention permit same minerals. Nothing, however, precludes a third party from sub- has been accepted for the same mineral on the same land and which mitting an application for a right to a different mineral, in respect of remains to be granted or refused. the same land, that is not included in a holder’s existing right. In relation to mining rights, the minister may also publish invitations for applications for mining rights and set out the terms and 9 What information and data is publicly available to private parties conditions on which these rights will be granted (this provision is that wish to engage in exploration and other mining activities? Is not yet operative and will come into effect on 7 December 2014). there an agency which collects mineral assessment reports from Holders of prospecting or retention rights have the exclusive right private parties? Must private parties file mineral assessment to be granted a mining right for the land in question. Similarly, hold- reports? Does the agency or the government conduct geoscience ers of an exploration right have the exclusive right to be granted a surveys, which become part of the database? Is the database production right for the petroleum and exploration area in question. available online? Prospecting, mining and exploration right holders have an exclusive right to be granted a renewal of their respective rights. In order for The Mineral and Petroleum Titles Registration office, which is reg- the minister to be able to renew such rights the holders, amongst ulated by the Mining Titles Registration Act, is the office for the other things, must have complied with the requirements set out in registration of all mineral and petroleum titles and all other related the MPRDA for applying for the right to be renewed, the terms and rights, deeds and documents. Documents that are registered at this conditions of such right and not be in contravention of the MPRDA. office are not publicly available and an application to access them A reconnaissance permit holder does not have any exclusive right to must be made under the Promotion of Access to Information Act 2 be granted a prospecting right or mining right and is also not auto- of 2000 (PAIA). Under the PAIA a person requesting public docu - matically entitled to conduct any prospecting or mining operations. ments does not need to furnish reasons for their disclosure. Various limitations on the periods for exploitation of mineral The MPRDA contains obligations for mineral rights holders to resources are provided in the MPRDA for the different mineral submit reports to the DMR, although these are not generally avail- rights. Limitations on the number of renewals are also specified. able to the public. The rights holder’s obligations depend on the nature of the right The Council for Geoscience (CGS) is a public entity that col- or permit. The extent of the activities that the holder of a right or lects geoscience data (particularly geological, geophysical, mineral, permit is entitled to undertake is clearly set out in the MPRDA. geochemical and engineering–geological) in maps and documents. The obligations include rehabilitation obligations, obligations to This information includes data received from mining companies, employees, obligations to the surrounding community, etc. universities and research institutions worldwide. It maintains sev- In terms of the MPRDA, the rights holder has an obligation to eral mineral databases, some of which are accessible at its library, ensure optimal exploitation of the mineral resource. A person is only such as the COREDATA and COAL databases. One of the require- entitled to a mining, prospecting, exploration or production right ments in terms of the MPRDA is that an application for the renewal to the extent that they actively exploit these rights. Holders of such of a prospecting right must contain a certificate issued by the CGS rights therefore have an obligation to continuously conduct their that all prospecting information as prescribed has been submitted. operations within the period of the right. The South African Mineral Deposits Database is an online database A retention permit may only be issued if the applicant has, (www.geoscience.org.za). Access to information not publicly avail- among other things, completed prospecting activities and market able is subject to the PAIA and the Geoscience Act 100 of 1993, studies have revealed that mining of the mineral will be uneconomi- which regulates the functions of the CGS. cal owing to prevailing market conditions. To ensure optimal exploitation a planned mining, prospecting, 10 What mining rights may private parties acquire? How are these exploration or production work programme must be followed. acquired? What obligations does the rights holder have? If There are specified periods for rights holders to commence such exploration or reconnaissance licences are granted, does such operations. Corrective measures may be taken against a holder if tenure give the holder an automatic or preferential right to acquire minerals are not mined optimally. a mining licence? What are the requirements to convert to a A mineral rights holder is obliged to consult with interested and mining licence? affected parties, landowners and lawful occupiers in respect of their A private party may acquire a permit for reconnaissance, technical operations and activities. cooperation, mining and retention. Rights for prospecting, explora- Any person other than the mining right holder only has the right tion and mining may also be acquired. to mine as a contractor or service provider, by agreement with the The application procedure to acquire mineral rights from the holder. state is set out in the MPRDA. The minister can grant, issue, refuse, Mining permits and mining, prospecting, exploration and pro- control, manage or administer any of these rights. If the prospecting duction rights may only be transferred, ceded, let, sublet, alienated, or mining right application relates to land occupied by a community, disposed of or encumbered by mortgage with ministerial consent the minister may impose such conditions as are necessary to pro- and on just cause. Consent to both the transfer of a right and sub- mote the rights and interests of the community, including conditions stitution of the holder should be requested for the purposes of the requiring the participation of the community. MPRDA. Rights are acquired on a first come, first served basis. There are The person to whom the right will be alienated or disposed must amendments to the MPRDA which are not yet effective that remove show that they are capable of complying with the obligations, terms the ‘first come, first served’ provision in terms of the MPRDA. In and conditions of the right in question and satisfy the requirements terms of the amendments when they become effective the minister of an applicant. must by notice in the Government Gazette invite applications for, A contravention or failure to comply with the MPRDA is an amongst other things, prospecting or mining rights in respect of offence, for which penalties are stipulated in the Act. any area of land and may prescribe in such notice the period within A holder of a prospecting right has an exclusive right (while its which any application may be lodged with the regional manager prospecting right is still valid) to apply for its prospecting right to be and the procedures which must apply in respect of such lodgement. converted into a mining right. An applicant for a mining right has to Currently an application for a prospecting right, mining right or comply with the requirements of the MPRDA. An applicant must, mining permit must be accepted where no other person holds such among other things, demonstrate financial and technical ability, that www.gettingthedealthrough.com 157 SOUTH AFRICA Bowman Gilfillan the mineral can be mined optimally in accordance with the mining right. The holder of the mining or prospecting right, when request- work programme, how it will contribute to the social upliftment ing ministerial consent for the change of the controlling interest, of the surrounding community and to make the necessary financial needs to satisfy the minister that it will continue to be capable of provision, that its operations will not result in unacceptable pollu- complying with the provisions of the MPRDA and the terms and tion and ecological degradation, it has the ability to comply with the conditions of the mining or prospecting right. Mine Health and Safety Act 29 of 1996, the applicant is not in con- The requirements to renew or transfer the respective rights are travention of any provision of the MPRDA and the grant of the min- set out in the MPRDA. The DMR would of course have to consider ing right will further the socio-economic objectives of South Africa. any application within the requirements of administrative justice and would have to take a decision fairly and reasonably (among 11 What is the regime for the renewal and transfer of mineral other things). The DMR would however have a degree of discretion licences? in deciding whether the requirements for the renewal or the transfer of the respective rights have been meet. In terms of the MPRDA the minister must grant a renewal of an exploration, prospecting and mining right if the applicant complies with the requirements of the MPRDA and the holder, among other 12 Is there any distinction in law or practice between the mining things, has complied with the terms and conditions of the respective rights that may be acquired by domestic parties and those that right and is not in contravention of any relevant provision of the may be acquired by foreign parties? MPRDA. An exploration right may be renewed for a maximum of There are no restrictions in the MPRDA or in practice on a foreign three periods not exceeding two years each. A prospecting right may party acquiring mining rights in South Africa. be renewed once for a period not exceeding three years. A mining Owing to legislation providing for advancement of historically right may be renewed for further periods, each of which may not disadvantaged people, however, there are benefits in a domestic part- exceed 30 years at a time. ner having some form of interest in the foreign party’s mining activi- A mining right or prospecting right or any interest in such a right ties. The foreign party should give careful consideration to the most or a controlling interest (directly or indirectly) in a company that appropriate business entity utilised to acquire mining rights and take holds a mining or prospecting right may not be transferred, ceded, note of South Africa’s exchange control restrictions. let, sublet, assigned, alienated or otherwise disposed of without the written consent of the minister. Such written consent is, however, 13 How are mining rights protected? Are foreign arbitration awards not required in the case of a change in the controlling interest in a in respect of domestic mining disputes freely enforceable in your listed company. jurisdiction? For non-listed companies, which hold mining rights or are in the chain of control of such holders, only a change of control cur- A mining right is a limited real right that may be enforced against rently triggers the need for ministerial consent; however, in terms of third parties and once granted the state has a limited power to inter- amendments to the MPRDA which are not yet effective, ministe- fere in the right. Failure to respect a right could give rise to criminal rial consent will be required for any change in shareholding in such liability, a civil claim for damages or an administrative justice action. companies. The amendments (which are not yet effective) have also When a party’s rights or legitimate expectations have been mate- inserted a narrow definition of ‘controlling interest’ which is defined rially and adversely affected or that party has been aggrieved by as; in relation to a company the majority of the voting rights attach- any administrative decision taken under the MPRDA, the MPRDA ing to all classes of shares in the company; or in relation to any other allows for an appeal against such decision. business other than a company any interest which enables the holder Once the person has exhausted the remedies provided for to exercise directly or indirectly any control whatsoever over the by the MPRDA, they may apply to the High Court for a review activities or assets of the business. As such, only a 51 per cent change of the administrative decision, according to the provisions of the seems to be covered for listed companies. Promotion of Administrative Justice Act 3 of 2000. Transactions that are done in contravention of this section will Foreign arbitration awards are enforceable in South Africa, pro- be void in terms of section 11 (5) of the MPRDA and also place the vided that local requirements for enforcement are met. prospecting or mining right at risk of being cancelled or suspended by the minister (this provision is not yet operative). 14 What surface rights may private parties acquire? How are these A reconnaissance permission is only valid for a period of two rights acquired? years and may not be renewed. Similarly, it may also not be trans- A mining rights holder may seek to purchase the surface rights and ferred, ceded, let, sublet, alienated, disposed of or encumbered by South Africa has a free market in such property purchases. mortgage. If the surface rights are not purchased, the MPRDA grants a A mining permit may not be issued for a period exceeding two limited real right to the mining rights holder over the land as well years and may thereafter be renewed for three periods each of which as the minerals. In accordance with common law, the landowner may not exceed one year. A mining permit may not be transferred, is bound to allow the holder to do whatever is reasonably neces- ceded, let, sublet, alienated or disposed of, in any way whatsoever. sary for the proper exercise of the holder’s rights. The mineral rights In the event that a mining or prospecting right is ceded to holder must, however, exercise his or her rights with due regard another entity, such entity needs to demonstrate to the minister that to the landowner’s rights and interests and with the least possible it has the ability to comply with the terms and conditions of the min- inconvenience to the property and its owner. ing or prospecting right and the requirements of the MPRDA to be The mineral rights holder is not specifically required to conclude granted a mining or prospecting right, if such entity was to apply for an agreement with the landowner or land occupier regarding the the right in its name (ie, that the entity has access to the technical and surface use, but he must notify and consult with the landowner or financial ability to conduct the activities, not to be in contravention occupier before undertaking prospecting or mining operations. of the provisions of the MPRDA, has the ability to comply with Any person who intends to use the land surface in any way that the mine health and safety requirements and will further the socio- may be contrary to the MPRDA’s objectives must apply for ministe- economic objectives of South Africa). rial approval. The minister may also investigate allegations that a In respect of the change of a controlling interest (directly or indi- person is using their property in a manner that may detrimentally rectly) in the holder of the mining or prospecting right, the require- affect a mining operation. A rectification notice can then be served ments for ministerial consent are similar to that of the cession of the and enforced.

158 Getting the Deal Through – Mining 2014 Bowman Gilfillan SOUTH AFRICA

The DMR will investigate a conflict between a mineral rights For example, the National Environmental Management Protected holder and a landowner. The parties may be requested to conclude Areas Act 57 of 2003 does not prohibit the grant of mineral rights an agreement for payment of compensation for the landowner’s loss over a protected area, but only the actual prospecting and mining or damage. If no agreement is reached, the compensation will be on the area. determined by arbitration or a competent court. Alternatively, the DMR can recommend expropriation to the minister, in accordance Duties, royalties and taxes with the relevant legislation, should it further the MPRDA objectives. 18 What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these revenue-based or profit- 15 Does the government or do state agencies have the right to based? participate in mining projects? Is there a local listing requirement The Minerals and Petroleum Resources Royalty Act 28 of 2008 for the project company? (Royalty Act) commenced on 1 May 2010. Mining royalties are In terms of the MPRDA, state-owned enterprises may apply to the payable when mineral resources which were extracted from within Minister for prospecting or mining rights but they still have to com- the Republic, are transferred. The ‘transfer’ of the mineral resources ply with the requirements of the MPRDA. The Minister may exempt (which were extracted from within the Republic) is the trigger for organs of state from the provisions of applying for a prospecting the imposition of the royalty. or mining right in respect of any activity to remove any mineral for Mining royalties are calculated by a formula – there is a pre- road construction, building of dams or other purposes identified. scribed mining royalty rate for refined mineral resources and for In terms of the MPRDA there is no local listing requirement in unrefined mineral resources. The mining royalty percentage is respect of the project company that a state-owned enterprise may capped at 5 per cent for refined mineral resources and 7 per cent for have a participation interest in. unrefined mineral resources. The Royalty Act uses two variables to calculate the royalty liability: the value of the minerals (the tax base) 16 Are there provisions in law dealing with government expropriation and the royalty percentage rate that is applied to the base. of licences? What are the compensation provisions? The formula to be used to determine the percentage rate for In terms of the MPRDA, if it is necessary for the achievement of the refined mineral resources is: 0.5 + [earnings before interest and taxes/ objectives referred to in the MPRDA, the Minister may, in accord- (gross sales in respect of refined mineral resources x 12.5)] x 100. ance with section 25(2) and (3) of the Constitution of the Republic The formula to be used to determine the percentage mentioned of South Africa expropriate any land or any right therein and pay in section 3(2) of the MPRDA for unrefined mineral resources is: compensation in respect thereof. The reference to ‘any right therein’ 0.5 + [earnings before interest and taxes/(gross sales in respect of arguably includes reference to prospecting or mining rights. Section unrefined mineral resources x 9)] x 100. 25(2) of the Constitution provides that property may be expropri- The only difference between the formulae to be used for refined ated only in terms of law of general application, for a public purpose as opposed to unrefined mineral resources, is that a constant of 12.5 or in the public interest, and subject to compensation the amount of is used in respect of refined mineral resources and a constant of nine which and the time and manner of payment of which have either applies in respect of unrefined mineral resources. been agreed to by those affected or decided or approved by a court. Relief will be given to small businesses. Such relief comes in the In accordance with section 25(3) of the Constitution, the amount form of an exemption from the mining royalty subject to certain of the compensation and the time and manner of payment must be conditions being met. In addition to mining royalties, taxes imposed just and equitable, reflecting an equitable balance between the public in South Africa include income tax (corporate and individual); capi- interest and the interests of those affected, having regard to all rel- tal gains tax; and transactional taxes for example as VAT, securities evant circumstances, including: transfer tax and transfer duty. • the current use of the property; • the history of the acquisition and use of the property; 19 What tax advantages and incentives are available to private • the market value of the property; parties carrying on mining activities? • the extent of direct state investment and subsidy in the acquisi- Gold mining companies are taxed according to a formula. This for- tion and beneficial capital improvement of the property; and mula takes into account the marginal tax rate, the portion of tax free • the purpose of the expropriation. revenue, and the ratio of taxable income to total income. Capital allowances are provided for gold mines due to the high capital As regards section 25(3) of the Constitution, property is not only investments incurred. Diamond and other non-gold mining compa- limited to land. nies are taxed at the same rate of normal taxes applying to other companies. 17 Are any areas designated as protected areas within your jurisdiction and which are off-limits or specially regulated? 20 Does any legislation provide for tax stabilisation or are there tax There is certain national and provincial legislation, under which stabilisation agreements in force? properties may be declared a particular protected status. The Mineral and Petroleum Resources Royalty Act 28 of 2008 The MPRDA stipulates that no mineral rights may be issued makes provision for fiscal stability agreements to be entered into over any land ‘reserved under any other law’. This section is not an between the Minister of Finance with an extractor in respect of an absolute restriction and mineral rights may be issued in a protected extractor’s mineral resource right or in anticipation of the extrac- area if the minister is satisfied that a specified exclusion applies. tor acquiring a mineral resource right. Binding fiscal stability agree- If these exclusions are not applicable, the MPRDA prohibits the ments may be assigned by the extractor to another person who is issuing of mineral rights over land that is reserved under another acquiring the prospecting right or exploration right from the extrac- law, which includes legislation declaring land a particular protected tor. Fiscal stability agreements relating to such prospecting or explo- status. But the condition ‘in terms of any other law’ requires that the ration rights can be freely assigned. Fiscal stability protection for legislation, either national or provincial, which forms the basis for MPRDA mining or production rights can only be assigned in limited properties being given a particular protected status, be considered, circumstances, namely, where intra-group transactions occur. to establish what restrictions are contained for such protected areas.

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21 Is the government entitled to a carried interest, or a free carried on the JSE could be exempt from dividend tax (provided the required interest in mining projects? ‘declaration’ and ‘undertaking’ is submitted to the company or with- The MPRDA does not make provision that the government or state- holding agent in time). owned enterprises are entitled to a free carried interest in mining A distinction should be made between ‘mining royalties’ and projects. Amendments to the MPRDA that are not yet effective enti- royalties in terms of the ITA (the latter being paid in respect of, gen- tle the state to a 20 per cent free carried interest in new exploration erally speaking, the use or right of use of nay intellectual property and production rights. ‘Free carried interest’ is defined as ‘interest or the imparting of any scientific, technical, industrial or commercial allocated to the State in exploration or production operations with- knowledge or information as defined in terms of section 49A of the out any financial obligation on the State’. In terms of the amend- ITA). South Africa currently imposes a withholding tax of 12 per ments also over and above the 20 per cent free carried interest, the cent on royalties, as defined in the ITA, payable to non-residents. state is entitled to an unlimited participation interest in any explora- This withholding tax will increase to 15 per cent on 1 January 2015. tion or production right. This entitlement may be exercised either Agreements by South African companies to pay royalties to non- through a production sharing agreement or through acquisition of residents require the approval of the Exchange Control Department the interest in the right at an agreed price. of the South African Reserve Bank and/or the Department of Trade and Industry (DTI). The rate of this withholding tax may be reduced by an applicable DTA. 22 Are there any transfer taxes or capital gains imposed regarding From 1 January 2015 a 15 per cent withholding tax on any the transfer of licences? interest will be imposed on interest accruing to a non-resident on Capital gains tax and taxes on the disposal of an asset are regu- or after that date. A withholding tax on service fees paid to any lated in terms of the Eighth Schedule to the Income Tax Act 58 of non-resident at a rate of 15 per cent will also come into effect on 1 1962. Capital gains taxes are levied on the disposal of an asset. An January 2016. Similarly to the dividends withholding tax, the rate of asset is defined to include a right or interest of whatever nature to the withholding tax on interest and on service fees may be reduced or in property. A mineral right is a limited real right in property by a DTA. Foreign companies carrying on business in South Africa and could therefore fall within the ambit of this schedule. However, through a branch must be registered as ‘external companies’ and as the conversion of old mineral, mining, prospecting, exploration and taxpayers. South African branches of foreign companies were previ- production rights held before the introduction of the Mineral and ously taxed at 33 per cent and are currently taxed at 28 per cent. Petroleum Resources Development Act 28 of 2002, to new rights There are no withholding taxes on the remittance of branch profits. under that Act will not give rise to a capital gain or loss, as roll-over A subsidiary company registered in South Africa will be treated relief is granted by para 67C of the Eighth Schedule. as a separate legal entity and subject to the same tax provisions as However, we note that the transition period for the conversion domestic companies. of old mining rights into new rights expired on 30 April 2009. Business structures 23 Is there any distinction between the duties, royalties and taxes 24 What are the principal business structures used by private parties payable by domestic parties and those payable by foreign parties? carrying on mining activities? South Africa taxes South African residents on all income received South African law provides for two kinds of companies, which are or accrued irrespective of where it is earned and taxes non-residents the most common business vehicles for all private-party business. only on income that is derived from a South African source or that Both a public limited liability company and a private limited liabil- is deemed to have been derived from a South African source. The ity company must have at least one shareholder. The restrictions in Income Tax Act, 58 of 1962 (the ITA) defines a ‘resident’, in relation the previous Companies Act that a public limited liability company to juristic or legal entities, to mean any person that is incorporated, must have a minimum of seven shareholders and a private limited established or formed in South Africa or that has a place of effective company a maximum of 50 shareholders is no longer applicable. management in South Africa. Any person that is deemed to be exclu- There is no requirement that either shareholders or directors be sively a resident of another country for the purposes of the applica- South African citizens or residents. tion of any tax treaty between South Africa and that other country A branch office may be set up by the investor. Any time that a is specifically excluded from the definition of resident. foreign company carries on a range of listed business activities in Resident companies are taxed on their worldwide income while South Africa, including as a branch office, it qualifies as an external non–residents are taxed on South African sourced income (subject company and must be registered as an external company with the to the provisions of any double taxation agreement (DTA)). Certain South African Companies Commission. Branch offices do not have withholding taxes also apply to non-residents. Non-residents are a separate legal personality from the head office. However, for taxa- also taxed (subject to the provisions of any DTA) on capital gains tion and exchange control regulation purposes, an external com- arising from their disposal of the following: pany is treated as having a separate personality. Further, under the • immovable property situated in South Africa, held by the Companies Act, only certain specified sections of the Companies Act non-resident; apply to external companies, including, for example, the obligation • an interest of at least 20 per cent in a South African company, to maintain at least one office in South Africa and the duty to file an trust or other entity if 80 per cent or more of the market value of annual return in the prescribed form. This varies from the previous the company consists of immovable property situated in South Companies Act, which applied in its entirety generally to every com- Africa; and pany including external companies. • any asset that is attributable to a permanent establishment of A joint venture can be formed with a South African entity, either that foreign party in South Africa. through a South African subsidiary or directly in partnership; this is commonly used in the mining sector. With effect from 1 April 2012 any dividend paid by a South African If a black economic empowerment (BEE) partner is to be taken company to its shareholders (both resident and non-resident) is sub- into the South African business the most appropriate business entity ject to a withholding tax of 15 per cent. The rate of 15 per cent may would be a South African company, as this would allow the South be reduced by a DTA between South Africa and the non-resident African operations to be ring-fenced. shareholder’s country of residence, if one exists. Dividends payable to non-residents receiving dividends from foreign companies listed

160 Getting the Deal Through – Mining 2014 Bowman Gilfillan SOUTH AFRICA

25 Is there a requirement that a local entity be a party to the Financial assistance may be obtained by non-residents in South transaction Africa for bona fide foreign direct investments into South Africa, There is no requirement that either shareholders or directors in a without restrictions. company registered in South Africa are South African citizens or For BEE participation in a foreign business venture, there residents. Under the MPRDA there is, however, a requirement that a are several governmental and non-governmental organisations mining right holder must have 26 per cent BEE ownership by 2014. that assist HDI new business establishments. These include the South African entities and parties will therefore need to be involved Industrial Development Corporation, Small Business Development in any company that holds mining rights. Corporation, the Development Bank of Southern Africa and the National Business Initiative. Non-resident companies can be listed on the JSE. The South 26 Are there jurisdictions with favourable bilateral investment treaties African financial market is therefore open to foreign companies to or tax treaties with your jurisdiction through which foreign entities raise capital. South African residents are entitled to invest, without will commonly structure their operations in your jurisdiction? restriction, in inward-listed investments on the JSE. South African Since the end of the Apartheid period South Africa has negotiated institutions are permitted to invest in such listing using their existing more than 40 bilateral investment treaties (BITS) designed to pro- foreign investment allowances plus an additional 5 per cent of their mote and protect foreign investment. total retail assets in African inward-listed equity and debt securi- However, South Africa recently embarked on a review aimed ties. The Bond Exchange of South Africa no longer exists, as it was at creating an investment regime that strikes a balance between the acquired by the JSE. interests of foreign investors and the need for the government to implement measures in the public interest such as promotion of economic opportunities for the previously disadvantaged South 28 Please describe the regime for taking security over mining Africans. The DTI made a recommendation to restructure the exist- interests. ing BITs that South Africa has concluded to ensure that the BITs The MPRDA does not prevent the registration of a mortgage over the are in line with South Africa’s broader social and economic policies. prospecting or mining right. However no security can be registered To this end the DTI published the first draft of the Promotion and over the prospecting or mining right at the Mineral and Petroleum Protection of Investment Bill for public comment on 01 November Titles Registration Office until the registration of the prospecting or 2013 (the Bill). The Bill, which, on the face of it, aims to replace mining right itself has been effected. existing BITs when it becomes law, is still in a draft format and must Under the MPRDA a prospecting right or mining right or an still go through the Parliamentary process before it is passed into interest in any such right, or controlling interest in a company that law. In line with this policy shift, South Africa has recently can- holds such rights, may not be ceded, transferred, let, sublet, assigned, celled BITS with Switzerland, Luxembourg, Spain, Germany and alienated or otherwise disposed of without the written consent of Belgium. Cancellation of other BITs is therefore a foreseeable future the minister, except in the case of a change of controlling interest in possibility. listed companies. Briefly, the Bill diminishes the rights afforded to investors in The consent contemplated above is not required in respect of current BITs in the following ways: the encumbrance by mortgage of the rights mentioned or interest as In the event of expropriation, investors are no longer assured of security to obtain a loan or guarantee for the purpose of funding or compensation at full market value. The Bill provides that compensa- financing a prospecting or mining project by: tion will be in line with the Constitution of the Republic of South • any bank, as defined in the Bank Act 94 of 1990; or Africa, which provides for compensation which must be ‘fair and • any other financial institution approved for that purpose by the equitable’. registrar of banks referred to in the Bank Act 94 of 1990, on The Bill removes the obligation on the South African govern- request by the minister, if the bank or financial institution in ment to enter into international arbitration in the event of a dispute. question undertakes in writing that any sale in execution or any The DTI would facilitate mediation or South African courts may be other disposal pursuant to the foreclosure of the mortgage will approached for relief. be subject to the consent of the minister. The Bill does not contain the provision that currently exists in most BITs which entitles investors to ‘fair and equitable treatment’. Any encumbrance by mortgage of a prospecting or mining right Another significant difference between the Bill and impending must be lodged for registration at the Mineral and Petroleum Titles law as compared to the existing BITs is that the Bill and eventual Registration Office. law could be changed unilaterally by the South African Parliament Restrictions whereas the BITs offer protected investment for a fixed term, thereby assuring investors of security and stability. 29 What restrictions are imposed on the importation of machinery A full list of all BITs to which South Africa is a party, whether and equipment or services required in connection with exploration they are in force or not can be found at: http://unctad.org/Sections/ and extraction? dite_pcbb/docs/bits_south_africa.pdf. Imports into South Africa are comparatively unrestricted and cur- Please note that this list reflects the BITs as at 1 June 2013. Some rency is generally available to pay for imports. The International of the BITs, as referred to above, have been terminated since then. Trade Administration Act 71 of 2002 (ITAC Act) controls importa- Financing tion, through the International Trade Administration Commission (ITAC). 27 What are the principal sources of financing available to private The Customs and Excise Act 91 of 1964 governs the imposition parties carrying on mining activities? What role does the domestic of customs and excise duties, as well as various other charges imposed public securities market play in financing the mining industry? by the state on goods imported into the country. These charges are South Africa has a well-developed financial infrastructure, includ- contained in the schedules to the Act. Part 1 of the schedule has ing active money, capital and financial markets. There are many been constructed in accordance with the Harmonised Commodity well-established commercial, merchant and investment banks, both Description and Coding System, developed by the World Customs domestic and international. Organization (WCO). South Africa has substantially reduced its import tariff levels, pursuant to WCO commitments, cutting back www.gettingthedealthrough.com 161 SOUTH AFRICA Bowman Gilfillan from 80 different levels to six different levels. All quantitative con- Every producer of designated minerals will be required to offer to trol and formula duties have been replaced with ad valorem duties. local beneficiators a prescribed percentage of its production of min- There are no restrictions on the importation of services, pro- erals in prescribed quantities, qualities and timelines at the mine gate vided an appropriate visa is obtained by the foreign contractor or price or agreed price. ‘Mine gate price’ is, the fair value price (exclud- employee. ing VAT) of the mineral at the time that the mineral leaves the area of the mine and excludes transport and delivery charges from the mine 30 What restrictions are imposed on the processing, export or sale area to the local beneficiator. The amendments also provide that no of minerals? Are there any export quotas, licensing or other person, other than a producer (or an associated company of such mechanisms that prevent producers from freely exporting their producer), as defined, in respect of its own production and who has production? complied with the applicable requirements, may export designated minerals without the minister’s prior written approval. ‘Designated South Africa actively encourages exports and few restrictions are minerals’ mean such minerals which constitute input into local bene- imposed. ficiation programmes in line with the national development impera- The government has, however, committed to promotion of local tive. What is clear is that the provisions that the amendments are in beneficiation through legislation, to ensure equitable access to the respect of in relation to beneficiation are aimed at taking forward country’s mineral resources and, in turn, create employment. The the policy of the government that they have been pushing for some MPRDA includes provisions that the minister must promote initia - time regarding local production and beneficiation. The provisions tives or promote the beneficiation of minerals in the Republic. In this however remain unclear and need a clear regulatory framework to regard, a policy document titled: ‘A Beneficiation Strategy for South create certainty for mining companies. Africa’ (June 2011) was approved by Cabinet. Should any party intend to beneficiate any mineral mined in South Africa outside its borders it must first furnish written notice 31 What restrictions are imposed on the import of funds for and consult with the minister. exploration and extraction or the use of the proceeds from the The Mining Charter (as amended) and Mining Code specifi- export or sale of minerals? cally stipulate that mining companies will be able to offset up to 11 Where funds for mining activities are introduced into South Africa per cent of their ‘historically disadvantaged South African’ (HDSA) by a non-resident as a loan to a South African entity or as the sub- ownership requirements against the value of their beneficiation scription price for the acquisition of shares in a South African com- activities from 2012. pany, the South African Reserve Bank has to be informed, approval Amendments to the Diamonds Act 56 of 1986 facilitated the has to be obtained in respect of the terms of the loan and/or the beneficiation of diamonds in South Africa, by making diamonds shares have to be endorsed as being held by a non-resident share- more accessible for local cutters and polishers. The South African holder. If these approvals or endorsements have been granted, divi- Diamond and Precious Metals Regulator was established to issue dends or interest can flow back to the non-resident investor. authorisations for dealing, beneficiation, trading and possessing, selling, exporting or importing unpolished diamonds. When con- Environment sidering applications, the Regulator must consider the promotion of equitable access to and local beneficiation of South Africa’s dia- 32 What are the principal environmental laws applicable to the monds. South Africa also has a State Diamond Trader, whose func- mining industry? What are the principal regulatory bodies that tions are to maintain a client base of local diamond beneficiators. administer those laws? The objectives of the Trader are similarly to promote equitable The DMR presently regulates environmental management in pros- access to and local beneficiation of South Africa’s diamonds. The pecting, mining and operations. Legislative amendments are in Regulator has established a Diamond Exchange and Export Centre. place, which provide that the Department of Environmental Affairs All unpolished diamonds intended for export purposes must first be will become the regulating authority. The date of commencement of offered for sale to this centre as an export condition of unpolished these amendments into law is uncertain. diamonds. NEMA is the framework environmental legislation. All organs of Restrictions are imposed on the export of individual minerals state must, at all times, have regard for the principles of the NEMA in legislation. For example, the ITAC Act requires an export permit in the interpretation, implementation and administration of NEMA for the export of certain minerals. The export of gold, certain pre- or any legislation relating to the environment. The NEMA applies cious metals and diamonds is regulated and approval is required. to all mineral operations; however the MPRDA is presently the There is no restriction per se on the export of commodities such as primary source of environmental impact assessment requirements coal; although rail transport and port allocation may be required, and environmental rehabilitation obligations in the mining sector. which imposes restrictions on the capacity of the commodity trans- In terms of the MPRDA, a mineral rights holder must give effect ported. This indirectly affects the possible export quotas for such to integrated environmental management objectives. The holder is commodities. obliged to consider, investigate, assess and communicate the effects Amendments to the MPRDA that are not yet effective give the of the environmental impact of a mining activity to the DMR. All minister a wide discretion to determine what percentage of specified environmental impacts must be managed. As far as reasonably pos- minerals must be made available to local beneficiators as well as sible, the environment must be rehabilitated after the operation to specifying the mineral this is applicable to. Furthermore, the minis- its natural state or a land use conforming to accepted principles of ter’s consent will be required to export such minerals. The minister sustainable development. will be empowered to: A mineral rights holder is responsible for any environmental • in consultation with a minister of the relevant national depart- damage, pollution or ecological degradation and the management ments designate any mineral for local beneficiation; thereof as a result of his or her operations until the minister has • after taking into consideration the national development imper- issued a closure certificate to the holder concerned. atives such as macro-economic stability, energy security, industrialisation, food security and infrastructure development; • after considering the advice of the relevant council, publish such conditions required to ensure security of supply for local beneficiation in the prescribed manner.

162 Getting the Deal Through – Mining 2014 Bowman Gilfillan SOUTH AFRICA

33 What is the environmental review and permitting process for a BCEA regulates working hours, leave, payment of remuneration, mining project? How long does it normally take to obtain the and notice and payments on termination of employment. necessary permits? The Employment Equity Act 1998 prohibits unfair discrimina- Every person who has applied for a mining right must conduct an tion in any employment policy or practice on grounds such as race, environmental impact assessment and submit an EMP within 180 gender, sex, age and religion and regulates the implementation of days of receiving notice to do so. An EMP must be submitted in affirmative action measures (namely, measures which ensure that applications for a reconnaissance permission, prospecting right or employees from specific demographic groups have equal employ- mining permit. Certain activities related to mine development such ment opportunities and are equitably represented in the workplace). as the construction of a fuel storage facility, construction of a road or The Unemployment Insurance Act 2001 establishes the construction of a water pipeline network may be listed activities that Unemployment Insurance Fund (UIF). The Unemployment trigger the need for environmental authorisation under the NEMA. Contributions Act 2002 requires employers and their employees to In any application for a mining or related right, the applicant make contributions to the UIF. In the event of job loss, an employee must make the prescribed financial provision for rehabilitation or is entitled to benefits from the UIF. management of negative environmental impacts before the EMP will be approved. 36 What restrictions and limitations are imposed on the use of domestic and foreign employees in connection with mining 34 What is the closure and remediation process for a mining activities? project? What performance bonds, guarantees and other financial No foreign person may enter South Africa on a temporary or per- assurances are required? manent basis, without the necessary permit. The Immigration Act A mining rights holder has an obligation to rehabilitate or manage 13 of 2002 provides for the issuing of the following categories of negative environmental impacts. If the mining rights holder does not temporary residence permits to foreign nationals: comply with this obligation, the minister may use all or part of the • business permits – a foreign national must intend to establish or financial provision made by the mining right holder to undertake invest in a business in South Africa in which he or she may be such rehabilitation. The mining right holder must annually assesses employed. This permit is subject to the foreign national investing his or her environmental liability and increase his or her financial a prescribed minimum capital contribution in the business. The provision, with ministerial approval. permit holder may only conduct work in South Africa related to A closure certificate is made on application to the minister. The the business for which the permit has been issued; requirement to maintain the financial provision remains in force • work permits, in the form of: until a closure certificate has been issued. The minister may retain a • quota work permits – a foreign national must fall within portion of the financial provision to rehabilitate any latent or resid- a category determined annually by the Minister of Home ual environmental effects from the closed mine. Affairs. This is subject to the number of work permits issued The mineral rights holder remains responsible for any envi- not exceeding the determined quota; ronmental liability, pollution or ecological degradation until the • general work permits – provided that the prospective minister has issued a closure certificate. employer satisfies the Director-General of the Department The holder of a prospecting right, mining right, retention permit of Home Affairs that, despite a diligent search, the employer or mining permit must apply for a closure certificate upon: has been unable to employ a person in South Africa with • the lapsing, abandonment or cancellation of the right or permit the equivalent skills or qualifications. These permits may in question; be issued to a foreign national not falling within the quota • cessation of the prospecting or mining operation; categories; • the relinquishment of any portion of the prospecting of the land • exceptional skills transfer work permit – should an individ- to which a right, permit or permission relates; or ual have exceptional skills or qualifications, as determined in • completion of the prescribed closing plan to which a right, per- the Department of Home Affairs discretion; and mit or permission relates. • intra-company transfer work permit – if a foreign national is employed abroad by a business operating in South Africa Closure certificates are notoriously difficult to obtain in South Africa in a branch, subsidiary, or affiliate entity and who by reason and no time frames on this can be given. of employment is required to conduct work in South Africa for a period not exceeding two years; and Health & safety, and labour issues • corporate permits – these may be issued to a corporate applicant to employ foreign nationals who are required to perform work 35 What are the principal health and safety, and labour laws for the applicant. The Department of Home Affairs, in conjunc- applicable to the mining industry? What are the principal tion with the DTI, will determine the maximum number of for- regulatory bodies that administer those laws? eigners who can be employed with such work permit. The Mine Health and Safety Act 29 of 1996 (MHSA) is the principal health and safety legislation applicable to the mining industry. The Domestic employees should be employed in accordance with BEE Mine Health and Safety Council regulates matters relating to the requirements. MHSA. Employment in South Africa is regulated by statute, common Social and community issues law and contract. Legislation, such as the Labour Relations Act 1995, grants employees protection against unfair dismissal and 37 What are the principal community engagement or CSR (corporate unfair labour practices. It also regulates collective bargaining and social responsibility) laws applicable to the mining industry? What the transfer of undertakings as a going concern. are the principal regulatory bodies that administer those laws? Most contracts of employment are subject to the Basic The MPRDA has detailed requirements for social responsibility that Conditions of Employment Act 1997 (BCEA). Parties can agree dif- are imposed on mining companies. The DMR regulates these provi- ferent terms to those set out in the BCEA, provided these are not sions of the MPRDA. less favourable to the employee than what the BCEA provides. The The MPRDA’s objectives include promoting employment and advancing the socio-economic welfare of all South Africans; and www.gettingthedealthrough.com 163 SOUTH AFRICA Bowman Gilfillan ensuring mining rights holders contribute towards the socio- economic development of the areas in which they are operating. Update and trends As part of an application for a mining right an applicant must submit a Social and Labour Plan for approval by the DMR. Mining The Mineral and Petroleum Resources Development Amendment right holders must undertake to invest sizeable amounts in various Bill 2013 (the MPRDA Bill) was approved by the National Assembly programmes and projects for the upliftment of its employees and the and by the National Council of Provinces (NCOP) on 27 March 2014. local community. These include: Now that the MPRDA Bill has been approved by the NCOP it • a human resources development programme (which must will be sent to the President to sign and when the MPRDA Bill has include plans for skills development; career progression; men- been signed by the President the date for the commencement of torship; and internships and bursaries); the amendments will be published in the Government Gazette. • a local economic development programme (which must include, The purpose of the MPRDA Bill is to amend the MPRDA so as to remove ambiguities that exist within the Act; to provide for inter alia, infrastructure and poverty eradication projects; the regulation of associated minerals, partitioning of rights and measures to address housing; nutrition and living conditions of enhance provisions relating to the regulating of the mining industry employees); through beneficiation of minerals or mineral products; to promote • a procurement progression plan and its implementation for national energy security; to streamline administrative processes; to align the MPRDA with the Geoscience Act No. 100 of 1993, HDSA companies (in terms of capital goods, services and con- as amended; to provide for enhanced sanctions; to improve the sumables); and regulatory system; and to provide for matter connected therewith. • processes for managing downscaling and retrenchment. When the MPRDA Bill is enacted the minister will have to also enact the necessary regulations and these regulations will provide The Codes of Good Practice for the Mining Industry has also recently more clarity for the amendments introduced by the MPRDA Bill. been published under the MPRDA, to enhance the Mining Charter’s It is not clear when the MPRDA Bill will be enacted. implementation. It has provisions relating to human resource development and housing and living conditions of employees. The Mining Charter also expressly recognises that BEE owner- the BEE structure be varied, an amendment to the mining right ship can be in the form of economic participation by employees and would be required. the community. The MPRDA further provides that if two applications for mineral rights are received on the same day, preference will be given to applications from historically disadvantaged persons. 38 How do the rights of aboriginal, indigenous or currently or previously disadvantaged peoples affect the acquisition or exercise of mining rights? 39 What international treaties, conventions or protocols relating to CSR issues are applicable in your jurisdiction? Compliance with BEE requirements is essential when acquiring mineral rights. The MPRDA’s objectives include substantially and South Africa is a signatory to certain relevant international conven- meaningfully expanding opportunities for historically disadvan- tions, none of which are directly domesticated in its law. taged persons, including women, to enter the mineral and petroleum These issues are regulated extensively in South African domestic industries and benefit from the exploitation of South Africa’s mineral legislation, as set out in question 37. and petroleum resources. Foreign investment The Mining Charter specifies that ownership is indicated by both ‘meaningful economic participation’ of 26 per cent and ‘full 40 Are there any foreign ownership restrictions in your jurisdiction shareholder rights’ of 26 per cent. ‘Effective ownership’ is defined as relevant to the mining industry? meaningful participation of HDSAs in the ownership, voting rights, There are no restrictions in the MPRDA or in practice on a foreign economic interest and management control of mining entities. Based party acquiring mining rights in South Africa. on past practice of the DMR, management control is generally used Due to legislation providing for advancement of historically dis- to distinguish HDSA investors who are active in business rather than advantaged people, however, there are benefits in a domestic partner institutional investors, broad-based and employee participants. having some form of interest in the foreign party’s mining activi- Most mining rights are endorsed with an obligation to adhere to ties. The foreign party should give careful consideration to the most the BEE structure contained in the mining right application. Should

Claire Tucker [email protected]

165 West Street Tel: +27 11 669 9000 Sandton, 2146 Fax: +27 11 669 9001 Johannesburg www.bowman.co.za South Africa

164 Getting the Deal Through – Mining 2014 Bowman Gilfillan SOUTH AFRICA appropriate business entity utilised to acquire mining rights and take treatment to South African exports to EU countries. It is structured note of South Africa’s exchange control restrictions. to remove tariffs on 85 per cent of imports from the EU by 2012. The agreement equally provides for the abolition of EU import tar- International treaties iffs on a large majority of South African imports, within the same period but at an accelerated rate. 41 What international treaties apply to the mining industry or an South Africa has signed 42 bilateral investment protection trea- investment in the mining industry? ties with various countries. South Africa is a member of the World Trade Organization (WTO) The Safety and Health in Mines Convention was ratified by and is a signatory to all the WTO agreements dealing with a range South Africa in 1995. of specific trade issues. South Africa was one of the initiating countries and is an active In 2000 South Africa and the European Union concluded the participant of the Kimberley Process Certification Scheme. This South Africa–EU Free Trade Agreement, which aims to promote scheme aims to combat the link between illicit international trade in trade and cooperation. The bilateral treaty affords favourable rough diamonds and armed conflict.

www.gettingthedealthrough.com 165 SWEDEN Foyen Advokatfirma Sweden

Peter Dyer and Pia Pehrson Foyen Advokatfirma

Mining industry County of Västerbotten, an area of significant mineral density, and the County of Norrbotten where the majority of iron ore production 1 What is the nature and importance of the mining industry in is located. your country? Mining has been of great importance in Sweden throughout modern Legal and regulatory structure history and in recent times there has been a notable rise in interest in new mining projects. The number of people employed in the mining 4 Is the legal system civil or common law-based? industry is rising and there are currently almost 100 companies with Sweden’s legal system is civil law-based. exploration permits active in the search for minerals. Sweden is one of the EU’s leading producers of ores and metals. The mining industry is crucial to employment in some areas of 5 How is the mining industry regulated? Sweden and serves as an important basis for exports. All acts governing the mining industry are national, but decisions Mines currently in operation produce iron ore, sulphide ore and under these acts are taken by administrative bodies at both regional gold, but other minerals can also be found in sufficiently large quan- and national level. See question 6 for more detailed information. tities for profitable mining. An open-cast mine for rare earth metals Sweden is a member of the European Union and consequently any is expected to start extraction in 2015. (The deposit is considered to EU legislation concerning the mining industry is applicable as well. be the fourth largest in the world.) In 2011 a proposal for a national strategy for mineral exploita- 6 What are the principal laws that regulate the mining industry? tion was put forward by the Geological Survey of Sweden (SGU) to What are the principal regulatory bodies that administer those the Swedish government. This has so far resulted in additional fund- laws? ing for mapping and mineral information as well as a new group within the SGU with the sole task of assisting the mining industry. The Swedish Minerals Act (1991:45) is the principal law regulat- Political stability, good infrastructure throughout the whole ing the mining industry and it governs the procedure for acquiring country, a solid legal system, widespread expertise among the work- exploration permits and exploitation commissions on land, irrespec- force and a well-developed mining equipment industry mean that tive of who owns the land to be explored or exploited. Detailed Sweden offers favourable conditions for mining operations. provisions of the application process and fees can be found in the Parties interested in starting mining operations in Sweden can Minerals Ordinance (1982:285). visit the SGU’s website and through different databases on the site The Swedish Environmental Code (1998:808) is relevant in obtain basic information for the initial evaluation of suitable areas many aspects. The Environmental Code is applicable in matters con- for exploration. See also question 9. cerning the granting of a concession, which means that an environmental impact assessment (EIA) must be appended to an application for a concession. A permit for exploitation must always be granted 2 What are the target minerals? under both the Minerals Act and the Environmental Code. For more Sweden is by far the biggest producer of iron ore in the EU and is also information about EIAs, see question 33. among the leading producers of copper, zinc, lead, gold and silver. In The Planning and Building Act (2010:900) contains provisions 2010, 60 per cent of the exploration permit applications concerned that regulate building and construction. prospecting for copper, zinc, lead and nickel. Exploration for other Exploration work can be affected by the Off-road Driving Act minerals such as molybdenum, wolfram, vanadium, tellurium and (1975:1313) and the Cultural Heritage Act (1988:950). lithium was of interest for some foreign prospectors. A comprehen- Applications for exploration permits and exploitation con- sive map of ore and mineral locations can be found online through cessions under the Minerals Act are administered by the Mineral The Mineral Resources Information Office (MINKO) (www.sgu.se/ Inspectorate. The County Administrative Board takes part in the sgu/eng/produkter-tjanster/kartvisare/index.html). environmental evaluation of applications for exploration permits and exploitation concessions. The Swedish Government makes decisions in matters of particular public interest. The local munici- 3 Which regions are most active? pality is responsible for permissions in accordance with the Planning The mining industry is active in most parts of Sweden apart from and Building Act. Permissions required by the Environmental Code the southernmost regions and the islands of Öland and Gotland, are handled by the Land and Environmental Court. Supervision of where the prospect of finding valuable mineral deposits is more lim- compliance with the environmental conditions is usually carried ited. In those regions industrial mineral and construction material out by the County Administrative Board and by the municipality’s extraction is common instead. Northern Sweden is generally rich in Environment and Health Board. minerals and has the highest concentration of mining operations in the country. Specific areas of interest are the Skellefteå Field in the

166 Getting the Deal Through – Mining 2014 Foyen Advokatfirma SWEDEN

7 What classification system does the mining industry use for The area covered by the permit must be of a suitable shape and reporting mineral resources and mineral reserves? size and no larger than can be explored by the permit holder in an A stand-alone framework called the Fennoscandian Review Board appropriate manner. An exploration permit gives access to land for Standard (FRB standard) is recommended for use by the Swedish exploration work that does not harm the environment or prejudice Miners Association and has also been adopted by the corresponding the use of the land and entails a preferential right to an exploitation organisations in Norway and Finland. The classification system is concession. The rule is such that the party that applies first is given based on the international template for the public reporting of explo- priority and therefore it is required that the first application is com- ration results, mineral resources and mineral reserves that is created plete and will not need to be supplemented at a later time, as this by the Committee for Mineral Reserves International Reporting can result in complications for the assessment of which party that Standards with the purpose of creating mutual international stand- applied first. ards. The FRB standard is subsidiary to national legislation. The FRB If there is a possibility of the exploration work having a signifi- standard is similar in comparison to the CIM Standards, the JORC cant impact on the environment, a notice of consultation in accord- Code and the SAMREC Code since all the standards are based on ance with the Environmental Code (1998:808) must be sent to the the international template for the public reporting of exploration supervisory authority (The County Administrative Board). Before results, mineral resources and mineral reserves. exploration work begins, the permit holder must prepare a work plan. The plan must contain a description of the work planned, a Mining rights and title timetable, and an assessment of any impact on private rights and public interests. The plan must be communicated with all landown- 8 To what extent does the state control mining rights in your ers and any other affected parties. A work plan enters into force if jurisdiction? Can those rights be granted to private parties and to there are no objections. It will also enter into force if the applicant what extent will they have title to minerals in the ground? Are there and the objecting party agree to the contents of a revised plan. If large areas where the mining rights are held privately or which belong they cannot agree, the matter may be adjudicated by the Mining to the owner of the surface rights? Is there a separate legal regime Inspectorate, who in some cases also can establish conditions for the or process for third parties to obtain mining rights in those areas? exploration work. All minerals that are covered by the Minerals Act (1991:45) are Before any work may be commenced, the exploring party is listed in the Act and what is not listed belongs to the landowner. obligated to provide security for the compensation of any damage Minerals of interest for mining are among the ones listed. The reason and encroachment of rights that the exploration work might inflict. for this policy is that landowners in general are considered not to An applicant for an exploration permit is required to pay an appli- have the capacity needed for exploiting mineral resources on their cation fee as well as an exploration fee. The amount is decided land. The same rules apply to all types of landowners, whether it is according to the extent of the area subjected to exploration. the state, private entities or individuals. Exploration permits can be To commence mining activities an exploitation concession has granted for exploration on land (real property) belonging to any to be acquired. As a cardinal rule, concessions are valid for 25 years, type of landowner, both private and public. but can be extended. Furthermore, a concession is valid for a specific area, which is determined on the basis of the shape and extent of the deposit, the purpose of the concession, and other circumstances. 9 What information and data is publicly available to private parties that Concession is granted if the discovered mineral deposit shows a wish to engage in exploration and other mining activities? Is there probability of profitable exploitation and if the location and nature an agency which collects mineral assessment reports from private of the deposit does not render it inappropriate to grant the requested parties? Must private parties file mineral assessment reports? Does concession. The Environmental Code is applicable in matters con- the agency or the government conduct geoscience surveys, which cerning the granting of a concession. The holder of an exploration become part of the database? Is the database available online? permit is not entitled to an automatic but rather a preferential right The Geological Survey of Sweden (SGU) collects basic geological to acquire an exploitation concession. data concerning Sweden’s bedrock geology and properties of rock. In order for the holder of an exploration permit to acquire an Information related to prospecting obtained through government environmental permit the operation must be subject to a trial in the surveys and private exploration, is accessible through MINKO. Land and Environmental Court. This is a process which is sepa- Most information is accessible online where maps can be produced rated from the previously explained procedure concerning explo- on request for specific purposes and received in digital form or as ration permit and exploitation concession. The process to acquire hard copies. The National Drill Core Archive is located at MINKO an environmental permit is governed by the Environmental Code and contains over 4,000 kilometres of drill cores that can be used (1998:808). The environmental impact of the operation is thereby for analysis. The results from such analysis have to be submitted to tried by the Court. The Court also sets the conditions for the opera- MINKO and will be made public after a while. tion in its decision. When an exploration permit is terminated without the granting of an exploitation concession within the exploration area, the permit holder (if they are carrying on exploration work professionally) 11 What is the regime for the renewal and transfer of mineral must submit a summary report within three months. licences? An exploration right is valid for a period of three years, and can be prolonged for a maximum of 15 years under special conditions. 10 What mining rights may private parties acquire? How are these When an exploration permit expires a new application can be filed acquired? What obligations does the rights holder have? If exploration in order to renew an exploration right. The new application can or reconnaissance licences are granted, does such tenure give the be filed no earlier than a year after the previous exploration right holder an automatic or preferential right to acquire a mining licence? expired, but exceptions can be made from the one year rule if special What are the requirements to convert to a mining licence? conditions apply. Both exploration and exploitation permits are granted under the A transfer of an exploration right or a concession can be permit- Minerals Act (1991:45) to qualified applicants entirely irrespective ted under the Minerals Act (1991:45) after an application to the of who owns the land to be explored or exploited. permitting authority (the Mining Inspector). The permission can be An exploration permit is granted for a specific area of land granted if the future licence holder meets the conditions set forth in where there is some likelihood of a successful discovery being made. the Minerals Act. www.gettingthedealthrough.com 167 SWEDEN Foyen Advokatfirma

A granted concession is valid for 25 years. It can be prolonged Act (1972:719). Reasons for expropriation are specified in the for ten years at a time if work is performed on a regular basis on Act. The decision to expropriate land is made by the government said area. If work is not performed on a regular basis on said area, as a main rule, but the power of authority can be transferred to the concession can still be prolonged for an additional period of ten the County Administrative Board under certain circumstances. The years if the work performed meets specific criteria set up under the compensation provisions for expropriated land are also stated in the Minerals Act or if it is otherwise motivated by the common interest Expropriation Act. that the mineral findings should be exploited in an effective manner. The application to prolong a concession should be filed no later than 17 Are any areas designated as protected areas within your six months before the valid concession expires. jurisdiction and which are off-limits or specially regulated? Transfer of an environmental permit is permitted according to the Ordinance of Environmentally Harmful Operations and No exploration or exploitation is allowed in national parks and Protection of Health (1998:899), if the new holder notifies the there are several other areas or proximity limitations that might supervisory authority about the transfer (the County Administrative affect the outlook of conducting mining operations. Mining opera- Board). tions are rarely permitted in: • areas included in local plans or regional provisions under the Planning and Building Act (2010:900); 12 Is there any distinction in law or practice between the mining • closer than 30 metres to publicly owned transportation rights that may be acquired by domestic parties and those that infrastructure; may be acquired by foreign parties? • within 200 metres from inhabited buildings; There are no restrictions on foreign nationals obtaining exploration • areas of military interest; permits and exploitation concessions. • areas with electric power stations and industrial plants; An exploration permit or an exploitation concession may be • within 200 metres of public buildings, hotels, churches and com- transferred after consent by the issuing authority. parable establishments; • churchyards and burial grounds; and • certain specified undisturbed areas in the Swedish mountain 13 How are mining rights protected? Are foreign arbitration awards range. in respect of domestic mining disputes freely enforceable in your jurisdiction? According to the Environmental Code (1998:808), if an activity The mining inspector handles any disputes between the permit or is located near or within a Natura 2000 area, the operator must concession holder and the landowner concerning rights and obliga- demonstrate that the activity will not affect the environment in a tions connected to exploration or exploitation. Disputes regarding significant way. A Natura 2000 area is an ecological network of compensation to the landowner are handled by the mining inspector protected areas within the territory of the European Union. The or the Land and Environmental Court. Environmental Court tends to adjudicate matters affecting Natura Decisions made under the Minerals Act (1991:45) can be 2000 areas quite strictly. appealed, but the proper second instance depends on the type of Exploration work that can have significant impact on the natu- decision being appealed. ral environment requires that a notice of consultation is sent to the The Convention on the Recognition and Enforcement of Foreign County Administrative Board. If exploration work can damage land Arbitral Awards (the New York Convention), has been ratified by use where it is being carried out, security for compensation has to be Sweden. given if the landowner has not given their consent.

14 What surface rights may private parties acquire? How are these Duties, royalties and taxes rights acquired? 18 What duties, royalties and taxes are payable by private parties A legal proceeding for the designation of land is held at the request carrying on mining activities? Are these revenue-based or and expense of the concession holder. This procedure establishes the profit-based? concession area, which is the area the concession holder may use for Private parties conducting mining activities are required to pay an exploitation of the mineral deposits. In addition, any land within annual fee of 2 per mille of the average value of the minerals mined. or outside the concession area, which the concession holder plans The revenue is split between the landowners and the state, with to use for activities related to the exploitation, may be covered by landowners receiving 1.5 per mille and the state 0.5 per mille. the decision. When an exploitation concession is terminated, the Normal corporate income tax, currently set at 22 per cent, concession holder forfeits any rights to the land assigned to him applies to mining companies but there are no additional taxes for or her at that time. mining in particular. For an exploration permit, certain fees have to be paid to the 15 Does the government or do state agencies have the right to Mining Inspectorate by the applicant. An application fee of 500 kro- participate in mining projects? Is there a local listing requirement nor shall be paid to the mining inspector when handing in the appli- for the project company? cation for every new area consisting of 2,000 hectares. If permission Neither the Government nor the state agencies have a right to par- is granted, another 20 kronor for each hectare has to be paid for the ticipate in mining projects. The project company is not required to first three-year period of the permit. If an extension of the explora- be listed locally at any stage of the permit and concession processes. tion permit is permitted, an additional fee of 21 kronor per hectare per year is required. Further extension of the permit is possible, but will result in even higher annual fees. All fees are required to be paid 16 Are there provisions in law dealing with government expropriation in advance for each period of time. of licences? What are the compensation provisions? When applying for an exploitation concession, a fee of 80,000 It is not possible to expropriate permits or concessions related to min- kronor must be paid for each area the application concerns. There is ing, hence there are no compensation provisions regarding expro- also a fee for the designation of land proceedings. priation. On the other hand, the state is able to expropriate land and other areas under certain premises stated in the Expropriation

168 Getting the Deal Through – Mining 2014 Foyen Advokatfirma SWEDEN

19 What tax advantages and incentives are available to private 26 Are there jurisdictions with favourable bilateral investment treaties parties carrying on mining activities? or tax treaties with your jurisdiction through which foreign entities The tax advantages and incentives for private parties engaged in will commonly structure their operations in your jurisdiction? mining activities are regulated by the Energy Tax Act (1994:1776). Sweden is party to a number of international tax treaties, which may For example, tax relief can be obtained regarding carbon dioxide have an effect on the way foreign entities choose to operate but, in tax and energy tax for certain vehicles used in the mining activity general, such treaties are neutral in character and do not single out process. particular jurisdictions for favourable treatment.

Financing 20 Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force? 27 What are the principal sources of financing available to private There is no legislation in force regarding tax stabilisation and there parties carrying on mining activities? What role does the domestic are no tax stabilisation agreements. There are special rules regarding public securities market play in financing the mining industry? the state-owned company LKAB. These rules apply to, for instance, The largest Swedish mining operators are listed on the Stockholm customs regulations. Stock Exchange, now named Nasdaq OMX Nordic Stockholm. Others are financed by private equity firms or banks or both. In 21 Is the government entitled to a carried interest, or a free carried general, all means of financing open to any industrial business are interest in mining projects? also open to the mining industry. During the course of the exploitation the holder of the concession must pay an annual mineral reimbursement according to the 28 Please describe the regime for taking security over mining Minerals Act. The reimbursement amounts to two per mille of the interests. expected value of the minerals mined within the concession area It is not possible to take out a mortgage or to pledge a mining permit for the past year. Of the total reimbursement, three-quarters are or concession. It is, however, possible in respect of the real estate that reserved for the landowners within the concession area, and one the licence concerns. quarter belongs to the government. The holder of the concession is obliged to provide the information necessary to determine the scope Restrictions of the reimbursement. Apart from the mineral reimbursement described above, the 29 What restrictions are imposed on the importation of machinery government is not entitled to any type of carried interest in mining and equipment or services required in connection with exploration projects. and extraction? There are no specific restrictions concerning the importation of 22 Are there any transfer taxes or capital gains imposed regarding machinery and equipment for the mining industry. All services the transfer of licences? that are operated in Sweden, including mining, must be performed according to the law and provisions on health and safety (see ques- There are no special tax regulations for mining. General corporate tions 35 and 36). tax law applies.

30 What restrictions are imposed on the processing, export or sale 23 Is there any distinction between the duties, royalties and taxes of minerals? Are there any export quotas, licensing or other payable by domestic parties and those payable by foreign parties? mechanisms that prevent producers from freely exporting their Foreign parties pay the same duties and royalties as domestic parties. production? As a main rule, they also pay the same taxes. There are no restrictions on the processing, export or sale of minerals.

Business structures 31 What restrictions are imposed on the import of funds for 24 What are the principal business structures used by private parties exploration and extraction or the use of the proceeds from the carrying on mining activities? export or sale of minerals? The principal business vehicle used is the limited liability company. There are no foreign exchange controls or other restrictions on the Joint venture agreements are common but a joint venture is not import of funds for exploration and extraction or the use of the a legal person and so the actual vehicle used to operate the joint proceeds from the business. venture is still the limited liability company. Partnerships are rarely used in any larger scale or capital intensive business since they do Environment not provide the same structure and ease in transferring shares in the case of options and earn-in clauses. In addition, the minimum capital 32 What are the principal environmental laws applicable to the requirement for limited liability companies was recently lowered to mining industry? What are the principal regulatory bodies that 50,000 kronor, making this form of company even more accessible administer those laws? to both Swedish and international investors. It is also possible to The principal legislation is the Minerals Act (1991:45), which, with open a local branch that is registered in Sweden and that is not few exceptions, is applicable to exploration and exploitation on land. a legal person in its own right but considered part of a foreign Two types of rights are granted under the Minerals Act: explora- legal entity. Trusts, however, are not recognised in the Swedish legal tion permits and exploitation concessions. The Mining Inspectorate system. grants the permits. A permit for exploitation must always be granted under both the Minerals Act and the Environmental Code 25 Is there a requirement that a local entity be a party to the (1998:808). transaction? If exploration work can have significant impact on the environment, it entails certain investigations of the environmental aspects. There is no such requirement. The Mining Inspectorate also hears applications for exploration www.gettingthedealthrough.com 169 SWEDEN Foyen Advokatfirma permits and exploitation concessions, in consultation with the suggested security is satisfactory and if a security cannot be provided County Administrative Board, which examines whether the site is a permit will not be granted. acceptable from an environmental point of view. The Environmental Code is applicable in matters concerning the granting of a conces- Health & safety, and labour issues sion, which means that an EIA must be appended to an application for a concession. The Environmental Code is the principal 35 What are the principal health and safety, and labour laws environmental law in Sweden. With respect to mining operations, applicable to the mining industry? What are the principal permits under the Environmental Code are granted by the Land and regulatory bodies that administer those laws? Environmental Court. The principal health and safety law is the Work Environment Act Supervision of compliance with the environmental conditions is (1977:1160), which is applicable in all situations where an employee usually carried out by the County Administrative Board and by the performs work for an employer. The Work Environment Act is a municipality’s Environment and Health Board. framework act and detailed regulations are found in the provisions issued by the Swedish Work Environment Authority, which is the principal regulatory body concerning health and safety in the work- 33 What is the environmental review and permitting process for a place in Sweden. The Work Environment Act states the obligations mining project? How long does it normally take to obtain the of the employer: prevention of ill-health and accidents, for example. necessary permits? The provisions of the Swedish Work Environment Authority on rock The granting of a permit for mining operations under the and mining work and general recommendations on implementation Environmental Code (1998:808) is governed by the same rules as of the provisions (AFS 2010:1) are the main provisions concerning other business operations with an environmental impact. The details mining. They regulate among other things what kind of investigation for the permit under the Environmental Code, such as noise levels, and risk assessments need to be done before the work in the mine storage sites, damming up water deposits, are decided during the can begin, what kind of working methods and equipment should be permit process carried out by the Land and Environmental Court. chosen, what kind of knowledge the workers in the mine need to Supervision of compliance with the environmental conditions possess, what personal protective equipment the workers shall use, imposed is usually carried out by the County Administrative Board required inspections, etc. and by the municipality’s Environment and Health Board. Other provisions that may be applicable to mining are: The first step to acquiring a permit is the consultation process. • the Swedish Work Environment Authority’s provisions on chem- It takes place between the company wishing to engage in activities ical hazards in the working environment, together with general with an environmental impact and parties environmentally affected recommendations on the implementation of the provision (AFS by the operations and agencies and organisations concerned with 2011:19), which regulates the employer’s obligations concerning environmental issues. hazardous chemical substances; An EIA has to be prepared. The purpose of the EIA is to • the Swedish Work Environment Authority’s provisions and gen- describe the environmental impact that the proposed mining pro- eral recommendations on occupational exposure limit values ject will have. The description is made so that the reviewing bodies (AFS 2011:18), which regulate the assessment and measurement (the County Administrative Board or the Environmental Court) can of air contaminants and the employer’s obligation to take action assess whether the project should be allowed from an environmental to lower exposure and reduce risk; point of view or not. The applicant must provide information in • the Swedish Work Environment Authority’s regulations govern- the EIA regarding any alternative sites for the proposed operation, ing blasting work and general advice on the application of the together with a justification of why the proposed site was selected. regulations (AFS 2007:1), which regulates how blasting work The applicant must also provide a description of a zero option, the should be planned and executed; consequence of not starting the proposed operations. • provisions issued by the Swedish Work Environment Authority After the hearing and EIA have been carried out, the application concerning the use of work equipment (AFS 2006:4), which reg- for a permit under the Environmental Code can be submitted to ulate what kind of work equipment the employer shall provide the Land and Environmental Court. The Land and Environmental to employees; Court determines whether the information gathered and presented • provisions issued by the Swedish Work Environment Authority in the consultation and environmental assessment phases is detailed concerning noise together with general recommendations on the enough to proceed with a ruling. During the initial phase of the implementation of the provisions (AFS 2005:16), which regu- proceedings, any affected parties may submit supplements to lates the permitted level of noise in a workplace and how noise the application. The complete information will then be sent for shall be prevented, etc; review and comments to any affected party. Before the main hear- • provisions issued by the Swedish Work Environment Authority ing begins, the applicant will have the opportunity to address any concerning vibrations (AFS 2005:15), which regulates the comments made during the consultation process. employer’s obligation to perform risk assessments and investiga- The complete process for obtaining a permit under the tions regarding vibrations and the employer’s responsibility to Environmental Code takes approximately three to five years depend- educate and inform their employees about vibrations; ing on the size of the operation and where it is to be carried out. • the Swedish Work Environment Authority’s provisions on occupational medical supervision and general recommendations for 34 What is the closure and remediation process for a mining applying the provisions (AFS 2005:6), which regulate when project? What performance bonds, guarantees and other financial medical examinations need to be done with employees that are assurances are required? or will be exposed to, for instance, quartz and vibrations; • provisions of the Swedish Work Environment Authority on the The closure and remediation process is handled in the Environmental use of personal protective equipment, together with general rec- Code (1998:808) permit process through the details for the permit. ommendations on the implementation of the provisions (AFS If deemed necessary a security will have to be provided to cover 2001:3), which mainly regulate the employer’s obligation to pro- for potential damages to the environment and closure of the mining vide sufficient personal protective equipment to the employee; and operations. All types of security are approved as long as they are sat- • provisions issued by the Swedish Work Environment Authority isfactory for their purpose. The applying party must show that the concerning quartz (AFS 1992:16), which regulate the measurement and cleaning of quartz.

170 Getting the Deal Through – Mining 2014 Foyen Advokatfirma SWEDEN

If the different sections in the provisions are in conflict with each other, the rules in the provisions of the Swedish Work Environment Update and trends Authority on rock and mining work and general recommendations on implementation of the provisions (AFS 2010:1) will prevail. Note A proposition regarding amendments to the Minerals Act that only the most common provisions that can be applicable con- (1991:45) was presented to the Swedish parliament in March cerning mining are mentioned above. There are additional provi- 2014 and the changes are proposed to enter into force on 1 August 2014. The purpose of the proposition is to strengthen the sions that regulate all Work Environments. rights of individuals during the exploration phase. The general labour laws in Sweden are applicable to the The amendments mainly concern the requirements on the mining industry such as the Working Hours Act (1982:673), work plan and its content. The requirements have been sharpened the Co-determination Act (1976:580), the Discrimination Act and clarified and it is also possible to request translation of the work plan into Finnish and certain minority languages. This means (2008:567), Parental Leave Act (1995:584) and Annual Leave Act that right holders and land owners will be able to take a greater (1977:480). However, labour provisions in Sweden also exist in part in the work plan process in the future. The work plan must collective agreements and private employment agreements. also be handed in to the municipality, the county administrative The Swedish Work Environment Authority is responsible for board and the Sami parliament to inform them of the implications the supervision of the Working Hours Act. Non-compliance of of the exploration work planned. The government continues to work with the mineral strategy the Discrimination Act is handled by the Equality Ombudsman. that has been already adopted – a number of official investigations Violations against the remaining laws are settled through negotia- have been launched with a view to improve conditions for the tions or in court. mining industry. There is a general election in September 2014 and the risk is that a new government will have a different focus in these matters. 36 What restrictions and limitations are imposed on the use of domestic and foreign employees in connection with mining activities? their opinions on the mining application. The principal regulatory The same laws and provisions apply for domestic and foreign bodies are mentioned in question 32. national employees concerning health and safety. An employer with domestic employees in Sweden has to follow the Swedish labour 38 How do the rights of aboriginal, indigenous or currently or legislation. The same applies when foreign personnel are employed previously disadvantaged peoples affect the acquisition or in Sweden. But if an employee is merely posted to Sweden, the exercise of mining rights? employer is only obligated to follow some of the Swedish labour Under the Minerals Act (1991:45), rights holders to the affected legislation, according to the Act on Posting of Workers (1999:678), land need to be involved during some stages of the granting of which was adopted to fulfil Sweden’s obligations according to the exploration permits and exploitation concessions. The indigenous corresponding EU Directive (96/71/EC). Sami people’s right to herd reindeer is such a right. Reindeer Foreign employees sometimes need a work permit in order to herding is exercised in vast areas of northern Sweden and if the work in Sweden. Citizens of the EU or EES countries are exempted mining operations affect the prerequisites for this right, compen- but they need to inform the Swedish Migration Board if their resi- sation will have to be paid to the Sami. The Sami will also take dency lasts longer than three months. Any employee from a country part in the application for a permit under the Environmental Code outside the EU or EES area who is going to work more than three (1998:808) if the mining operation is planned to be carried out months in Sweden needs both a work permit and a residence permit. within their area. They may also need a visa.

Social and community issues 39 What international treaties, conventions or protocols relating to CSR issues are applicable in your jurisdiction? 37 What are the principal community engagement or CSR (corporate International treaties, conventions and protocols (and declarations) social responsibility) laws applicable to the mining industry? What of interest are for example: are the principal regulatory bodies that administer those laws? • the Law of the Sea Treaty, 1982, which regulates deep sea The consultation process is part of the permit process within the mining; Environmental Code (1998:808). According to the Environmental • the Convention on Access to Information, Public Participation Code, known affected parties shall have the opportunity to express in Decision-making and Access to Justice in Environmental

Peter Dyer [email protected] Pia Pehrson [email protected]

Regeringsgatan 52, PO Box 7229 Tel: +46 8 506 184 00 103 89 Stockholm Fax: +46 8 506 184 70 Sweden www.foyen.se

www.gettingthedealthrough.com 171 SWEDEN Foyen Advokatfirma

Matters, 1998, concerning the right to get information and The treaties, conventions and protocols only apply to signatory appeal Environmental Matters; countries. • the ILO 176 Safety and Health in Mines Convention, 1995, Sweden has not ratified the ILO 169 Indigenous and Tribal which regulates the working conditions in a mine (there exist Peoples Convention of 1989, concerning special rights for indig- additional ILO Conventions that can be applicable on mining); enous and tribal people. • the Convention on Biological Diversity, 1992, which regulates Besides the treaties, conventions and protocols there are differ- the protection of biological diversity, sustainable use of it and ent international codes relating to the mining industry (see question fair and equal sharing; 7). • the Kyoto Protocol, 1998, concerning the decrease of emission of greenhouse gases; Foreign investment • the Rio Declaration on Environment and Development, 1992, and Stockholm Declaration on the Human Environment con- 40 Are there any foreign ownership restrictions in your jurisdiction cerning sustainable development and environmental protec- relevant to the mining industry? tion, 1972; There are no restrictions concerning foreign ownership in the min- • the ILO Declaration on Social Justice for a Fair Globalisation, ing industry. 2008 concerning social protection and human rights in the workplace; and International treaties • the Johannesburg Declaration concerning sustainable development, 2002. 41 What international treaties apply to the mining industry or an investment in the mining industry? There are no particular treaties concerning the mining industry that concern Sweden.

172 Getting the Deal Through – Mining 2014 Rex Attorneys TANZANIA Tanzania

Tabitha Maro Rex Attorneys

Mining industry for minerals on matters concerning the mining sector generally. In addition to the Mining Act, large-scale mining companies, which 1 What is the nature and importance of the mining industry in your are holders of special mining licences, may enter into development country? agreements with the government that guarantee the fiscal stability Mining is increasingly becoming Tanzania’s leading sector in terms of a long-term mining project with respect to the range and appli- of export value, the rate of growth overtaking agriculture, fishing, cable rates of royalties, taxes, duties, fees and other fiscal taxes forestry and hunting. Over the past 10 years Tanzania has witnessed and the manner in which liability thereof is calculated (develop- massive and unprecedented growth following the enactment of the ment agreements). The development agreements acquire legislative Mining Act 1998 now replaced by the Mining Act 2010. Official effect upon execution and any tax concessions contained therein statistics as of January 2014 show exports in gold have declined to will take effect as the law itself without any further requirement. 46 per cent compared with 58 per cent in 2012 and 50 per cent in 2013; however, they still exceed manufacturing, horticulture and fishing. World-class mining companies including Barrick Gold, 6 What are the principal laws that regulate the mining industry? Ashanti Anglo-Gold (Geita Gold), Placer Dome and Resolute are What are the principal regulatory bodies that administer those operating large-scale mines in Tanzania. The economic impact of laws? the fast-growing mineral sector in Tanzania in terms of job crea- The principal legislation governing the mining sector is the Mining tion, increased tax revenue, skills development, improved welfare Act. There are regulations issued pursuant to the Mining Act and, above all, its contribution to poverty alleviation cannot be including Mining (Mineral Rights), Mining (Environmental overemphasised. Management and Protection), Mining (Safe Working and Occupational Health) and Mining (Dispute Resolutions). The Environmental Management Act 2004 is also relevant. Other rel- 2 What are the target minerals? evant laws include the Atomic Energy Act 2003 which controls Gemstones, gold, silver, copper, iron, nickel, coal, building materials the use of ionising and non-ionising radiation sources as associ- and more recently uranium. ated with uranium mining, Income Tax Act 2006, which sets out a special regime for the mining sector; the Tanzania Investment Act 1997, which contains provisions that guarantee profit and capital 3 Which regions are most active? repatriation as well as access to international arbitral process; and The most active region is the Lake Zone in the north-west. The the Explosives Act, chapter 45. southern region is also becoming more active. The principal regulatory body for the mining sector is the Ministry. Both the Minister and the Commissioner are the recog- Legal and regulatory structure nised licensing authorities acting individually or collectively under the Mining Act. There is an inspector of mines and other depart- 4 Is the legal system civil or common law-based? ments, which oversee the sector according to the requirements of Tanzania’s legal system is sourced from English common law, stat- the Mining Act and the National Environmental Management utes, case law, shariah law and customary law. English common Council, which oversees environmental issues while the Tanzania law applies only in the absence of statutory law, and where com- Atomic Energy Commission oversees enforcement of the Atomic mercial law has largely being enacted, common law does not apply. Energy Act. Shariah law is applied only in matters of marriage and succession to Tanzanians of Islamic faith, while customary law applies generally to matters of ancestral land ownership and inheritance. 7 What classification system does the mining industry use for reporting mineral resources and mineral reserves? Classification of mineral resources and mineral reserves is con- 5 How is the mining industry regulated? tained in the relevant legislation. For example, under the Mining The mining industry is regulated at the national level. There is a Act, building materials are distinguished from other minerals of Ministry of Energy and Minerals (the Ministry), which is the over- higher value like gold, copper, nickel, zinc, etc. Gemstones include all supervisor of the minerals and energy sector. There is a minis- diamonds, tanzanite, sapphire, etc. Petroleum is of its own class ter of Energy and Minerals (the Minister) and a commissioner for pursuant to the petroleum legislation. minerals (the Commissioner) within the Ministry appointed by the President whose responsibilities are to supervise and regulate the proper and effectual carrying out of the provisions of the Mining Act. There is also a Mining Advisory Board constituted pursuant to the Mining Act, which has the responsibility of advising the minister www.gettingthedealthrough.com 173 TANZANIA Rex Attorneys

Mining rights and title of a prospecting licence and if the holder is not in default of those terms, he may apply for and will be granted a mining licence, upon 8 To what extent does the state control mining rights in your satisfaction of the conditions for grant. jurisdiction? Can those rights be granted to private parties and The holder of a prospecting licence must: to what extent will they have title to minerals in the ground? • commence prospecting operations within three months, or such Are there large areas where the mining rights are held privately further period as the licensing authority may allow, from the or which belong to the owner of the surface rights? Is there a date of the grant of the licence or such other date as is stated in separate legal regime or process for third parties to obtain mining the licence; rights in those areas? • give notice to the licensing authority of discovery of any mineral Control over minerals is vested in the state. However, mineral rights deposit with potential commercial value; and can be granted to individuals provided that: they meet the criteria • expend on prospecting operations not less than the amount set out in the Mining Act, which stipulates, inter alia, that one must prescribed. be above the age of 18 and is not bankrupt; or to a body corporate, which is not in liquidation or being wound up and is not in default The holder of a mining licence or a special mining licence must: with respect to another mineral right. Primary mining licences and • develop the mining area and carry on mining operations in gemstone mining licences can only be held by individuals, part- substantial compliance with the programme of mining opera- nerships or bodies corporate, which are composed exclusively of tions and their environmental management plan, and com- Tanzanian citizens. A mineral right grants the holder the exclusive mence production in accordance with the programme of mining right to explore or mine minerals and does not confer on the holder operations; surface rights. Likewise, a surface right holder does not have the • employ and train citizens of Tanzania in accordance with their right to explore for or mine minerals within his surface right area proposals as appended to the licence; and without applying for and being granted a licence by the Ministry. • demarcate the mining area and keep it demarcated in the pre- In addition to this, under the Mining Act a licence holder who scribed manner. already owns 20 prospecting licences is restricted from owning any more prospecting licences, unless the cumulative area of all the 20 Whenever required by the Minister, after consultation with the licences granted does not exceed 2,000km2. This particular restric- Mining Advisory Board, licence holders must provide for the post- tion applies to all entitled licence holders; that is, all individuals, ing of a rehabilitation bond, as provided for in the regulations, to partnerships, companies, or any of the partners, shareholders, and finance the costs of rehabilitating and making safe the mining area directors of the partnership or company. on termination of mining operations where the holders of the special mining licence have failed to meet their obligations in this respect. The holder of a gemstone mining licence must: 9 What information and data is publicly available to private parties • develop the mining area and carry on mining operations in sub- that wish to engage in exploration and other mining activities? Is stantial compliance with their programme of mining operations; there an agency which collects mineral assessment reports from • demarcate the mining area and keep it demarcated in the pre- private parties? Must private parties file mineral assessment scribed manner; and reports? Does the agency or the government conduct geoscience • take all appropriate measures for the protection of the surveys, which become part of the database? Is the database environment. available online? Information pertaining to mineral rights and geology is available from the Ministry of Energy and Minerals, which has a database 11 What is the regime for the renewal and transfer of mineral licences? system in place showing all rights allocated within the country. In A licence holder or, where the holder is more than one person, every addition, the Geological Survey of Tanzania (GST) provides a wide person who constitutes the holder of the mineral right, is entitled to range of geological services to the public. All reporting require- assign the mineral right or an undivided proportionate part thereof ments for mineral rights holders, including submission of quarterly to another person. However, the transfer of mining licences requires reports must be submitted to the Ministry of Energy and Minerals the prior written consent of the licensing authority unless it is to periodically in both hard and soft copies. There are no databases an affiliate whose obligations are guaranteed by the assignor or available online; however, requests for geoscience information may parent company approved by the licensing authority; a bank or be directed to either the Ministry or the GST directly and may be other financial institution by way of a mortgage or charge given as provided at a fee. security for a loan or guarantee; or another person who constitutes the holder of the mining licence. All mineral rights must be renewed by the licensing authority 10 What mining rights may private parties acquire? How are these unless the holder is in default in which case a ‘default notice’ would acquired? What obligations does the rights holder have? If be issued first to give the licence holder time to remedy the default. exploration or reconnaissance licences are granted, does such tenure give the holder an automatic or preferential right to acquire a mining licence? What are the requirements to convert to a 12 Is there any distinction in law or practice between the mining mining licence? rights that may be acquired by domestic parties and those that Licences are granted on a first come, first served basis except in may be acquired by foreign parties? a situation where licences are lodged simultaneously and there- Except for primary mining licences, which are restricted to citizens fore become subject to a competitive bidding process. The types of Tanzania, or corporate entities whose membership is composed of licences that may be granted under the Mining Act include a exclusively of Tanzanian citizens, there are no restrictions or dis- prospecting licence, a retention licence, a special mining licence, tinctions between foreigners and citizens in the acquisition of min- a mining licence, a gemstone mining licence and a primary mineral rights. However, a gemstone mining licence is granted only to ing licence. Primary licences are restricted to Tanzanian citizens Tanzanian applicants, unless where the Minister, after consultation or corporate entities whose membership is composed exclusively with the Mining Advisory Board, determines that the development of Tanzanian citizens. Reconnaissance licences were discontinued of the gemstone resource in an area of land subject to the gemstone following the enactment of the 2010 Mining Act. Under the terms mining licence is most likely to require specialised skills, technology

174 Getting the Deal Through – Mining 2014 Rex Attorneys TANZANIA or a high level of investment, he may grant the said licence, where he 15 Does the government or do state agencies have the right to is satisfied that the licence will be held by that person together with participate in mining projects? Is there a local listing requirement a non-citizen whose undivided participating shares amount to not for the project company? more than 50 per cent either alone, in the case of one person, or in The government participates in mining projects by way of entering aggregate in the case of more than one person. into a development agreement with a special mining licence holder. Other state agencies which own licences, such as the State Mining Corporation and the National Development Corporation, are also 13 How are mining rights protected? Are foreign arbitration awards in entitled to enter into mining projects. Holders of special mining respect of domestic mining disputes freely enforceable in licences are required to list on the Dar es Salaam Stock Exchange. your jurisdiction? The Minister is required to make regulations prescribing the mini- The Mining Act prescribes a clear and transparent manner in deal- mum shareholding requirement and procedure for selling such ing with the allocation and administration of mineral rights, which shares to Tanzanian nationals in accordance with the provisions of ensures adequate security of tenure. Mineral rights are allocated the Capital Market and Securities Act, which are not yet in place. on a first come, first served basis and there is no political interference in the process of allocation. Suspension or termination of a mineral right may be only for reasons of default and the licence 16 Are there provisions in law dealing with government expropriation holder is entitled to receive notice of intention to suspend or ter- of licences? What are the compensation provisions? minate a licence and termination is subject to due process of law. See question 13. Further guarantee is contained in the Constitution under section 24, which guarantees private ownership of property and protection of that property by the state. In addition, the Tanzanian judicial system 17 Are any areas designated as protected areas within your jurisdiction adheres to the rule of law and due process. The Commissioner may, and which are off-limits or specially regulated? pursuant to the Mining Act, inquire into and decide all disputes The minister may by order published in the Gazette designate any between persons engaged in prospecting or mining operations, vacant area or declare any area relinquished from a prospecting other than government. The law further provides that any person licence to be an area exclusively reserved for mining operations by aggrieved by the decision or order of the commissioner may appeal persons holding primary mining licences. According to section 95 to the high court within 30 days from the date on which the decision of the Mining Act a licence holder is restricted from exercising their or order of the Commissioner was given or made. rights under a mineral rights in respect of the following areas: Section 22(2) of the Tanzania Investment Act No. 26 of 1997, • any land dedicated or set apart for any public purpose other which regulates businesses, including mining businesses in respect than mining; to the transfer of profits and guarantees against expropriation, • any land dedicated as a place of burial; prohibits the state from acquiring a business enterprise, wholly or • any land which is the site of or is within 100 metres of any build- partially, unless the acquisition is under due process of law. It also ing, reservoir or dam owned by the government; provides for payment of fair, adequate and prompt compensation • any land forming part of a licensed or government aerodrome and a right of access to the court, or a right to arbitration for the or of any government landing ground, or which is within 1,000 determination of the investor’s interest or right and the amount metres of the boundaries thereof; of compensation to which they are entitled. Any compensation • any land of which there is a military installation, or on land payable must be paid promptly and authorisation required for its which is within 100 metres of the boundaries thereof; or repatriation in convertible currency must be issued. • any reserved area, or any protected monument declared under In addition to this, Tanzania is a signatory to the New York the Antiquities Act. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which makes it easy to enforce foreign arbitral award in In addition, holders of mineral rights cannot exercise their rights respect of domestic mining disputes. without written consent from the relevant local government authority, including the village council, and lawful occupiers in respect of any land, which is the site of or within 200 metres of any inhabited, 14 What surface rights may private parties acquire? How are these occupied or temporarily unoccupied house or building, any land rights acquired? within 100 metres of land which has been declared or ploughed Private parties may acquire surface rights as prescribed in the Land or otherwise prepared in good faith for he growing of agricultural Act 1999. All land in Tanzania is public land vested in the President crops or crops have been reaped. With respect to land declared who grants (via the commissioner for lands) rights of occupancy of national parks, forest reserves, game reserves, range development specified periods of 33, 66 or 99 years, subject to renewal. There is areas or the Ngorongoro Conservation area, municipalities, town- a Central Land Registry in which all title deeds for granted rights ships, villages, or areas licensed for petroleum development prior of occupancies are registered. One copy of the title deed is kept at consent must be obtained from the minister or authority having the registry and the other remains in the possession of the owner. responsibility, respectively. Any mortgages or charges or similar third-party rights against the property, or transfers of the right of occupancy, are endorsed on the Duties, royalties and taxes two copies of the title deeds and provide ready proof of the position. There are zonal land registries, which are administratively 18 What duties, royalties and taxes are payable by private parties carrying answerable to the Central Land Registry. The commissioner for on mining activities? Are these revenue-based or profit-based? lands is the principal administrative officer and adviser to the gov- There is a special fiscal regime for mining companies as detailed ernment with respect to land matters and he or she is a presiden- below. tial appointee. There is also land owned under customary rights, but it remains held for purposes of surface use and not otherwise. US dollar accounting Foreigners may hold land only for the purpose of investment Other than the Tanzania shilling, mining companies may opt to through a derivative right. This process is administered through maintain their accounts in the US dollars and their tax liability will the Tanzania Investment Centre in accordance with the Tanzania be assessed and calculated in US dollars. Investment Act. www.gettingthedealthrough.com 175 TANZANIA Rex Attorneys

Corporate income tax a stable and predictable tax regime for the company. Should any Corporate tax is payable under the Income Tax Act 2006 (the changes in the tax regime occur such that the benefits guaranteed Income Tax Act) at a rate not exceeding 30 per cent. Income is under the development agreement are eroded, the government will computed in the manner set out in the Income Tax Act, as may be consult with the mining company and take action to ensure that the amended from time to time. mining company is not in a worse-off situation than it was on the signature date of the development agreement. Depreciation allowance for capital expenditure Depreciation shall be deducted at the rate of 100 per cent on capital expenditure for exploration and development. 20 Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force? Loss carry-forwards See question 19. Losses may be carried forward indefinitely until recovered against income. 21 Is the government entitled to a carried interest, or a free carried interest in mining projects? Expenditure on another licence area Expenditure on prospecting and mining operations in respect of The development agreements entered into between a special mining another licence area may, for the purpose of ascertaining taxable licence holder and the government provide government with a free income, be treated as though it were expenditure incurred in respect carried interest at a rate to be negotiated and agreed upon between of the mining licences. the parties.

Withholding tax on dividends 22 Are there any transfer taxes or capital gains imposed regarding Withholding tax on dividends is at the rate of 10 per cent. Other the transfer of licences? sectors pay withholding tax on dividends at the rate of 20 per cent, Other than the transfer fee imposed with respect to the transfer of except for companies holding certificates of incentives issued by the mineral rights, which is payable to the licensing authority, where Tanzania Investment Centre, which pay the same rate as mining there is a change in control involving transfer of shares in a corpo- companies. rate licence holder or the transfer of a mineral right, the transaction is subject to stamp duty and capital gains tax on the shares Withholding tax on interest transferred or on the consideration of the agreement, payable to Withholding tax on the interest on foreign loans is at the rate of the revenue authorities. Where the value of the assets of the trans- 15 per cent and accrued interest is deemed a payment; therefore, feror and transferee exceeds 800 million Tanzania shillings, further withholding tax thereon is payable. approval must be obtained from the fair competition commission, as such a transaction involves an acquisition as defined under the Withholding tax on payments for technical services and on Fair Competition Act No. 8 of 2003 and its Regulations made management fees thereunder. Withholding tax on the above is capped at the rates of 3 per cent, where the technical service fee, or the management fee, does not exceed 2 per cent of the amount claimed as a deduction from income 23 Is there any distinction between the duties, royalties and taxes in respect of operating expenses incurred in mining operations, and payable by domestic parties and those payable by foreign parties? 20 per cent for any excess amount. There is no difference between duties or royalties payable by domestic and foreign parties. Customs duty on imports of mining equipment and supplies Import duties under the terms of the Customs Tariff Act by a min- Business structures ing company or its subcontractors are at a zero per cent rate during exploration and in the first year of operation, and thereafter will 24 What are the principal business structures used by private parties not exceed 5 per cent. carrying on mining activities? The principal business structures are limited liability companies, Value added tax public corporations (being largely privatised), partnerships, branches VAT special relief has been limited to cover only exploration and of foreign-incorporated companies and sole traders. A large major- prospecting activities, while excise duty exemptions have been ity of foreign private parties carrying on mining activities use the abolished. limited liability company form. Very few operators use branches of foreign companies. Joint ventures are common as well, but these Royalties are between corporate entities, as Tanzania does not recognise Royalties are chargeable on the gross back value of minerals pro- unincorporated joint ventures. duced under a licence at the rate of 5 per cent for uranium, gemstones and diamonds, and 4 and 3 per cent for metallic minerals and any other minerals, respectively. Gross value is defined under 25 Is there a requirement that a local entity be a party to the the Mining Act to mean the market value of minerals at the point of transaction? refining or sale, or in the case of consumption within Tanzania, at No. the point of delivery within Tanzania.

26 Are there jurisdictions with favourable bilateral investment treaties 19 What tax advantages and incentives are available to private or tax treaties with your jurisdiction through which foreign entities parties carrying on mining activities? will commonly structure their operations in your jurisdiction? The single major tax incentive available to mining companies is the There are mining development agreements between investors possibility of large-scale mining projects to enter into a development and the government which negotiate favourable tax adjustments, agreement with government, which freezes the tax regime as it was exemptions or deferments with the government for the duration of on the signature date of the development agreement. This creates the agreement.

176 Getting the Deal Through – Mining 2014 Rex Attorneys TANZANIA

Financing the National Environmental Management Council. The Regulations made thereunder include: 27 What are the principal sources of financing available to private • the Environmental (Registration of Environmental Experts) parties carrying on mining activities? What role does the domestic Regulations, 2005; public securities market play in financing the mining industry? • the Environmental Impact Assessment and Audit Regulations, Large-scale mining companies have hitherto sourced their funding 2005; from foreign banks. Smaller and local mining companies source • the Environmental Management (Air Quality Standards) their funds locally. The Dar es Salaam Stock Exchange is relatively Regulations, 2007; new and has yet to play any role in the financing of mining activi- • the Environmental Management (Soil Quality Standards) ties, although the Mining Act now imposes a listing obligation to Regulations, 2007; holders of special mining licences. However, up to now, the regula- • the Environmental Management (Water Quality Standards) tions governing the same are not yet in place and there is no listed Regulations, 2007; mining company. • the Environmental (Solid Waste Management) Regulations, 2009; • the Environmental (Hazardous Waste Control and Management) 28 Please describe the regime for taking security over mining interests. Regulations, 2009; The Mining Act entitles a licence holder to mortgage or create a • Environmental Regulations – Strategic Assessment; and charge over the mineral rights in favour of a third party. Such charge • Environmental Management (Fees and Charges). where created by a body corporate must be filed with the registrar of companies and notified to the licensing authority for purposes of There are also other environmental laws contained in the Mining recording in the Central Register of Mineral Rights. See question 11. Regulations issued under the Mining Act. These are the Mining (Safety, Occupational Health and Environmental Protection) Regulations, Restrictions 2010 and the Mining (Radioactive Minerals) Regulations, 2010. The chief inspector of mines appointed pursuant to the Mining 29 What restrictions are imposed on the importation of machinery Act and working under the commissioner administers the environ- and equipment or services required in connection with exploration mental, health and safety laws while the National Environmental and extraction? Management Council administers the Environmental Management There is no restriction on the importation of machinery and equip- Act. Schedule 3 to the Environmental Management Act lists mining ment required for mining activities. as an investment sector, which is subject to an environmental impact assessment prior to commencement of work. Furthermore, Section 30 What restrictions are imposed on the processing, export or sale of 232 of the same elevates the Environmental Management Act above minerals? Are there any export quotas, licensing or other mechanisms the provisions of the regulations issued pursuant to the Mining that prevent producers from freely exporting their production? Act. It stipulates that where the provisions of the Environmental Management Act are in conflict or are otherwise inconsistent with The Mining Act prohibits any person from buying or otherwise the provisions of any other law relating to environmental manage- acquiring, selling, or otherwise disposing or exporting any minerals ment, the provisions of the Environmental Management Act shall or otherwise disposing minerals specified in a licence, unless that prevail to the extent of such inconsistency. person is an authorised dealer. The dealer licence would specify the type of mineral or minerals it is for. The Act provides for the sale or processing of materials outside Tanzania only by authorised deal- 33 What is the environmental review and permitting process for a ers. However, the authorised dealer must obtain a permit from the mining project? How long does it normally take to obtain the commissioner before he or she can export, sell or otherwise dispose necessary permits? of any minerals within or outside Tanzania. All applications for special mining licences, mining licences or gemstone mining licences must be accompanied by an environmental 31 What restrictions are imposed on the import of funds for impact statement and an environmental management plan. The exploration and extraction or the use of the proceeds from the Minister may reject an application if the application for a licence export or sale of minerals? is submitted without an environmental impact statement or environmental management plan while the applicant is not exempted. There is no restriction on the importation of funds to finance min- Within seven days of the date of submitting the application, appli- ing activities or the use of the export proceeds of mining produce. cants are obliged to publish their environmental impact state- Tanzania enjoys a highly liberalised foreign exchange regime. There ment in the prescribed manner. The licensing authority shall not is complete market freedom, availability of foreign exchange at mar- issue a licence until the expiry of at least 60 days from the date of ket prices and opening of domestic foreign currency accounts and the application. The licence holder is obliged to submit a report no restriction on current account transactions. However, the Bank of reviewing the progress and status of the environmental manage- Tanzania still regulates the establishment of offshore bank accounts ment plan or amendment within two years of grant or renewals by residents. Locally incorporated companies wishing to establish and not exceeding five-year intervals thereafter. offshore bank accounts for purposes of depositing export proceeds or foreign loan proceeds must apply to the Bank of Tanzania for approval. 34 What is the closure and remediation process for a mining project? What performance bonds, guarantees and other financial Environment assurances are required? In terms of the Mining (Safety, Occupational Health and 32 What are the principal environmental laws applicable to the Environment Protection) Regulations 2010, prior to a mine closure: mining industry? What are the principal regulatory bodies that • the licence holder shall submit a report to the Commissioner and administer those laws? the Ministry responsible for the environment outlining the post- The principal environmental law is the Environmental Management operational state of dams, dykes, related seepage control, spill- Act No. 20 of 2004 and its Subsidiary Legislation administered by way works, mine water pumps and post-operational monitoring; www.gettingthedealthrough.com 177 TANZANIA Rex Attorneys

• a permanent spillway shall be designed to a standard required Social and community issues by the chief inspector, and installed prior to final abandonment of the tailing dam; 37 What are the principal community engagement or CSR (corporate • all tailings ponds shall be reclaimed in accordance with land-use social responsibility) laws applicable to the mining industry? What objectives unless permanent access is required to be maintained; are the principal regulatory bodies that administer those laws? • chemicals or reagents that cannot be returned to the manufac- There are no community or CSR laws. Such terms are usually turer are to be disposed of as directed by the chief inspector; and embroidered in a miner’s individual mining programme. • all potential acid-generating material shall be stored in a manner that minimises the production and release of acid levels 38 How do the rights of aboriginal, indigenous or currently or that assures protection of environmental quality. previously disadvantaged peoples affect the acquisition or exercise of mining rights? The Minister may require a licence holder to provide for the posting of rehabilitation bonds, either in the form of escrow accounts, or Village land is protected by restricting entry to the holder of a capital bonds, or insurance or bank guarantee bonds, pledging and mineral right without written consent from the occupiers thereof assets or any other form of bond. and the village council. See also question 17.

Health & safety, and labour issues 39 What international treaties, conventions or protocols relating to CSR issues are applicable in your jurisdiction? 35 What are the principal health and safety, and labour laws applicable to the mining industry? What are the principal Not applicable. regulatory bodies that administer those laws? Foreign investment The Occupation Health and Safety Act No. 5 of 2003, which is administered by the Occupational Health and Safety Authority and 40 Are there any foreign ownership restrictions in your jurisdiction the Employment and Labour Relations Act No. 4 of 2006. Both relevant to the mining industry? principal laws have subsidiary regulations that are also applicable. Other than primary mining licences or gemstone mining licences (see There is no regulatory body that administers the labour law. questions 8 and 12), there are none.

36 What restrictions and limitations are imposed on the use of International treaties domestic and foreign employees in connection with mining activities? 41 What international treaties apply to the mining industry or an investment in the mining industry? The investor, depending on the nature of its operations, shall determine the immigration quota in respect of mining and petroleum Tanzania is a signatory to various international treaties and conven- operations. However, the labour commissioner will intervene if, in tions. Of particular relevance to the mining industry and in respect his or her opinion, a position filled by a foreign employee could be of all foreign investors, is the Convention on Recognition and filled by a local employee in terms of skills available. In addition, all Enforcement of Foreign Arbitral Awards (the New York Convention mining and special mining licence holders are required to employ of 1958) and the adaptation of the UNCITRAL rules, which are and train the citizens of Tanzania and implement a succession plan now embodied under the arbitration clause within the model for expatriate employees in accordance with the proposals appended development agreement as provided in the Third Schedule to the to the mining or special mining licence. Regulations with respect to development agreements between the government and a special mining licence holder.

Tabitha Maro [email protected]

Rex House Tel: +255 22 211 4291/4899 145 Magore Street, Upanga Fax: +255 22 211 9474/2830 PO Box 7495 www.rexattorneys.co.tz Dar es Salaam Tanzania

178 Getting the Deal Through – Mining 2014 Chandler & Thong-ek Law Offices Limited THAILAND Thailand

Albert T Chandler, Nuanporn Wechsuwanarux and Christopher Kalis Chandler & Thong-ek Law Offices Limited

Mining industry The principal environmental law is the National Environment Protection and Promotion Act (1992) (the Environmental Act) and is 1 What is the nature and importance of the mining industry in administered by the Office of Natural Resources and Environmental your country? Policy and Planning (ONEP) in the Ministry of Natural Resources Thailand was formerly a major tin producer, but now produces and Environment (MNRE). See questions 32 to 34. copper, gold, iron ore, gemstone, manganese, silver, tantalum, The MOI and the DPIM are the main regulatory bodies respon- tin (at reduced rates compared to the past), tungsten and zinc. sible for the supervision of exploration and mining operations Nowadays, Thailand is a net importer of mineral commodities. and other mining-related activities, as well as compliance with the See USGS 2011 Minerals Yearbook: Thailand for more details Minerals Act. In addition, the Minerals Act provides for the appoint- in English. See also the website of the Mining Industry Council of ment of the LMIO as the competent official charged with the super- Thailand at www.miningthai.org and the website of the Department vision of the execution of the Minerals Act at local levels. The main of Primary Industries and Mines, Ministry of Industry (DPIM) at responsibility of the LMIO is to perform general administrative www.dpim.go.th for current information and statistics available in tasks, including the acceptance of permit applications. both Thai and English. MOI The main responsibilities of the MOI are: issuing ministerial regula- 2 What are the target minerals? tions prescribing the fees, rules and methods for mineral explora- In Thailand, a number of minerals are produced. Based on the tion and mining; prescribing policies related to mineral exploration information provided on the DPIM website, the most-produced and mining operations; and, issuing certain types of mineral pros- target minerals in year 2007 to 2012 have been industrial minerals pecting licences, including, for example, exclusive prospecting and industrial rocks, silver ore and gold ore. It was forecast that licences and special prospecting licences, mining leases and certain production in industrial minerals and industrial rocks would be types of mining-related permits, such as permits for assignment of increased in 2013, while the silver and gold would be decreased by mining lease among others. approximately 30 per cent. DPIM The DPIM was established under the Act on the Reorganisation of 3 Which regions are most active? Ministries, Bureaux and Departments, BE 2545 (2002) to assume The southern and central regions are the most active. the mineral and metallurgical work previously performed by the Department of Mineral Resources. The director-general of the DPIM Legal and regulatory structure is responsible for ensuring compliance with the Minerals Act and overseeing the management of mineral resources, primary indus- 4 Is the legal system civil or common law-based? tries development, mining industry and industrial logistics systems, Thailand’s legal system is civil law-based. as well as the collection of relevant revenues including royalties. In addition, the director-general of the DPIM is responsible for setting 5 How is the mining industry regulated? prices of domestically produced minerals as a benchmark for the collection of mineral royalties under the Mineral Royalty Rates Act. The mining industry is regulated by the Ministry of Industry (MOI) and the DPIM at the central level, and by the local mineral indus- LMIO try officials (LMIOs) at the provincial level. However, a number of The LMIO is a local official attached to the Provincial Industry government agencies have regulatory powers over various elements Office in each province charged with the performing general admin- of mining projects. istrative tasks, such as the acceptance of various applications and proceedings under the Minerals Act. In addition, the Minerals Act 6 What are the principal laws that regulate the mining industry? What gives the LMIO the power to confiscate or seize minerals, tools, vehi- are the principal regulatory bodies that administer those laws? cles or machines as evidence in order to prosecute violations of the Minerals Act. The LMIO is regarded as an administrative official or The principal law regulating the mining industry is the Minerals Act law enforcement official under the Criminal Procedure Code. (1967), last amended in 2002 by Minerals Act No. 5. The Act governs onshore and offshore exploration, mining, processing, mineral production, mineral trading, possession of minerals, ore dressing, 7 What classification system does the mining industry use for transport and export of minerals other than petroleum. reporting mineral resources and mineral reserves? The Mineral Royalty Rates Act (1966), prescribes the rates of There is no legal classification system for reporting mineral resources royalties to be assessed for different kinds of minerals. and mineral reserves. www.gettingthedealthrough.com 179 THAILAND Chandler & Thong-ek Law Offices Limited

Mining rights and title prospecting and exploration within a designated area of an administrative district or a province. The LMIO has the authority to issue 8 To what extent does the state control mining right in your jurisdiction? a GPL. Mineral prospecting under this licence can be conducted Can those rights be granted to private parties and to what extent only by geological, geochemical, or geophysical surveys. Prospecting will they have title to minerals in the ground? Are there large areas methods that directly collect mineral samplings, such as pitting, where the mining rights are held privately or which belong to the trenching, and drilling are not allowed. owner of the surface rights? Is there a separate legal regime or An EPL grants sole mineral prospecting and exploration rights process for third parties to obtain mining rights in those areas? within a designated area. An EPL is issued by the Minister of Industry Mining rights are granted by the Minister of Industry. Section 43 and is non-transferable. There are two types of EPL, namely, an EPL of the Minerals Act states that no person shall mine in any area, for inland prospecting where each applicant is limited to an area not regardless of any person’s right over the area to be mined unless exceeding 4,000km² (under the current policy, the granted area will a mining lease has been obtained. In Thailand, minerals belong to not exceed 2,000km²); and an EPL for offshore prospecting, where the state. Mining rights do not grant title to minerals in the ground. the maximum area that may be granted for offshore exploration The mining leaseholder can sell minerals specified in the mining under the law is 800,000km² and under the current MOI’s policy is lease only. Other minerals acquired incidentally may be sold by 32,000km². The MOI has a policy of not issuing EPLs for industrial the leaseholder only after he has received a licence from the direc- rocks, dimensional stones, marble, and dolomite. An EPL for inland tor-general of DPIM. Under section 44 of the Minerals Act, each prospecting is valid for one year, while an EPL for offshore prospect- mining lease will cover an area of not more than 480km², except ing is valid no more than two years. There are a number of condi- when the application is for a mining lease for offshore mining, or tions the holder of an EPL has to comply with, including: underground mining. Offshore mining is limited to an area not • the commencement of exploration within 60 days after the EPL exceeding 80,000km² and a mining lease for underground mining is issued; is limited to an area not exceeding 16,000km². However, there is • the filing of a report 180 days after the receipt of the EPL no limit on the number of mining leases that may be acquired by describing the first operations and works undertaken within 30 one person. Therefore, in practice it is possible to mine over a larger days from the end of that 180-day period; and area than the prescribed 480km² limit. The application process for a • filing a final exploration report within 30 days of the expiration mining lease for the landowner of the land to be mined is the same date of the EPL. as for those who do not own the property. An SPL has duration of five years and is non-renewable. The exploration area that may be granted under an SPL may not exceed 9 What information and data is publicly available to private parties that 16,000km². An application for an SPL must include a work plan wish to engage in exploration and other mining activities? Is there and an estimate of expenses for each year for the whole project, as an agency which collects mineral assessment reports from private well as an offer of ‘special benefits’ to the government. The special parties? Must private parties file mineral assessment reports? Does benefits will further bind the holder of SPL upon receiving a mining the agency or the government conduct geosciences surveys, which lease for mining in the area for which the SPL has been granted. become part of the database? Is the database available online? The prospector must commence exploration within 90 days of the Mining laws and regulations, information regarding the number of issuance of the SPL. A progress report must be submitted to the mines by kinds of minerals, number of licence holders and appli- DPIM every 120-day period commencing from receipt of a licence. cants for licences and mineral assessment statistics are publicly avail- An SPL is suitable for large projects entailing high-value minerals able in Thai via the DPIM website (www.dpim.go.th). The DPIM or substantial investment capital, and also in the event an applicant prepares mineral assessments by collecting mineral assessment requires more time or a larger area for exploration. The prospector reports submitted by licence holders. may relinquish areas he no longer wishes to prospect. Each SPL applicant must propose a ‘special benefit’ to the Thai 10 What mining rights may private parties acquire? How are these government in the application. The SPL holder will generally get acquired? What obligations does the rights holder have? If exploration preferential rights to acquire a mining licence for the area the SPL or reconnaissance licences are granted, does such tenure give the covers. In the case that there are multiple applicants, owners or holder an automatic or preferential right to acquire a mining licence? possessors of such land, under the Land Code, get priority above What are the requirements to convert to a mining licence? all other applicants. The DPIM issued two regulations on procedures relating to Major mining rights include exploration rights and mining leases. prospecting licences. These regulations are treated as guidelines and Mining rights are granted with certain conditions and validity as mandates for DPIM officials and the applicants to comply with. prescribed by the Minerals Act. The Minister of Industry has the The MOI issued a Gold Exploration and Development Policy power to revoke the rights if the holder fails to comply with the dated 4 July 1987 to promote the exploration and mining of gold. conditions attached to the granted right. The approval of min- The policy prescribes rules governing the application for gold explo- ing rights is not specified in the law itself and can vary. To apply ration and mining rights in areas other than special areas declared for any mining rights, the applicant must submit an application to be ‘gold mining development areas’, which are subject to award together with supporting documents and information required by public auction. The MOI also issued another policy called the with the LMIO and pay the fees at the specified rate. Gold Exploration and Mining Policy dated 6 May 2011 to prescribe the rules governing applications for gold exploration and mining Exploration rights requirement for environmental quality protection with the aim of For exploration activities, a prospecting licence must be acquired. In achieving sustainable development of the gold ore mining industry. case of overlapping applications for the same area, the first application to be submitted will be processed first. There are three kinds of Mining rights prospecting licences that investors may apply for, namely, the general Upon discovery of a commercial mineral deposit, a prospector must prospecting licence (GPL), the exclusive prospecting licence (EPL) apply for a mining lease (ML) in order to conduct mining activities. and the special prospecting licence (SPL). Generally, applications will be treated on a first come, first served A GPL is a non-exclusive, non-renewable and non-transferable basis. The prospector holding an EPL or SPL has first priority of licence and is valid for one year. A GPL grants rights for mineral being granted an ML. In the event that there are multiple applicants,

180 Getting the Deal Through – Mining 2014 Chandler & Thong-ek Law Offices Limited THAILAND those who have ownership or possession of the surface land for area or outside a designated place of purchase must also obtain a which an ML is sought, have priority. The MOI issued the Gold storage licence. Exploration and Mining Policy dated 6 May 2011 which requires that the applicant for an ML for gold extraction must have received Ore dressing an SPL for that particular land for gold exploration prior to apply- Except for the holder of an ML or of a temporary mining lessee ing for an ML for the same land. who undertakes mineral dressing within the mining lease area, no An ML may cover an area not exceeding 480km² onshore, one can undertake ore dressing operations without a licence. The 16,000km² underground and 80,000km² offshore per applicant. licence is valid for a maximum of three years and is renewable for There is no limit on the number of MLs that may be applied for by each three-year period. one person. An ML is valid for a maximum of 25 years and may not be transferred without the approval of the Minister of Industry. 11 What is the regime for the renewal and transfer of mineral Pending approval of the ML, a prospector may apply for a non- licences? transferable temporary ML which is valid for one year. An applicant for an ML must provide a map showing the area to Exploration licence be mined, reliable evidence of the discovery or existence of the min- All types of prospecting licenses are non-transferable and eral to be mined, evidence of financial capital, a work plan, evidence non-renewable. showing acquisition of surface land rights, evidence of technological ability (tools, equipment and machinery) and an environmental Mining licences impact assessment report (EIA). An ML is transferable with the approval of the Minister of Industry The DPIM has published guidelines for determining the mini- only. The application and required supporting documents requested mum amount of capital required. Evidence of financial capital may for approval of transfer or renewal shall be submitted with the be shown by a letter of confirmation issued by a bank. An applicant LMIO. Where the ML provides for a term of less than 25 years and which has its own machinery and the equipment necessary for use in the ML holder applies for renewal in accordance with the rules and mining may produce evidence of ownership of such machinery and regulations at least 180 days before the expiration of the ML, the equipment and the value thereof may be deducted from the amount Minister of Industry may extend the terms of such ML provided that of capital required, provided the deduction does not exceed 50 per the aggregate term does not exceed 25 years. cent of the amount designated. In case of a change in shareholding structure or change of control in the licence holder or its parent company, the Minerals Act Special rules for offshore mining does not require the licence holder to submit any notice of such a In August 1978, the cabinet passed two resolutions regarding off- change. However, in the event of a structural change which results in shore mining of minerals at depths not exceeding 200 feet. The shares becoming majority-foreign owned, a foreign business licence resolutions can be summarised as follows: would be required under the Foreign Business Operation Act (1999), the company would be prohibited from owning land under the Land Known deposits Code and from obtaining licensing to use a forested area. After the expiration of the maximum mining lease period of 25 years, a foreign mining leaseholder may apply for a new ML to work 12 Is there any distinction in law or practice between the mining an old deposit, provided that it realigns its equity interests so that rights that may be acquired by domestic parties and those that Thai nationals hold at least 60 per cent of the total equity interest may be acquired by foreign parties? in the venture. The DPIM has a policy not to grant mineral rights to foreigners (including companies in which ownership by foreigners exceeds 49 Unknown deposits per cent). However, it is possible that the DPIM will grant mineral A company with foreign shareholders may apply for an ML to rights to a foreign company under a special agreement. Majority exploit a new deposit offshore, provided that Thai nationals hold at foreign-owned companies wishing to operate a mining business least 51 per cent of the equity interest initially, to be increased to 60 must obtain a licence granted by the Minister of Commerce with per cent within two years. the approval of the Thai cabinet as required under the Foreign The above resolutions constitute administrative guidelines to be Business Operation Act (1999). The majority foreign-owned com- followed by the DPIM in its consideration of whether or not to grant pany can operate a mining business only if at least 40 per cent, or or renew an offshore ML. (with approval of the cabinet) 25 per cent of the capital is held by Thai nationals or Thai entities and at least two-fifths of the directors Other approvals required are Thai nationals. Purchase of minerals The Land Code prescribes a ceiling on foreign ownership of 49 Any person who wishes to purchase minerals in the course of busi- per cent; there is no restriction on foreigners leasing land. In case the ness must obtain a licence from DPIM. A purchasing licence is valid land to be applied for mining business is forest land, the company until 31 December of the year the licence was issued. The holder must have more than two-thirds of the shareholders or partners of a purchasing licence may not purchase minerals at any place being Thai nationals holding more than half of the total number other than the place specified in the purchasing licence. Purchasing of shares. minerals outside the specified place of purchase requires an external purchasing licence, which will be valid for the same period as the purchasing licence. A holder of a purchasing licence must keep 13 How are mining rights protected? Are foreign arbitration awards accounts of minerals bought and sold and minerals still on hand. in respect of domestic mining disputes freely enforceable in your jurisdiction? Transportation and storage of minerals There is an independent court system in Thailand, including an The transportation of minerals requires that a mineral royalty is administrative court to hear cases involving government agencies paid or guaranteed. For most minerals, an ore transport licence must (such as the DPIM). Current government policy is that contracts accompany the transporting vehicle to the destination stated in the with a government agency cannot include arbitration provisions, licence. Any person who wishes to store minerals outside a mining with exceptions approved by the cabinet. Under Thai law, judgments www.gettingthedealthrough.com 181 THAILAND Chandler & Thong-ek Law Offices Limited entered by a non-Thai court or foreign arbitration award are not is required to be submitted along with the application for an ML enforceable in Thailand. The foreign judgments or arbitration before an ML is granted. awards can be introduced as evidence in an enforcement proceeding Ownership of private land is governed by the Land Code of in a Thai court. A Thai court is free to examine new issues arising 1954, the Civil and Commercial Code and regulations as set forth in the case. by the Land Department of the Ministry of the Interior. Under Thai One factor that is often cited as an impediment to the mining law, foreigners may own land only if a treaty has been entered into industry’s development is the lack of ‘security of tenure’. The exist- between Thailand and their country or if permission is granted by ing legal system does not expressly guarantee that the holder of an the Ministry of the Interior. Presently, there are no such treaties exploration licence will be granted an ML if it makes a commercial between Thailand and any other country. A majority foreign-owned discovery. The government bureaucracy and the limited scope of the company is prohibited from owning land under the Land Code mining laws are not the sole causes of the inability to assure the unless it obtains a BOI promotion certificate and an exemption to right to mine prospected land; conflicts and restrictions from other own land is granted. If the operator cannot own the land, it may authorities as well as subsequent land use conflicts complicate the consider a lease as another option. A lease agreement can be valid issuance of rights. for a maximum of 30 years and must be registered with the Land One characteristic of the Thai bureaucracy that causes it to Department of the Ministry of the Interior. stand out is the divided nature of Thai administration. Government Non-private land can be categorised as forest areas, which are agencies in Thailand are divided into ministries, departments and supervised by the Forestry Department under the Forestry Act of bureaux, each of which are separate juristic entities, having inde- 1941 and National Reserved Forest Act of 1964, or agricultural land pendent contracting powers. Thus, the MOI is a separate legal reform areas under the Land Reform for Agriculture Act of 1975, entity from the DPIM, but the DPIM answers to the MOI adminis- which is under the supervision of Agricultural Land Reform Office. tratively. Even though the DPIM is only one among many depart- Licences from the concerned authority must be obtained. There are ments within the MOI, it can enter into contracts with a private some categories of reserved areas that have been declared closed to party, independent of the Ministry. The director-general, as the exploration and mining activities. These include wildlife reserves, head of the department, is the signatory to contracts. The question national parks, forests (conservation forests and economic forests) of whether the department or the director-general has the power and areas reserved for security purposes. Development activities, to conclude contracts and the parameters within which this power including mining, are strictly prohibited in category-1A watershed can be exercised is governed by the law on public administration. areas, and restrictions apply to mining activities in economic for- Each government agency is only concerned with administering est areas. Other areas in the country are classified as urban areas, its own law, even though that law may contradict other laws or may water bodies and areas for settlement programmes. As such, only be inconsistent with national policy. This fact poses a major problem small, site-specific areas are available for mining. A programme to for the mineral industry in that the DPIM is not the agency that has reclassify the country’s forest areas will increase the total area of the final say on whether or not an exploration or mining venture conservation forests and reduce the total area of economic forests. can be conducted. The ultimate decision may rest with the ONEP A government resolution for watershed classification in May or with the Forestry Department, depending on where the land is 1985 prescribed that without exception, all development activi- situated. ties would be prohibited in forest areas classified as category 1A. Foreign investors often believe that once they have signed a Development in watershed category 1B is subject to government contract with the DPIM and have paid the bonus, they may then approval on a case-by-case basis; and mining operations are per- proceed with the exploration and development work. In reality, mitted in watershed categories 2 to 5. It is more complicated to the contract is only a grant of mineral rights, subject to negotiation obtain permission to operate a mine in any category of reserved with the other agencies concerned, and there is no guarantee that forest because of the revocation of forest concessions countrywide investors will be given all necessary approvals in the end. All acts of in January 1989. The revocation of forest concessions resulted in Parliament have the same standing under the law. The Forestry Act, a reclassification of the country’s forests, which are now pending the Minerals Act and the Environmental Act all have equal standing. classification as national parks, wildlife reserves, economic forests Therefore, the DPIM, the Forest Department and the ONEP are of and land reform zones. equal legal status in the sense that neither has authority to dictate terms to the other. There is no ‘super-agency’ to reconcile differences 15 Does the government or do state agencies have the right to amongst departments, or hand down binding judgments in the case participate in mining projects? Is there a local listing requirement of conflicts. for the project company? Policies issued by the heads of various ministries and departments are the real modus operandi for government officials, and Although there is no prohibition on the government participating in the failure of the officials to comply with policies may result in mining projects, there is no precedent for such engagement by the disciplinary action. These policies are internal directives and are government. not known to the public. In Thai legislation there are many provisions giving wide discretionary powers to permanent officials 16 Are there provisions in law dealing with government expropriation responsible for administering the law. of licences? What are the compensation provisions? The Ministry of Industry has the power to revoke a prospecting 14 What surface rights may private parties acquire? How are these licence when the holder fails to comply with the regulations pro- rights acquired? vided under the Minerals Act or the conditions and obligations Mining rights under the Minerals Act do not include any rights to attached to the licence. the surface land. Surface rights over the mine vary depending on The Ministry of Industry is empowered to revoke an ML upon the type of land. Before applying for a mining lease, an applicant the occurrence of the following: it appears later that an ML is issued must acquire the right to use the surface land from the public or as a result of a prominent mistake or misunderstanding of material private owner, as the case may be. Negotiation with a private land- facts; the holder departs from the place of domicile or address and owner is concluded by purchase or lease. If the land is owned by the the LMIO is unable to communicate with him; the holder does not government, a permit issued by the concerned government agency discharge all debts obligated under Minerals Act within 90 days after receiving a written notice of payment from the LMIO; the holder

182 Getting the Deal Through – Mining 2014 Chandler & Thong-ek Law Offices Limited THAILAND violates or commits the offence according to provisions under the 19 What tax advantages and incentives are available to private Minerals Act, or fails to comply with the order of the LMIO or the parties carrying on mining activities? conditions prescribed in the ML or related licence. There will not be Board of Investment promotional incentives compensation for revocation. Under the Investment Promotion Act, the following activities are The Minerals Act itself has no provision regarding the govern- eligible for promotion: mineral ore prospecting; mining or ore ment expropriation of mining businesses or MLs. dressing (except tin); marble or granite mining; and smelting. The website of the Board of Investment at www.boi.go.th includes a guide to the Board of Investment and a summary of 17 Are any areas designated as protected areas within your business laws. jurisdiction and which are off-limits or specially regulated? A mining project promoted by the Board of Investment may There are a number of types of land that are prohibited for mining, be granted benefits including exemptions or reductions of customs as outlined in question 14. duties on imported equipment, an income tax holiday of three to eight years, an exemption from withholding tax on dividends, and Duties, royalties and taxes other incentives. A condition of promotion for mineral ore prospecting, mining or ore dressing (except tin) and marble or granite 18 What duties, royalties and taxes are payable by private parties mining is that a GPL, an SPL or an ML (as the case may be) must carrying on mining activities? Are these revenue-based or profit- be obtained from the DPIM prior to submission of an investment based? promotion application. Major taxes applicable to the mining business are company income Another condition for mining and prospecting is that a business tax, mineral royalties and value added tax. operator must have Thai nationals holding shares totalling not less than 51 per cent of the registered capital. Company income tax A company earning revenues from mining is liable to pay company income tax under the Revenue Code. The present rate is 30 per cent 20 Does any legislation provide for tax stabilisation or are there tax and has been reduced to 20 per cent for two fiscal years commenc- stabilisation agreements in force? ing 1 January 2013. Dividend payments to overseas shareholders At the moment, there is no legislation in force which provides for are generally subject to a withholding tax of 10 per cent. Expenses either tax stabilisation or tax stabilisation agreements. incurred for the sole purpose of carrying on the business may be deducted. Depreciation of assets may be deducted as a business expense 21 Is the government entitled to a carried interest, or a free carried but must be done on an annual basis. Official prescribed rates of interest in mining projects? depreciation are 5 per cent for permanent buildings, 100 per cent for Although there is no prohibition on the government holding an temporary buildings, 5 per cent for depletable natural resources, 10 interest in mining projects, there is no precedent for such engage- per cent for lease rights with no fixed termination date and 20 per ment by the government. cent for other property. Losses may be carried forward for five consecutive years. 22 Are there any transfer taxes or capital gains imposed regarding the transfer of licences? Mineral royalties The Thai government collects mineral royalties from mining and Consideration for transfer of licence is categorised as a taxable mineral production. The Minerals Act states that the persons under income which is subject to income tax at the rate prescribed by the the Minerals Act, including the mining lease holder and metallurgi- Revenue Code. cal operator, must pay a mineral royalty under the law on mineral royalty rates. The law currently in force is the Mineral Royalty 23 Is there any distinction between the duties, royalties and taxes Rates Act (1966). The mineral royalty rate for each type of mineral payable by domestic parties and those payable by foreign parties? is determined by a ministerial regulation issued under the Mineral No. Royalty Rates Act. The ministerial regulation currently in force is the Ministerial Regulation Determining Mineral Royalty Rates Business structures (2007). Royalties are paid based on the value of the particular mineral. 24 What are the principal business structures used by private parties Some minerals are subject to the progressive rate with varying levels carrying on mining activities? according to the price range and the maximum mineral royalty rate The Thai limited company is the usual choice of entity to hold MLs. while other types of minerals are subject to flat rates according to the In order to qualify for Board of Investment promotion, the entity kind, type and importance of the mineral. must be a limited company. Mining rights will not be granted to branches, non-registered Value added tax partnerships, joint ventures or trusts. Mining companies are subject to VAT at a flat rate of 10 per cent (temporarily reduced to 7 per cent until 30 September 2014. However, a zero-VAT rate applies to exports of minerals by mineral 25 Is there a requirement that a local entity be a party to the traders. VAT payable is calculated from the difference between input transaction? tax (VAT paid by the mining trader to suppliers of goods or services) Under the current law, an entity doing business in mining (exclud- and output tax (VAT collected by the mining trader from persons ing exploration activity) must be Thai majority-owned; otherwise, who purchase goods or services). a foreign business operation licence granted by the Minister of Commerce with the approval of Cabinet must be obtained. Double tax treaties with other nations Currently, Thailand has double tax treaties with 51 countries, including the United States, Japan and China.

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26 Are there jurisdictions with favourable bilateral investment treaties must be operated in accordance with the approved flow sheet and or tax treaties with your jurisdiction through which foreign entities mineral processing procedure under supervision and responsibility will commonly structure their operations in your jurisdiction? of the licensed engineer. Thailand has bilateral investment treaties (BITs) with over 30 The import of minerals and metals of any kind, with the excep- countries. Among these BITs, those with Australia (TAF), Japan tion of tin in excess of two kilograms, does not come under the (JTEPA) and the United States (Treaty of Amity) are considered provisions of the Minerals Act, regardless of quantity. more favourable. Under the TAF, a company with majority share- The Minerals Act, however, governs export of the following holders holding Australian nationality (up to 60 per cent) can minerals: tin ore in excess of 50 grams; gold ore, in any amount; engage in mining activities, but must be approved by the MOI copper ore, zinc ore and iron ore in excess of two kilograms each; and at least two-fifths of the directors must be of Thai national- minerals with columbium (also known as niobium), tantalum and ity. This treaty does not exempt the restriction the company from thorium, or other radioactive content, in any amount; and certain the restrictions on foreign land ownership. The Treaty of Amity industrial minerals (dolomite, barite, pyrophyllite, feldspar, gypsum specifically includes the right to prohibit or limit US companies and kaolin) in excess of one metric tonne. from engaging in activities that include the exploitation of land or resources. The JTEPA has no language specific to mining activi- 31 What restrictions are imposed on the import of funds for ties. US and Japanese majority owned companies must, therefore, exploration and extraction or the use of the proceeds from the adhere to restrictions and requirements for licensing found in the export or sale of minerals? Foreign Business Operation Act (1999) (see question 12). Thailand’s double tax treaties with Singapore and the Netherlands There are exchange control regulations administered by the Bank of are considered generally more favourable (see question 18). Thailand on behalf of the Ministry of Finance, under the Exchange Control Act (1942). Financing In the past, Thailand had comprehensive exchange control regulations, which were administered by the Bank of Thailand. Although 27 What are the principal sources of financing available to private approvals to repatriate capital and profits were discretionary, in parties carrying on mining activities? What role does the domestic practice approvals were granted as a matter of routine provided one public securities market play in financing the mining industry? complied with applicable procedures. A number of relaxations of Thai commercial banks are the principal source of financing for exchange controls have been announced by the Bank of Thailand mining projects, by way of loans on standard commercial terms. since June 1990, and ceilings on outward remittances have been Public limited companies and private limited companies (with substantially increased. Presently, commercial banks are authorised the consent of the Stock Exchange of Thailand (SET)) may issue to process most applications to purchase foreign currency. Foreign debentures. currency accounts may be established abroad and in Thailand. Public limited companies may apply to be listed on the SET in There are no rules requiring proceeds from the sale of minerals accordance with rules prescribed by the SET. to be used domestically.

Environment 28 Please describe the regime for taking security over mining interests. A licence for mining activities, granted by the governmental agency, 32 What are the principal environmental laws applicable to the cannot be mortgaged, pledged or assigned as security under Thai mining industry? What are the principal regulatory bodies that law. administer those laws? There are many laws relating to the management of environmen- Restrictions tal problems. Each of these laws contains certain environmental requirements that relate to principal activities of the competent 29 What restrictions are imposed on the importation of machinery authorities. For example, the Factories Law contains provisions and equipment or services required in connection with exploration designating the MOI as the body responsible for dealing with and extraction? environmental problems arising from a factory business operation. The import of foreign machinery and equipment is subject to cus- The public health law designates the Ministry of Public Health toms duty at rates prescribed in the Customs Tariff, and VAT (cur- and local authorities as the bodies responsible for certain envi- rently at the rate of 7 per cent). Exemptions may be granted by ronmental problems, such as public nuisance or excretion manage- the Board of Investment for promoted projects. In the case of a ment, among others. With respect to natural resources management non-promoted company, the ratio of foreign staff to Thai staff and conservation, there are laws that apply to each type of natural shall not be greater than 1:4. The exemption to this limitation can resource, such as water, soil and minerals. be granted to the promoted company with the requirement that The Environmental Act is the principal law for managing training and instruction must be expedited and support must be environmental problems in all respects, including water pollution, given to the Thai personnel in order that they can perform work in air pollution, noise pollution, other pollution, as well as hazard- the promoted project in place of the foreign staff within the period ous waste and conservation of natural resources. In addition, the of time prescribed by the Board. Environmental Act requires both private and public sectors to prepare an EIA report for the prescribed operations or activities, and provides for the establishment of an environmental fund to support 30 What restrictions are imposed on the processing, export or sale activities related to environmental quality promotion and protection. of minerals? Are there any export quotas, licensing or other The Environmental Act established three principal agencies: the mechanisms that prevent producers from freely exporting their ONEP, the Department of Pollution Control and the Department production? of Environmental Quality Promotion. These three agencies are The person who can operate mineral processing must be the holder attached to the MNRE. Their main powers and duties are as follows. of a provisional mining lease or mining lease who undertakes mineral processing operations within his mining concession area, unless ONEP a mineral processing licence is obtained from the LMIO who will The ONEP has the primary responsibility for the coordination and issue and designate the mineral processing area. Mineral processing preparation of natural resources and environmental management

184 Getting the Deal Through – Mining 2014 Chandler & Thong-ek Law Offices Limited THAILAND plans to comply with the enhancement and conservation of national • the Provident Fund Act (1987) as amended; environmental quality law and other relevant laws, including pro- • the Social Security Act (1990) as amended; and ceedings relating to the assessment of environmental impacts that • the Compensation Fund Act (1994). may arise from projects or activities of public and private sector companies. 33 What is the environmental review and permitting process for a mining project? How long does it normally take to obtain the Department of Pollution Control necessary permits? The Department of Pollution Control is primarily responsible for making recommendations regarding environmental quality stand- Important rules concerning environmental quality promotion ards and standards for controlling pollution from its source. Its and protection, which apply to exploration and mining under the duties include preparing measures for controlling, preventing and Environmental Act are as follows. solving environmental problems arising from pollution, taking steps Section 67 of the Thai Constitution provides that any project or regarding pollution complaints and taking action under the national activity that may cause severe impacts on the environment may not environmental quality promotion and protection law, the pollution be done unless the impacts on environmental quality and health of law, as well as other relevant laws. people in the surrounding community has been studied and evaluated first. The rights of a community to have their input into any Department of Environmental Quality Promotion such evaluation, and take action against a government agency or The Department of Environmental Quality Promotion is primar- organisation for not fulfilling these rights, are protected in the same ily responsible for the promotion and dissemination of information provision. relating to the environment. In addition, it has a duty to compile, develop and provide services in relation to environmental data as The National Environment Board the national environmental information and data centre, to promote The National Environment Board has the power to prescribe public participation in environmental conservation, protection and Environmental Act in the following areas: quality of water in pub- utilisation of natural resources, to act as an environmental dispute lic water sources, underground water quality, air quality, noise level prevention and mediation centre, to coordinate and propose plans and vibration and others. In prescribing such standards, technical and measures to promote and disseminate information relating principles, scientific evidence, economic and social feasibility, as to national resources and environmental protection, and to study, well as relevant technology, must be taken into consideration. If the research, develop, support and transfer technology and environmen- National Environment Board deems it appropriate, it may prescribe tal management. higher environmental quality standards than the general standards The National Health Act provides a framework and guidelines in areas that have been declared conservation areas, environmental for formulating national policies, strategies and activities in regard to protection areas, areas that have been approved by the Cabinet for national health, and provides mechanisms for securing continuous the use of measures to solve environmental problems or a pollution participation from all sectors in promoting health, and improving control zone. national health effectively and thoroughly. Health impact assessments (HIAs), as required under the Constitution, are formulated General projects and activities and supervised by this Act as follows: Under the Environmental Act, the Minister of Natural Resources and Environment, with the approval of the National Environment The National Health Commission (NHC) Board, has the power to require those undertaking certain projects The NHC creates national health system statutes, establishes poli- or activities that may cause an impact to the environment to prepare cies and strategies in respect to national health, and provides a and submit an EIA report. The projects or activities so required must review of national health every five years. The NHC also establishes be specified by notification in the government gazette. conditions and methods for HIAs, as well as organising the National Projects may be required to undertake either an EIA or an Health Assembly, which participates in proposals for health policies. Environmental and Health Impact Assessment (EHIA). These two different levels of assessment depend on the type and size of the The National Health Commission Office (NHCO) project. A project which is required to prepare an EHIA report The NHCO is responsible for coordinating with the agencies as a project that may cause severe impact to the community in involved in policies and strategies of the government and other terms of environmental quality, natural resources and health of a agencies, both in the public and private sectors, which carry out community must do so in strict compliance with the notifications activities related to health, arranging the organisation of the of the Ministry of Natural Resources and Environment regarding National Health Assembly and supporting the organisation of a the criteria, procedure, regulations and guidelines for preparing health assembly in a specific locality. The NHCO also assists with such a report (found in a Notification published on 29 December achieving resolutions of the NHC and analysing various data. Such 2009). activities are performed in order to prepare reports or to promote the National Health Act. Mining assessments The Minerals Act prescribes measures for preventing damage All mining projects require an EIA report. EIA reports must be sub- from mineral exploration and mining, third-party safety and work- mitted in the application for the mining lease under the Ministry of ers’ protection (see section 17(6) of the Minerals Act). Natural Resources and Environment Notification dated 24 April All mining business is subject to labour laws of general appli- 2012, which came into effect on 21 June 2012. cation, which include: The following mining activities require the preparation and • the Labour Protection Act (1998), which deals with working submission of an EHIA (31 August 2010 Notification): days, normal working hours and rest periods; holidays, over- • underground mines whose structure is designed to collapse after time, payments of wages, leave of absence, discipline, bringing mining without any support, and no substitute form of support grievances and termination of employment and severance pay; is inserted to prevent the collapse (all sizes); • the Civil and Commercial Code on hire of services; • mines for lead, zinc or other metallic mineral mines using cya- • the Labour Relations Act (1975) as amended; nide or mercury or lead nitrate in the production process, or • the Act Establishing the Labour Courts and Procedure in the other metallic mineral mines with arsenopyrite as an associated Labour Courts (1979) as amended; mineral (all sizes); www.gettingthedealthrough.com 185 THAILAND Chandler & Thong-ek Law Offices Limited

• coal mines only in the case the coals are conveyed out of 36 What restrictions and limitations are imposed on the use of domestic the project site by car (200,000 tons or more per month or and foreign employees in connection with mining activities? 2,400,000 tons or more per year); and All mining activities are subject to labour laws of general applica- • seabed mines (all sizes). tion. See questions 32 and 35. The employment of foreign employees is subject to laws and Prescribing the standards for controlling pollution from its source practices regarding visas and work permits. The Minister of Natural Resources and Environment, with the The Working of Aliens Act (1978) requires that every foreigner recommendation of the Pollution Control Committee and the working in Thailand obtains a work permit with certain excep- approval of the National Environment Board, has the power to tions. Presently, 39 occupations are closed to foreigners, includ- prescribe standards for controlling pollution from its source, in ing architecture, civil engineering, accounting and law. Generally, order to control the release of waste water, emission of air pollu- foreigners may start working only after a work permit is issued. tion, dumping of waste or other pollution into the environment. In practice, little difficulty is experienced in obtaining work per- However, other standards may be prescribed by other laws, such as mits for qualified foreigners in positions for which qualified Thai the Factories Act. If the standards prescribed by other laws are not nationals are not available. lower than those prescribed by the Environmental Act, such standards may be applied. In the event that standards prescribed by other Social and community issues laws are lower than those prescribed by the Environmental Act, the government agency in charge must amend those laws to make 37 What are the principal community engagements or CSR (corporate them consistent with the rules issued under the Environmental Act. social responsibility) laws applicable to the mining industry? What are the principal regulatory bodies that administer those laws?

34 What is the closure and remediation process for a mining Thailand does not have CSR laws, however; section 67 of the project? What performance bonds, guarantees and other financial Constitution provides that the operation of any activity that might assurances are required? affect the community cannot be engaged in unless a study and assessment of the effect on the environment (EIA) and health (HIA) The Minerals Act requires that land used for mining be restored to of the affected community is completed and a hearing involving its original state when it is no longer used for mining (section 72). the public and interested persons is conducted and the opinions of There is no provision of laws addressing the closure of mines. environmental NGO and higher education institutions providing studies in the field of the environment are obtained. Failure to com- Health & safety, and labour issues ply with this law permits the affected party to bring a claim to the Administrative Court and the operation shall be suspended during 35 What are the principal health and safety, and labour laws the case procedure. applicable to the mining industry? What are the principal The NHC conducts administration of HIA under the Notification regulatory bodies that administer those laws? of NHC published on 8 November 2009 which prescribed criteria The principal health and safety law is the Environmental Act admin- and procedures to assess the health impact of public policy while the istered by the ONEP and National Health Act administered by the ONEP supervises administration of EIA reports and public hearings NHCO. Labour law applicable to the mining industry includes the under the Environmental Act. Labour Protection Act (1998), the Civil and Commercial Code on hire of services, the Labour Relations Act (1975), the Act Establishing the Labour Courts and Procedure in the Labour Courts (1979), the 38 How do the rights of aboriginal, indigenous or currently or Provident Fund Act (1987), the Social Security Act (1990), and the previously disadvantaged peoples affect the acquisition or Compensation Fund Act (1994). The Ministry of Labour admin- exercise of mining rights? isters these laws. Not applicable in this jurisdiction.

Albert T Chandler [email protected] Nuanporn Wechsuwanarux [email protected] Christopher Kalis [email protected]

7th Floor, Bubhajit Building Tel: +66 2 266 6485 20 North Sathorn Road Fax: +66 2 266 6483/4 Bangkok 10500 www.ctlo.com Thailand

186 Getting the Deal Through – Mining 2014 Chandler & Thong-ek Law Offices Limited THAILAND

39 What international treaties, conventions or protocols relating to International treaties CSR issues are applicable in your jurisdiction? 41 What international treaties apply to the mining industry or an None. investment in the mining industry?

Foreign investment An investment in a mining project may qualify for investment protection under a bilateral investment treaty. Thailand is currently a 40 Are there any foreign ownership restrictions in your jurisdiction party to more than 20 bilateral investment treaties. Thailand is also relevant to the mining industry? a party to 2009 ASEAN Comprehensive Investment Agreement. See question 12. Mining and quarrying, and services incidental thereto are listed as one of the designated sectors to which the 2009 Agreement applies.

www.gettingthedealthrough.com 187 TURKEY Esin Attorney Partnership, a member firm of Baker & McKenzie Turkey

Türker Yöndem, Batuhan Uzel and Gül I˙ncesulu Esin Attorney Partnership, a member firm of Baker & McKenzie

Mining industry 5 How is the mining industry regulated? Turkey’s Constitution and Civil Code set general rules in relation to 1 What is the nature and importance of the mining industry in the exploitation and ownership of natural resources. The Turkish your country? Parliament enacts laws regulating mining activities and the Ministry Although import-dependent in some major commodities such of Energy and Natural Resources (MENR) enacts secondary legis- as iron, Turkey possesses vast mineral resources and is one of the lation including granting exploration rights and operating licences. world’s richest countries in terms of mineral variety. A total of 53 varieties of minerals and metals are exploited in 4,500 mineral deposits in Turkey. A further 27 mineral types have been discovered, 6 What are the principal laws that regulate the mining industry? but have yet to be subject to exploitation due to small quantities and What are the principal regulatory bodies that administer low quality. those laws? Turkey possesses 2.5 per cent of the world’s industrial raw The Mining Law, which entered into force on 15 June 1985, and materials, and most significantly, 72 per cent of its global boron the related secondary legislation govern mining activities in Turkey. reserves, 33 per cent of global marble reserves, 20 per cent of global The MENR and its General Directorate of Mining Affairs (GDMA) bentonite reserves and more than half of global pearlite reserves. are the main government authorities setting out the general rules With the start of the liberalisation era and privatisation of and policies for mining and performing regulatory and supervisory some major state-owned mining enterprises, and new incentives overseeing of mining operations. introduced by government in the last decade, both local and for- The GDMA is responsible for day-to-day activities, includ- eign investments and production have increased significantly in ing: granting licences relating to mining rights, supervising mining the sector. It is reported that whereas nearly a decade ago 85 per activities and taking necessary measures to support exploration and cent of mining-sector activity was performed by publicly owned operation activities. companies, currently, the situation has almost been reversed. Nevertheless, ore processing is limited by relatively high energy 7 What classification system does the mining industry use for costs due to import dependency on energy resources. reporting mineral resources and mineral reserves? A significant increase in foreign capital inflow to the Turkish mining industry has been observed particularly in metal-based ores Pursuant to the Mining Law, all kinds of substances naturally found such as gold, silver and copper mining and processing. Privatisation in the earth and in springs that have economic and commercial value of coal-fired power plants in Turkey through the transfer of opera- are defined as mines, with the exception of petroleum, natural gas, tion rights, including lignite reserves, is also considered an attrac- geothermal and water sources. The Mining Law further divides tive investment opportunity for foreign investors. mines into six groups subject to different procedures for licensing purposes: • Group I: (a) sand and gravel used in construction and road- 2 What are the target minerals? works and found in nature, and (b) brick and roofing tile clay, A rich variety of mineral deposits exists in Turkey, and the target cement clay, marl, pozzolanic rocks, rocks used in the cement minerals consist of boron, lignite, coal, chrome, gold, silver, iron and and ceramic industries, and mines not classified under the other copper. groups. • Group II: (a) rocks used in crushed form, which are derived from calcite, dolomite, limestone, granite, andesite, basalt, aggregate 3 Which regions are most active? or stone chips and (b) marble, travertine, granite, andesite, basalt Almost all regions in Turkey are active in the mining industry, and stones used for decorative purposes. for instance, lignite reserves are actively mined in the South East, • Group III: salts in the form of solution and obtained from sea, Mediterranean and Aegean Region, coal and copper in the Black lake and spring water, carbon dioxide gas (except for geother- Sea Region; gold reserves in the Aegean and South East Region and mal, natural gas and areas that have petroleum) and hydrogen marble in almost all the regions in Turkey. sulphide (provisions of the Petroleum Law are reserved). • Group IV: (a) minerals used as raw materials for industry, Legal and regulatory structure including boron, sodium, lithium and calcium, (b) minerals that are energy sources, including lignite and anthracite resources, 4 Is the legal system civil or common law-based? and (c) precious metals, including gold, silver, copper and iron. Turkey has a civil law-based legal system. • Group V: precious metals and gem stones, including diamond and sapphire. • Group VI: radioactive minerals.

188 Getting the Deal Through – Mining 2014 Esin Attorney Partnership, a member firm of Baker & McKenzie TURKEY

Mining rights and title preliminary survey report and the exploration work plan, and sub- stantiating the financial capability of the applicant. The exploration 8 To what extent does the state control mining rights in your licence is issued following the submission of the foregoing docu- jurisdiction? Can those rights be granted to private parties and ments and registration with the mining registry. The exploration to what extent will they have title to minerals in the ground? licence becomes effective upon registration. Are there large areas where the mining rights are held privately Exploration activities may be conducted pursuant to an explo- or which belong to the owner of the surface rights? Is there a ration licence for Group II (b), Group III, Group IV and Group VI separate legal regime or process for third parties to obtain mining mines, and an exploration certificate for Group V mines. No explo- rights in those areas? ration licence is required for Groups I (a), I (b) and II (a); however, Generally, under civil law, a landowner holds all surface and under- an operating licence must be granted for mining activities within ground rights of the property in question. The Constitution and the these classifications of mines in order to perform the activities. Mining Law, however, set forth that all natural resources, including Exploration activities are carried out in three stages: mines and related exploration and operating rights, are subject to the • the pre-exploration period exclusive ownership and disposition of the state, regardless of real • the general exploration period; and property ownership where natural resources are located. Individuals • the detailed exploration period. and legal entities are entitled to engage in mining activities pursuant to exploration and operation licences and permits granted by the The operating licence will only be given to exploration licence hold- GDMA for a limited period. ers. Before the end of the exploration licence period, the licence Mining rights may only be granted to Turkish citizens or legal holder is required to apply to the GDMA in order to obtain an entities established under Turkish law, which includes companies operating licence. However, exploration certificate holders wish- established in Turkey with foreign capital. ing to operate Group V mines must obtain an operating certificate. An operating licence is granted for apparent and potential reserve areas only where the GDMA receives submission of all necessary 9 What information and data is publicly available to private parties documentation mentioned above. that wish to engage in exploration and other mining activities? Is The term of an operating licence is five years for Group I (a) there an agency which collects mineral assessment reports from mines, and at least 10 years for other classifications of mines. The private parties? Must private parties file mineral assessment term of an operating licence may be extended under certain condi- reports? Does the agency or the government conduct geoscience tions, however, it may not exceed 60 years in duration commenc- surveys, which become part of the database? Is the database ing from the issuance date. available online? A mining operating licence does not by itself grant the licence The main sources for publicly accessible data and information on holder the right to commence operation activities in those mines the mining industry are the GDMA of the MENR and the General within the scope of the licence. An operating permit must be granted Directorate of Mineral Research and Exploration (GDMRE), which for locations that have apparent reserves within the licensed site is a separate entity attached to the MENR. They publish reports on described in the relevant operating licence. Furthermore, an oper- the quantities and breakdown of mineral reserves, information on ating permit can only be granted following the issuance of other licence holders, and the export and international trade of minerals necessary permits, such as applicable environmental permits. The in Turkey. The GDMA also maintains a publicly accessible min- term of the operating permit is limited to the term of the operating ing registry. The Chamber of Mining Engineers prepares industry- licence, and can only be transferred to third parties together with specific reports on mining. Additionally, unofficial information, the underlying operating licence. such as statistical maps, can be reached online. Licence holders are subject to different obligations depending on Pursuant to the Mining Law, mining right holders must submit the type of the licence. The main obligations are: activity reports to the GDMA, including information on the activi- • payment of duties and security deposits; ties carried out during the relevant licence period, mining reserves • for exploration licences, periodic submission of an activity and investment expenditure. Failure to submit such reports may report; result in licence cancellation. • for operating licences, submission of technical documents, sales The GDMRE conducts geo-scientific surveys in Turkey’s mining information form and activity information form by the end of regions and certain survey reports. Maps of current and previously April of each year; terminated mining licences, which also display detected reserves, are • payment of a royalty to be collected on the extracted mines; available at the GDMA for purchase by private parties. • obtaining necessary permits; and • employment of at least one mining engineer as a technical 10 What mining rights may private parties acquire? How are these supervisor for supervision of mine extraction activities. acquired? What obligations does the rights holder have? If exploration or reconnaissance licences are granted, does such 11 What is the regime for the renewal and transfer of mineral tenure give the holder an automatic or preferential right to acquire licences? a mining licence? What are the requirements to convert to a Mining licences may be transferred to Turkish citizens and com- mining licence? panies established under Turkish laws for mining purposes with Private parties must obtain licences from the GDMA in order to the approval of the GDMA. The transferee becomes the holder of carry out mining activities within a determined site. Obtaining an the mining licence after the transfer of the licence in question, and exploration licence is the first step required to engage in mining assumes all obligations and rights granted by the mining legislation. operations in Turkey. An applicant must submit the standard forms, Prior to the transfer of a licence, all the remaining duties and fees which must include information about the applicant and the site in for such licence and the security for compliance with environmental question. The GDMA informs the applicant whether the site is avail- obligations must be deposited and state royalties must be paid. The able for exploration. If available, the GDMA reserves the relevant transferee is required to apply to the GDMA for the transfer of the site in favour of the applicant for two months. Within this period, licence, and must deposit a new security for the licence in question, a the applicant must submit further documents regarding the identity transfer fee equal to the annual licence fee amount and a declaratory of the applicant, technical specifications of the projects such as the document stating that the transferee has the financial capability to www.gettingthedealthrough.com 189 TURKEY Esin Attorney Partnership, a member firm of Baker & McKenzie cover the respective amounts provided under the mining legislation 15 Does the government or do state agencies have the right to for different types of mining projects. The security deposit paid by participate in mining projects? Is there a local listing requirement the transferor will be returned to the transferor upon transfer. for the project company? Mineral licences are not subject to renewal; however, under cer- Under the Mining Law, state bodies and agencies and state-owned tain conditions, the term of an operating licence may be extended enterprises may engage in mining activities. In particular, the up to 60 years from the issuance date. Mineral Research and Exploration Institution may carry out mining exploration activities along with scientific works relating to mining. There is no local listing requirement for mining companies. 12 Is there any distinction in law or practice between the mining Borsa Istanbul operates a precious metals and diamonds market rights that may be acquired by domestic parties and those that where gold, silver, platinum and palladium are traded for market may be acquired by foreign parties? participants including the companies engaging in the production Pursuant to the Mining Law, mining rights may only be awarded or trade of precious minerals. to Turkish citizens or legal entities established under Turkish laws, which includes companies established in Turkey with foreign capital. Therefore, Turkish companies with foreign capital are also entitled 16 Are there provisions in law dealing with government expropriation to hold equivalent mining rights. of licences? What are the compensation provisions? Mining licences are not subject to government expropriation. However, under certain circumstances, such as the failure to submit 13 How are mining rights protected? Are foreign arbitration awards in required activity reports or the absence of the environmental impact respect of domestic mining disputes freely enforceable in assessment report, the General Directorate may cancel the licence, your jurisdiction? and the security deposited by the licence holder may be forfeited. An exploration or operating licence may only be terminated on grounds of failure to comply with the obligations provided under the Mining Law, or the expiration of the term of the relevant licence. 17 Are any areas designated as protected areas within your Upon termination, expiration or abandonment of an exploration or jurisdiction and which are off-limits or specially regulated? operating licence, all facilities at the site shall be transferred to the Special regulations apply to special environmental protection state, and the licenced site will become available to new applicants. areas, national parks, wildlife protection and development areas, Since mines are subject to the exclusive ownership and disposi- protected forests, areas subject to protection under the Coastal tion of the state, any matter relating to grant, transfer or termination Law, first-degree prohibited military zones, areas containing a zon- of any kind of mining right is exclusively governed by the mining ing plan, first-degree protected areas, investment areas allocated legislation. Under Turkish administrative law, any person who has a for a purpose other than mining purposes, state-owned lands, for- legitimate interest in the cancellation of an administrative decision is estry lands, agricultural lands or pastures. entitled to file a cancellation lawsuit against such decision with the administrative courts within 60 days. Duties, royalties and taxes With the exception of any dispute relating to rights in rem, and the grant, termination or transfer of mining rights by governmental 18 What duties, royalties and taxes are payable by private parties authorities, contractual disputes between private companies or indi- carrying on mining activities? Are these revenue-based or viduals may be subject to arbitration. Foreign arbitral awards are profit-based? also capable of being enforced in Turkey, because Turkey is party Licence fees differ for exploration and operating licences. Private to the New York Convention on the Recognition and Enforcement parties must pay a fee of 2,015.51 Turkish lira for exploration of Foreign Arbitral Awards (Convention). Where the conditions licence applications and 805.50 lira for each year of the exploration required for the applicability of the Convention are not present, licence. arbitral awards may nevertheless be recognised and enforced in Private parties applying for operating licences must pay an Turkey subject to Turkish private international laws. annual fee of: • 4,839.60 lira for operating licences with a term of up to 10 years; 14 What surface rights may private parties acquire? How are these • 5,645.80 lira for operating licences with a term of up to 15 years; rights acquired? • 8,066.40 lira for operating licences with a term of up to 40 years; • 12,262.30 lira for operating licences with a term of up to 60 For obtaining mining operation permits, mining operation licence years; and holders should establish the title or utilisation rights over the reserve • 16,134.60 lira for operating licences with a term of up to 99 area. If the reserve area subject to the operation permit overlaps years. with privately owned lands, such rights may be established through purchasing, leasing or establishing a usufruct right over the land. Licence holders must deposit a security equal to one per cent of the The Mining Law also requires mining licence holders to apply to annual licence fee per hectare depending on the licensing stage and the MENR for the expropriation of privately owned lands, which the term of licence, and operating permit holders and exploration will be valid only for the operating period (as extended). The licence licence holders possessing a production permit must deposit a secu- holder will bear the cost of expropriation. rity for compliance with environmental obligations that is equal to The Mining Law provides certain incentives to licence holders the annual duty amount of the operating licence. A licence holder if the underlying lands are state owned. State-owned lands may be must pay a royalty to the state, which is collected from extracted either Treasury lands, in which case, the lands will be allocated mines determined by the pithead sale price. The amount of the to the licence holder at no charge for utilisation, or lands with royalty payment ranges from 2 per cent to 4 per cent depending special allocation, such as forestry, agricultural lands or pasture on the classification type of the mine. If the product of Group IV (c) lands, which may be allocated to licence holders upon the neces- (except gold, silver or platinum) and II (b) mines is processed into a sary applications and payment of related costs, and allocation fees final product in the facilities of the licence holder, however, the state to the relevant administration. royalty is 1 per cent. If mining activities are carried out on public lands, the royalty payment is increased by 30 per cent. The Council

190 Getting the Deal Through – Mining 2014 Esin Attorney Partnership, a member firm of Baker & McKenzie TURKEY of Ministers may apply a discount of up to 25 per cent depending on entities. In this respect, there is no distinction in terms of domestic the type of mine and the area of production. and foreign capital Turkish companies. Where operations fail to commence in the licensed area following the grant of an operating permit, the state royalty will be Business structures paid annually at 10 per cent of the extraction amount declared in the project’s plan of operation submitted in the application for the 24 What are the principal business structures used by private parties operating licence. The state royalty must be at least the amount of carrying on mining activities? the duty applicable to the operating licence. In Turkey, the most common types of business structures used by private parties conducting mining activities do not differ from other sectors; consequently, joint-stock companies and limited liabil- 19 What tax advantages and incentives are available to private ity companies are the most preferred structures. These companies parties carrying on mining activities? obtain exploration licences from the GDMA, or acquire licences With the exception of Group I mines and minerals used in con- from third parties. These companies also activate under royalty struction, if minerals are processed in Turkey in a licence holder’s agreements made with licence holders, which are similar to lease integrated plants, a 50 per cent exemption from royalty payments agreements, where the royalty right holder benefits from mining applies. rights, while the mining licence holder remains the owner of the There are certain value-added tax and corporate tax advantages mining licence. While under the previous Mining Law, abolished in for different groups of mines. Pursuant to the Value Added Tax 2004, royalty agreements were subject to registration with the min- (VAT) Law, deliveries made to individuals or legal entities engaging ing registry, under the current Mining Law these type of agreements in gold and silver exploration and extraction activities are exempt are not subject to any requirements. from value-added tax. Recently, especially with the increase of foreign investment in With the exception of investments in operation relating to the Turkish mining industry, option agreements have started to be Group I mines, crushed stone and mining operation investments used in Turkey. Option agreements allow the option right holder to be carried out in Istanbul, Council of Ministers Decree No. to conduct mining exploration activities over the mining licence up 2012/3305 provides that all mine operation activities benefit from to a certain investment level, and later acquire the ownership of the the following incentives: VAT exemption, customs duty exemption, licence. Option agreements are not regulated under Turkish legisla- corporate income tax allowance, social security premium support tion, and are contractual arrangements between parties under the for seven years (as the employer’s share), interest support and land principle of the freedom of contract. allocation. Pursuant to a recent Council of Ministers Decree (28 January 2013), power plants using domestic coal have also begun to benefit from these incentives. 25 Is there a requirement that a local entity be a party to the transaction? Mining rights may only be held by Turkish citizens or legal entities 20 Does any legislation provide for tax stabilisation or are there tax established under Turkish laws. Other than the Turkish companies stabilisation agreements in force? having foreign capital, foreign individuals or entities may not hold There are no general tax stabilisation agreements or legislation. mining licences. Pursuant to the Communiqué on Disguised Profit Distribution Through Transfer Pricing, however, taxpayers may enter into an advance-pricing agreement with the Ministry of Finance to stabilise 26 Are there jurisdictions with favourable bilateral investment treaties the terms and conditions in relation to the pricing of the sale and or tax treaties with your jurisdiction through which foreign entities purchase of goods and services with the related parties for a period will commonly structure their operations in your jurisdiction? not exceeding three years. There are currently 74 bilateral investment treaties in force, which provide for a number of guarantees to the nationals of the countries that are a party thereto. Additionally, the right to the resolution of 21 Is the government entitled to a carried interest, or a free carried investment disputes by international arbitration in the absence of an interest in mining projects? arbitration agreement is afforded by these treaties. The royalty fees explained in question 18 are the only carried inter- Turkey has also entered into bilateral treaties for the avoidance est the government is entitled to. Additionally, a monthly penalty of double taxation with 78 countries. interest of 1.4 per cent is applicable to royalty fees not duly paid The treaties do not provide any differences from corporate on time. income tax perspective, but a reduced dividend withholding tax rate is provided in some of these treaties (this rate is 5 per cent for 22 Are there any transfer taxes or capital gains imposed regarding the treaties concluded with Switzerland, Germany, Norway, Spain, the transfer of licences? 10 per cent for the treaties concluded with the Netherlands and Luxembourg). Traditionally, foreign direct investments prefer to enter There is no separate capital gain tax in Turkey. Mining licences are in Turkey by using the Netherlands and Luxembourg structures. regarded as assets of the licence holder and transfer of them is subject to corporate income tax at a rate of 20 per cent. The sale is also Financing subject to VAT at a rate of 18 per cent. Additionally, written agreements which include monetary amounts and licence-transfer agree- 27 What are the principal sources of financing available to private ments are subject to stamp tax (0.948 per cent) in Turkey. parties carrying on mining activities? What role does the domestic public securities market play in financing the mining industry? 23 Is there any distinction between the duties, royalties and taxes Financing mining activities is not regulated under the mining laws; payable by domestic parties and those payable by foreign parties? however, licence holders in Turkey usually opt to secure financing Mining rights may only be granted to Turkish citizens or legal enti- through bank loans from local or international banks. Until recently, ties established under Turkish laws, including companies established the domestic public securities market did not play a major role in in Turkey with foreign capital, and those companies are entitled to financing the Turkish mining industry. Following quick develop- hold mining rights in a manner equivalent to Turkish individuals or ments in Turkey’s gold mining sector in recent years enabling the www.gettingthedealthrough.com 191 TURKEY Esin Attorney Partnership, a member firm of Baker & McKenzie establishment of several gold mining companies owned by foreign are certain limitations with respect to export of Turkish currency investors, Koza Gold, the sole local gold producer on the Istanbul and foreign exchange. Stock Exchange, made its initial public offering in 2010. Pursuant to article 4 of the Decree, funds in Turkish currency or foreign exchange may be freely transferred from Turkey abroad through banks in Turkey. Banks are, however, required to notify the 28 Please describe the regime for taking security over mining interests. Central Bank of Turkey regarding transfers greater than US$50,000 Under the Mining Law, exploration and operation licence holders (in the case of Turkish currency or another currency, greater than the are permitted to pledge ore deposits. Additionally, operation licence equivalent of US$50,000) within 30 days following the transfer, holders may establish a mortgage on the operation licence as a except for transfers carried out for import, export and invisible security for their present or future borrowings for mining opera- transactions. tions. Together with the operation licence, the following items are within the scope of the mortgage: shafts, pits and tunnels necessary Environment for mining operations; machines, buildings and all kinds of motor vehicles used over or underground; tools and equipment used for 32 What are the principal environmental laws applicable to the extraction, dressing or melting minerals and other ore-handling mining industry? What are the principal regulatory bodies that activities; and operational supplies that are an integral part of the administer those laws? operation licence. The mortgage term may not exceed the licence The main regulations governing environmental issues in Turkey period. Both the mortgage to be established on a mining licence and are the Environmental Law, the Environmental Impact Assessment the pledge over a mine’s ore deposits must be registered with the Regulation, and the Environmental Permits and Licences Regulation. Mining Department. The ore deposits subject to the pledge may only The Mining Law and the regulation issued thereunder require be sold with the written consent of the pledgee. licence holders to obtain certain permits in accordance with the relevant legislation for sites where mining activities are performed. Restrictions Failure to comply results in the forfeit of the licence security and the suspension of operations at the site. 29 What restrictions are imposed on the importation of machinery The principal regulatory authorities that administer environ- and equipment or services required in connection with exploration mental legislation are the Ministry of the Environment and Urban and extraction? Planning (MEUP), the Ministry of Forests and Hydraulic Works There is no specific major restriction on the importation of machin- (MFHW), the General Directorate of Environment Management ery and equipment or services required in connection with explo- and the local directorates of the MEUP and MFHW. ration and extraction of minerals. However, the import of certain machinery and equipment is subject to approval depending on their customs tariff statistical classification pursuant to Communiqué 33 What is the environmental review and permitting process for a No. 2013/9 Concerning the Import of Used or Renewed Materials. mining project? How long does it normally take to obtain the Furthermore, Communiqué No. 2013/14 Concerning the necessary permits? Importation of Construction Materials imposes certain restric- Mining licence holders must obtain a unified environmental permit tions for construction materials. By-law No. 87/12028 Concerning pursuant to the Environmental Permits and Licences Regulation Procedures and Principles in Relation to Explosive Materials and and affirmative approval of an environmental impact assessment Communiqué No. 2013/11 Concerning the Import of Explosive depending on the classification of the mining project in question. Materials includes certain provisions relating to the use of explosive For instance, pursuant to the environmental impact assessment materials in mining activities and their import. (EIA) Regulation, an EIA Affirmative Approval is required for the following mining activities: • open-pit mining with a surface area of 25 hectares or more; 30 What restrictions are imposed on the processing, export or sale • coal production with open-pit methods with a surface area of of minerals? Are there any export quotas, licensing or other 150 hectares or more; mechanisms that prevent producers from freely exporting • enrichment facilities using biological, chemical, electrolytes or their production? thermal methods; The Ministry of Economy is entitled to restrict or prohibit export on • waste pools; and the grounds of an extraordinary event affecting the market, such as a • crushing–sifting–washing facilities for Group I(a) and Group shortage of the goods subject to export, public safety, public moral- II(a) mines with a capacity of over 400,000 tonnes per year. ity, health, environmental protection or protection of items having an artistic, historic or archaeological value. Furthermore, pursuant Some other mining projects are subject to the MFHW’s selection– to Law No. 2,840 Regarding the Processing of Certain Minerals, election criteria. As a result, upon the examination of the project boron, uranium and thorium minerals can only be explored and description report, the MFHW will make a decision as to whether processed by the state, and the provisions of Law No. 3,213 are an EIA is or is not required. In practice, it may take several months not applicable with respect to such minerals. On the other hand, for a licence holder to obtain all required environmental permits and Law No. 3,284 on Restricting the Export of Certain Scrap Metals licences for mining projects. provides restrictions with respect to exporting scrap metal such as iron, copper and tin. 34 What is the closure and remediation process for a mining project? What performance bonds, guarantees and other financial 31 What restrictions are imposed on the import of funds for assurances are required? exploration and extraction or the use of the proceeds from the The licence holders must take all necessary safety and environmental export or sale of minerals? remediation measures when surrendering the licence area within six Pursuant to Decree No. 32 on the Protection of the Value of Turkish months following the abandonment or termination of the licence. Currency, persons residing abroad may freely transfer funds either An additional three months may be granted by the GDMA and such in Turkish currency or foreign exchange into Turkey. However, there extension can be extended should force majeure events transpire. If the safety and environmental remediation measures are not carried

192 Getting the Deal Through – Mining 2014 Esin Attorney Partnership, a member firm of Baker & McKenzie TURKEY

Update and trends

The market has now adapted to the June 2010 Mining Code The Turkish government is therefore developing new policies to amendments, though there are still some fundamental problems utilise, in particular, Turkey’s low-calorie but abundant domestic lignite regarding environmental permits and land allocation. A major problem reserves. In 2013, the government introduced a new incentive scheme in the mining industry is the overlong procedure for issuance of for coal mining, placing coal mining in a privileged incentive category environmental permits. The same problem has arisen in allocation of and initiating major privatisations in coal power plants and adjacent land and real estate rights to mining licence holders. Also, a draft law mines. For instance, two major coal power plants and their adjacent is in place to amend the Mining Code further. Under the draft law, the mining fields, Seyitömer (600MW) and Kangal (457MW), privatised transfer of licences is made subject to a transfer fee equal to two times in 2013, netted the Turkish government US$2.3 billion and the licence fee and approval of the Ministry. The draft law also revises US$985 million respectively. 2014 saw a new set of privatisations, the royalty amounts and licence periods for certain mine groups. The starting with the Yeniköy and Kemerköy power plants (1,050MW), Communiqué dated 16 June 2012 requires private entities to obtain which have just been privatised in April for US$2.67 billion. permission from the Prime Minister’s office to utilise state-owned lands. In addition, for the past two years the Turkish government has As a result, in addition to regular mining licences and permits, mining been in talks with foreign investors from Gulf countries, China, South operations on state-owned lands are subject to the Prime Ministry’s Korea and others to attract these investors under concession-type permission. Certain players in the mining sector argue this regulation intergovernmental agreements and host government agreements. The prolongs bureaucratic processes for many actions public entities must goal is to transfer the operation rights of the giant Afsin-Elbistan and take in mining operations, and should be revoked as soon as possible. Konya-Karaman lignite coal basins in return for utilisation of lignite sites, and construction and operation of several new power plants Focus on lignite reaching, for instance, an installed capacity of 8,000MW for Afsin Turkey has one of the fastest growing economies in the world, and alone. according to the OECD, it is expected to have the fastest growing Other than the Turkish government’s special focus on and OECD economy between 2012 and 2017. Concurrently, the country incentives for coal, incentives introduced in 2011 for integrated mining has experienced the largest demand increase after China for natural facilities, including both extraction and the processing of ores in the gas and electricity over the past decade. same or adjacent licence areas, have attracted foreign investors Turkey’s dynamic economy depends on imported energy, and for gold and copper mining and processing in Turkey. Numbers suffers from its current account deficit, caused mainly by imported of integrated mining facilities, mostly owned by foreign capital energy. Approximately 25 per cent of the country’s total energy companies, have been on the rise since 2012–2013, with the trend demand is met by domestic resources, with the remainder provided by expected to continue through 2014. a diversified portfolio of imports. out by the licence holder, they will be conducted by the relevant is submitted for an operating permit or a production permit dur- provincial directorate or the relevant forestry directorate, and all ing the exploration term. The security will be returned upon the costs will be reimbursed from the licence security and the security completion of the remediation process. for compliance with environmental obligations. A mining project’s environmental remediation process is specifi- Health & safety, and labour issues cally regulated under the Regulation on the Reclamation of Lands Destroyed by Mining Activities. Mining licence holders must sub- 35 What are the principal health and safety, and labour laws mit a reclamation plan together with their environmental impact applicable to the mining industry? What are the principal assessment application prior to commencing the relevant min- regulatory bodies that administer those laws? ing activity. The reclamation process must be completed within The principal laws regulating labour relations are the Labour Law two years following the completion of the relevant mining pro- and the Law on Work Health and Safety. The Labour Law sets forth ject at the operator’s expense. Additionally, the Implementation the minimum requirements an employer must comply with concern- Regulation of the Mining Law requires the application for an ing employee working conditions and other matters relating to labour exploration or operating licence to include a closure plan. relations. The Law on Work Health and Safety, on the other hand, The Mining Law requires the submission of a security for com- provides for requirements an employer must secure in order to pro- pliance with environmental obligations annually in an amount vide a healthy and safe working environment for employees. Health equal to the operating licence fee in the event that an application and safety measures for mining employees are specifically regulated

Türker Yöndem [email protected] Batuhan Uzel [email protected] Gül I˙ncesulu [email protected]

Yeni Sülün Sokak #1 Tel: +90 212 376 6400 Levent Caddesi Fax: +90 212 376 6464 Levent 1, Istanbul www.esin.av.tr Turkey

www.gettingthedealthrough.com 193 TURKEY Esin Attorney Partnership, a member firm of Baker & McKenzie under By-law No. 84/8428 Concerning the Work Health and Safety 39 What international treaties, conventions or protocols relating to Measures in the Mining and Stone Pits and Tunnel Construction, the CSR issues are applicable in your jurisdiction? Regulation Concerning Health and Safety Conditions in the Mining No specific international treaties, conventions or protocols relat- Sites, and the Regulation Concerning Health and Safety Conditions ing to CSR issues (including indigenous peoples) are applicable in in the Sites where the Mines are Extracted through Drilling. Turkey. The major regulatory bodies governing labour relations are the Ministry of Labour and Social Security, the Social Security Institution Foreign investment and the General Directorate of Work Health and Safety. 40 Are there any foreign ownership restrictions in your jurisdiction 36 What restrictions and limitations are imposed on the use of relevant to the mining industry? domestic and foreign employees in connection with mining activities? Foreign companies and individuals are not entitled to carry out mining activities. They may, however, establish a Turkish company Although there is no specific restriction or limitation imposed by with 100 per cent foreign shareholding or subscribe to a company mining laws, pursuant to the Law on Work Permits for Foreigners, established under Turkish law to carry out mining activities in a foreign person must obtain a work permit from the relevant Turkey. authorities before starting to work in Turkey, in addition to an employment visa. International treaties

Social and community issues 41 What international treaties apply to the mining industry or an investment in the mining industry? 37 What are the principal community engagement or CSR (corporate social responsibility) laws applicable to the mining industry? What Turkey is a party to a number of bilateral and international trea- are the principal regulatory bodies that administer those laws? ties regarding industrial research, exploration activity and scientific and technical cooperation in the mining industry. These treaties are Turkey has no specific laws in this respect. generally project specific, and among these bilateral and international treaties, agreements that have been executed with the United 38 How do the rights of aboriginal, indigenous or currently or Nations and countries such as Germany, Russia and Romania have previously disadvantaged peoples affect the acquisition or specific importance in terms of the development of mining activities. exercise of mining rights? Turkey is also a party to certain International Labour Organization Mines are subject to the exclusive ownership and disposition of the Conventions, such as the Convention concerning the Employment Turkish state, accordingly such status cannot be granted with special of Women for Underground Work in Mines of all Kinds and the rights under Turkish laws. Convention concerning the Minimum Age for Admission to Employment Underground in Mines.

194 Getting the Deal Through – Mining 2014 Holland & Hart LLP UNITED STATES United States

Robert A Bassett and David I Stanish Holland & Hart LLP

Mining industry Legal and regulatory structure

1 What is the nature and importance of the mining industry in your 4 Is the legal system civil or common law-based? country? The US legal system is based on common law adopted from English In 2013, the value of mineral production decreased in the US after common law. However, mining titles and operations on public lands three consecutive years of increases. The US Geological Survey has are subject to detailed and complicated statutes, regulations and estimated the value of mineral raw materials produced in the US other laws promulgated by federal, state and local governments. in 2013 at US$74.3 billion. This represents a slight decrease from Thus, in practice, much of the mining law in the US resembles US$75.8 billion in 2012. The domestic raw materials, along with mining law in civil-law countries in that it is detailed in specific domestically recycled materials, were used to process mineral mate- codifications (such as the Code of Federal Regulations). However, rials worth US$665 billion. These mineral materials were, in turn, various state and federal courts have interpreted these complex consumed by downstream industries with a value added to GDP of laws, as have administrative quasi-judicial bodies. All of these deci- an estimated US$2.44 trillion in 2013. The estimated value of US sions have varying degrees of precedential authority and thus the metal mine production in 2013 was US$32 billion, about 8 per cent legal system of mining law in the US is comprised of both statutory, less than that of 2012, while the estimated value of US industrial regulatory and decisional law. minerals mine production in 2013 was US$42.3 billion, approximately 3 per cent more than that of 2012. The National Mining 5 How is the mining industry regulated? Association reports that in 2011, the most recent year for which statistics are available, the US mining industry supported 2.11 mil- In the US, the mining industry is subject to three basic types of lion jobs. Mining activity generated approximately US$51 billion regulation, depending on whether the surface or the minerals are in federal, state and local taxes combined in 2011. In addition, owned by the federal government, private entities or individual or nearly US$138 billion was paid to mining industry employees in state governments. This body of law governs tenure, operations direct and indirect wages and benefits. In 2012, the average annual and environmental compliance. mining wage for US mine jobs was US$71,327, compared with A large portion of the mining industry in the US operates on US$49,200 for other industries. lands where both the surface and mineral estates are owned by the federal government; in these areas, federal laws and administrative regulations are the primary source of regulation. Where the miner- 2 What are the target minerals? als (or surface) are privately owned, mining tenure itself is a mat- In 2013, mine production of 14 mineral commodities was each ter of contract, although mining operations and the environmental worth more than US$1 billion, according to the US Geological impacts of mining are subject to both federal and state law. Where Survey. These were crushed stone, gold, copper, cement, construc- a state government owns the minerals or the surface, tenure is gov- tion sand and gravel, iron ore (shipped), molybdenum concentrates, erned by the law of that state, with mining operations and the phosphate rock, industrial sand and gravel, lime, soda ash, salt, zinc, environmental impacts of mining being subject to both federal and and clays (all types), listed in decreasing order of value. state law.

3 Which regions are most active? 6 What are the principal laws that regulate the mining industry? What The states in the western US, including Alaska, are the most active are the principal regulatory bodies that administer those laws? for metals mining. According to the US Geological Survey, in 2013, The principal law regulating the mining industry on federal land is 12 states each produced more than $2 billion worth of non-fuel the General Mining Law of 1872 (GML), which governs the acqui- mineral commodities. These states were, in descending order of sition of mining rights on federal lands. In addition, the Federal value, Nevada, Arizona, Minnesota, Florida, Texas, Alaska, Utah, Land Policy and Management Act of 1976 (FLPMA) governs the California, Wyoming, Missouri, Michigan and Colorado. The min- use of federal lands including access to those lands and the exer- eral production of these states accounted for 64 per cent of the US cise of rights under the GML on lands administered by the Bureau total output value. The primary minerals mined in Nevada were of Land Management (BLM) and the US Forest Service (USFS). gold, copper, silver, lime, and sand and gravel, while mining in Both the BLM and the USFS have issued extensive, detailed regu- Arizona produced mostly copper, molybdenum concentrates, sand lations governing mining operations that implement the mandates and gravel, cement and stone. There are several large active iron of the FLPMA. ore mines in Minnesota, and many coal and industrial mineral The principal environmental law governing mining on fed- operations throughout the eastern US. eral lands is the National Environmental Policy Act (NEPA) that requires every public agency to consider the impact of any major federal action upon the quality of the human environment. For www.gettingthedealthrough.com 195 UNITED STATES Holland & Hart LLP mining projects, the NEPA and its implementing regulations nearly 10 What mining rights may private parties acquire? How are these always mandate the preparation of an environmental assessment acquired? What obligations does the rights holder have? If (EA), an environmental impact statement (EIS),or both. Preparation exploration or reconnaissance licences are granted, does such of an EA or EIS also involves consideration of other environmental tenure give the holder an automatic or preferential right to acquire statutes including the Clean Air Act, the Clean Water Act and the a mining licence? What are the requirements to convert to a Endangered Species Act. mining licence? On land owned by the US government, the GML created a unique system allowing any person to go on to ‘federal lands’ and stake 7 What classification system does the mining industry use for a mining claim on ‘valuable mineral deposits’ such as veins in reporting mineral resources and mineral reserves? place, disseminated deposits or stream beds containing minerals. The US uses a unique classification system for reporting reserves Originally, each claimant had to perform a certain amount of work based upon the ‘Industry Guide 7’ that was adopted by the Securities each year to hold the mining claim, although that obligation has and Exchange Commission (SEC) in 1992. Guide 7 established two now been replaced by a requirement to pay a small fee each year to basic categories of reserves: proven reserves and probable reserves, the US government. The GML also contains a system by which, if and prohibited the use of any other categories in public reporting. the mining claim is proven to be sufficiently valuable, full title to the The Society for Mining Metallurgy and Exploration has urged land within the claim can be transferred from the federal govern- changes to Guide 7 and the adoption of international standards, ment to the person who staked the claim. Various court decisions but the SEC has consistently refused to adopt the international have limited this right to obtain a deed from the government (called standards common to many other mineral-producing nations. a ‘patent’ in the GML) by imposing tests to determine if, in fact, the claim contained a ‘valuable mineral deposit’. Mining rights and title The two main tests are: the ‘prudent man’ test, which asks whether ‘an individual of ordinary prudence would be justified in 8 To what extent does the state control mining rights in your further expenditures of labour and materials into the claim with the jurisdiction? Can those rights be granted to private parties and reasonable prospect of developing a valuable mine’; and the ‘market- to what extent will they have title to minerals in the ground? ability rule’, which states that a patent cannot be issued unless min- Are there large areas where the mining rights are held privately erals from the claims can be mined and sold at a profit. Satisfying or which belong to the owner of the surface rights? Is there a these requirements has developed into a lengthy and expensive pro- separate legal regime or process for third parties to obtain mining cess, and most modern mining companies continue to operate on rights in those areas? claims without going though this additional process of obtaining fee Minerals in the US can be owned by the federal government, state title to the lands. While the GML provides that the locator may be governments or private parties. Federal law controls the acquisition eligible to receive a patent for federal lands upon compliance and rights to explore for and mine minerals on federal land, and one proof of these requirements, Congress in 1994 placed a moratorium does not obtain title to the minerals until after they have been sev- on new mineral patent applications. ered. State law controls mining on state-owned lands, and varies Where a state government owns the minerals, state laws will from state to state, but generally title remains with a state govern- govern the acquisition of mining rights on those lands. Some state ment until minerals have been severed. Some lands are owned in laws provide for location in much the same ways that minerals in fee by private parties who hold title to both the surface and mineral federal lands are available under the GML. Some state laws also estates, and in some instances mineral and surface ownership has provide mineral leasing systems. The laws vary greatly between the been severed, with separate parties owning each estate. Acquisition states and each law must be consulted individually. of mineral rights on privately owned minerals is a matter of con- Where private parties own the minerals, mining rights must be tract law. acquired from the owner by agreement. Most often, the minerals are purchased in place, are leased, or an agreement is made to jointly 9 What information and data is publicly available to private parties develop the privately owned minerals. that wish to engage in exploration and other mining activities? Is Under the GML and state laws governing mineral rights, the there an agency which collects mineral assessment reports from grant of exploration rights includes the right of exploitation of min- private parties? Must private parties file mineral assessment erals. A notable exception exists in federal regulations governing reports? Does the agency or the government conduct geoscience sodium, potash and similar minerals, where a prospecting licence surveys, which become part of the database? Is the database is issued for up to four years after which the licensee may apply for available online? a preference right lease granting exploitation rights upon showing discovery of a valuable mineral deposit. Limited information and data is publicly available to private parties that wish to engage in exploration and other mining activities. There is no single agency that collects mineral assessment reports 11 What is the regime for the renewal and transfer of mineral licences? from private parties. However, federal land management agencies, Rights under the GML are freely transferable without a requirement such as the US Bureau of Land Management and the US Forest of government approval, however, federal mineral leases and rights Service, and certain state agencies collect various mineral assess- under most state mineral schemes are only transferable with notice ment reports from private parties operating on lands under their to and the approval of the applicable government agency. Transfer jurisdictions. These agencies often require private parties to file of private mineral interests is governed by common law principles of mineral assessment reports, but such reports may not be avail- contract and property law. able to the public. As a result, information and data are often purchased from private parties who have previously engaged in exploration and other mining activities in an area of interest. 12 Is there any distinction in law or practice between the mining The US Geological Survey is the government agency tasked with rights that may be acquired by domestic parties and those that conducting geosciences and other surveys of mineral deposits in may be acquired by foreign parties? the US, but such survey data is limited and generally not available Generally, there is no distinction between domestic and foreign online. acquisition of rights. Although the GML limits acquisition to citizens of the US, a ‘citizen’ may be any entity incorporated under the

196 Getting the Deal Through – Mining 2014 Holland & Hart LLP UNITED STATES laws of any state and includes entities wholly owned by non-US may be subject to mining location and entry only under certain con- entities or corporations. ditions. Restrictions on mineral entry in an area of interest should be researched prior to conducting mineral exploration activities in that area as many areas of the US are withdrawn from mineral entry or 13 How are mining rights protected? Are foreign arbitration awards in specially regulated. respect of domestic mining disputes freely enforceable in your jurisdiction? Duties, royalties and taxes Mining rights are protected by the rule of law and due process in the US. Depending on the nature of the dispute, the parties involved, 18 What duties, royalties and taxes are payable by private parties or the mineral or land ownership, a party may seek relief in either carrying on mining activities? Are these revenue-based or profit- the federal or state court systems, all of which provide for funda- based? mental protection of due process. For lands managed by the BLM There is nothing specific in the US mining laws requiring payment and USFS, there are also administrative appeals processes within the of duties, royalties or taxes to the US government on the extrac- agencies, and, if relief is not granted through this administrative tion of metallic minerals from federal lands. There are ‘severance’ process, appeals are available to the federal courts. Foreign arbi- taxes imposed by certain state governments on mining activities tration awards are recognised by the United States’ ratification of within those states, but these taxes usually do not apply to minerals the New York Convention and passage of the federal Arbitration extracted from federal land. Act (9 US Code section 201), however procedural difficulties often Mining operations, however, pay many taxes including federal frustrate the enforcement of foreign arbitration awards in the US. and state income taxes, ad valorem property taxes, use taxes, payroll taxes, etc. 14 What surface rights may private parties acquire? How are these rights acquired? 19 What tax advantages and incentives are available to private In most instances involving metallic minerals, the surface and min- parties carrying on mining activities? eral estates are administered by either the BLM or the USFS, and There is nothing specific in the mining laws of the US regarding taxes surface rights are acquired according to statute and regulation. In on mining activities. Generally, there are no advantages or incentives some instances, the minerals are owned by the federal government under the federal tax laws related specifically to carrying on mining but the surface is privately owned, and while access to the miner- activities in the US that are distinct from advantages available to all als is guaranteed by federal law, a mineral operator is required to industries in general. notify the surface owner prior to entry and to negotiate with the surface owner for the voluntary payment of any surface damages that may occur (or be subject to the imposition of damage awards 20 Does any legislation provide for tax stabilisation or are there tax by a court). Where minerals are privately owned, one must obtain stabilisation agreements in force? contractual rights to use the surface of the land whether that sur- US law does not provide for tax stabilisation by statute or agreement. face is owned by the mineral owner or is owned separately from the minerals. 21 Is the government entitled to a carried interest, or a free carried interest in mining projects? 15 Does the government or do state agencies have the right to There is no requirement in the US to grant carried interests in mining participate in mining projects? Is there a local listing requirement ventures to any government. for the project company? There is no requirement in the US to grant equity interests in mining 22 Are there any transfer taxes or capital gains imposed regarding ventures to federal or state governments. Under the GML, only US the transfer of licences? citizens (including entities incorporated in the US) can hold unpatented mining claims on federal land. There are no federal transfer taxes or capital gains taxes on the transfer of interests in mining properties, although certain states tax the transfer of real property interests. 16 Are there provisions in law dealing with government expropriation of licences? What are the compensation provisions? 23 Is there any distinction between the duties, royalties and taxes There are no specific provisions in US law dealing with expropria- payable by domestic parties and those payable by foreign parties? tion of mineral interests. All government exercises of the eminent domain powers require governments in the US to provide due pro- There is no general distinction between domestic and foreign par- cess of law and to pay just compensation. ties regarding the payment of taxes on mining activities. However, when real property interests, such as mining properties, are sold to entities or individuals that are not US citizens, the buyer is 17 Are any areas designated as protected areas within your jurisdiction required to withhold 10 per cent of the sales price and deposit that and which are off-limits or specially regulated? amount in cash with the US Internal Revenue Service as a credit In the US, there are a number of areas designated as protected areas against potential income tax liability of the seller. This provision and that are off-limits to mineral entry or specially regulated. Areas can become problematic when the consideration paid by the buyer withdrawn from location of mining claims include, but are not lim- is the stock of the buyer’s company, because the amount payable to ited to, national parks, national monuments, Indian reservations, the IRS is owed in cash, and the buyer may have difficulty obtain- most reclamation projects, military reservations, scientific testing ing the cash necessary to make this payment if the value of the areas, and most wildlife protection areas (such as federal wildlife stock is substantial and cash reserves are small. refuges). Further, mining claims may not be located on lands that have been designated by the US Congress as part of the National Wilderness Preservation System, designated as a wild portion of a ‘wild and scenic river’ or withdrawn by the US Congress for study as a wild and scenic river. Lands withdrawn for power development www.gettingthedealthrough.com 197 UNITED STATES Holland & Hart LLP

Business structures minerals, the consent of the lessor or grantor may be required in order to grant a security interest in the mining interests. 24 What are the principal business structures used by private parties carrying on mining activities? Restrictions Private parties carrying on mining activities in the US utilise all available business structures, from individual sole proprietorships, to 29 What restrictions are imposed on the importation of machinery corporations, limited liability companies and other forms. A specific and equipment or services required in connection with exploration historic entity known as a mining partnership exists under the laws and extraction? of many states, but is generally not utilised by sophisticated mining There is nothing specific in the mining laws of the US regarding the entities. Often, two or more entities will use a special purpose vehicle import of equipment or services. These matters are regulated by the known as a mining joint venture, often using the Rocky Mountain US Department of Commerce. Mineral Law Foundation’s Form 5A as a starting point for drafting the joint venture agreement. 30 What restrictions are imposed on the processing, export or sale of minerals? Are there any export quotas, licensing or other 25 Is there a requirement that a local entity be a party to the mechanisms that prevent producers from freely exporting their transaction? production? There is no requirement that a local entity be a party to a mining There is nothing specific in the mining laws of the US limiting transaction in the US. However, only US citizens and corporations processing, export or sale of metallic minerals, although certain organised under state laws in the US may locate and own mining restrictions for specific strategic minerals exist that are adminis- claims on federal lands in the US. Thus, where a transaction involves tered by the US Department of Homeland Security through the federal mining claims in the US, a US citizen, or a corporate entity Customs and Border Protection Agency. formed in the US, must be a party to the transaction.

31 What restrictions are imposed on the import of funds for 26 Are there jurisdictions with favourable bilateral investment treaties exploration and extraction or the use of the proceeds from the or tax treaties with your jurisdiction through which foreign entities export or sale of minerals? will commonly structure their operations in your jurisdiction? There is nothing specific in the mining laws of the US limiting the In the US, the structure of a foreign investment is not commonly import of funds, or the use of proceeds from the export of metallic controlled by bilateral investment treaties or tax treaties. However, minerals, although there are certain laws of general application that foreign investment in the US may require review by the US include reporting requirements upon the exports of funds that are Department of the Treasury’s Committee on Foreign Investment in administered by the US Department of Homeland Security through the United States (which can block inbound investments for national the customs and border protection agency and by the Department security reasons), may be prohibited by the US Department of the of the Treasury. Treasury’s Office of Foreign Assets Control (which restricts with whom US persons can conduct business under anti-terrorism poli- Environment cies), and may be prohibited by country-specific legislation (such as the Helms–Burton Act, which prohibits US companies from doing 32 What are the principal environmental laws applicable to the business with companies doing business in Cuba). mining industry? What are the principal regulatory bodies that administer those laws? Financing The principal environmental laws applicable to the mining industry are the National Environmental Policy Act, administered by the fed- 27 What are the principal sources of financing available to private eral agency that is making the decision that may impact the environ- parties carrying on mining activities? What role does the domestic ment; the Federal Land Policy and Management Act, administered public securities market play in financing the mining industry? by the Bureau of Land Management; National Forest Management The sources of financing available to private parties carrying on min- Act, administered by the US Forest Service; and the Clean Air and ing activities in the US are as varied as one can imagine. Ranging Clean Water Acts, administered by the Environmental Protection from self-financing through institutional financing to public and Agency or US Army Corps of Engineers. In addition, nearly all of private capital markets, the ability to raise financing is more the states in which substantial mining activity occurs have their own dependent on market conditions than on any structural restraints environmental laws. in the financing or capital markets. There is nothing specific in the mining law related to the financing of mining activities, but all of the elements of issuance and regulation of public securities related 33 What is the environmental review and permitting process for a to the mining industry are governed by the SEC under the myriad mining project? How long does it normally take to obtain the securities laws. A separate group within the SEC reviews all public necessary permits? disclosures relating to the mining industry, establishes definitions The environmental review and permitting process involves coordi- to be used in public filings (including the reporting of reserves), nation between the project proponent and numerous agencies of and works with the mining industry to maximise transparency in federal, state and local governments. Often it is possible to enter securities filings. into a memorandum of understanding among all of the governmental agencies under which one agency will act as the ‘lead agency’ by accepting all data submitted, summarising and communicating 28 Please describe the regime for taking security over mining all requests for information back to the project proponent, coor- interests. dinating the eventual issuance of permits, and so forth. In some of Most mining interests in the US can be pledged or mortgaged in the the western states, there are statutorily designated lead agencies for same manner as other real and personal property interests. In some permitting mining projects. Where a lead agency is not involved, a cases, such as minerals leased from the US government and private project proponent may face multiple agencies with a corresponding duplication of applications and reviews in order to permit a mine.

198 Getting the Deal Through – Mining 2014 Holland & Hart LLP UNITED STATES

Update and trends

The mining industry in the US has not been immune to the general regulations that would restrict the ability of underground coal mines to malaise in the global mining industry. Production figures are generally vent methane from operating mines into the atmosphere in an attempt to down. Financing and M&A activity has been slow with the exception reduce greenhouse-gas emissions. Moreover, the Mine Safety and Health of three significant deals: Bowie Resources’ acquisition of three Administration has continued to propose regulations tightening mine Utah coal mines from Arch Coal, Inc; Silver Standard Resources safety rules for underground coal mining. Inc.’s acquisition of the Marigold Mine in Nevada from Goldcorp and Despite the economic slowdown and the continued strengthening Barrick; and Westmoreland Coal Company’s acquisition of Sherritt of regulations impacting the mining industry, gold mining (particularly International’s Prairie and Mountain coal mining operations in Alberta in Nevada) continues to attract foreign investment, new copper mining and Saskatchewan. projects remain in the permitting process (eg, the Rosemont Copper The US government continues taking a hard look at mining project in Arizona), the development of rare earth element projects operations in the US. The Environmental Protection Agency (EPA) has continues (Molycorp’s Mountain Pass mine in California, Ucore’s Bokan continued its opposition to the Pebble Mine in Alaska (where Rio Tinto Mountain project in Alaska, and Rare Element Resource’s Bear Mountain recently donated its interest in the project to two local Alaska charitable project in Wyoming), and the US coal industry continues at a high level of foundations, the Alaska Community Foundation and the Bristol Bay production (including major surface mining of low-sulphur coal from the Native Corporation Education Foundation). The EPA has also proposed Powder River Basin in Wyoming and Montana).

Under any scenario, the permitting of even a very small mine may in gassy underground mines. Mine operators must also notify the take in excess of one year if environmental background studies are MSHA when they open or close a mine. required. In some instances it has taken decades to obtain permits for In addition to the Mine Safety and Health Act, most of the major mines in environmentally sensitive areas. Environmentalists states where mining occurs have their own safety laws of general have sued to prevent issuance of mining permits even though they applicability, as well as specific safety regulations for the operation have not generally been successful in blocking the eventual issu- of mines. ance of mining permits.

36 What restrictions and limitations are imposed on the use of 34 What is the closure and remediation process for a mining domestic and foreign employees in connection with mining project? What performance bonds, guarantees and other financial activities? assurances are required? There is nothing specific in the mining laws of the US regarding the The closure and remediation process for metallic mining projects use of domestic or foreign employees, rather, the general immigra- is primarily a question of state law. Most of the states in which tion laws govern these matters. However, certain exceptions exist mining occurs have enacted some kind of reclamation requirement in the immigration laws by which highly skilled foreign persons for metallic mines, and these laws generally include requirements can gain permission to work in the US mining industry where it is designed to prevent future water and air pollution, requirements for shown that no US citizen is reasonably available with the required re-contouring and revegetation and requirements that the project expertise. proponent provide, prior to being issued a mining permit, some type of a financial guarantee to cover the projected cost of future closure Social and community issues and reclamation. On federal lands, the regulations of both the BLM and the USFS both require some reclamation and financial guaran- 37 What are the principal community engagement or CSR (corporate tees. It is often possible for a mining project to satisfy both federal social responsibility) laws applicable to the mining industry? What and state requirements with the submission of a single closure and are the principal regulatory bodies that administer those laws? reclamation plan and of a single financial guarantee. There are no specific community engagement or CSR laws applicable to the mining industry in the US. However, federal and state Health & safety, and labour issues agencies that regulate the mining industry in the US are subject to certain public engagement and disclosure regulations. Further, 35 What are the principal health and safety, and labour laws many mining projects are subject to environmental review under applicable to the mining industry? What are the principal the NEPA, which provides for public review of, and input on, min- regulatory bodies that administer those laws? ing projects subject to the NEPA’s requirements and also allows for The principal health and safety, and labour law applicable to the min- citizens suits (under the Administrative Procedure Act) in certain ing industry in the US is the Federal Mine Safety and Heath Act. The situations to enforce compliance with the NEPA’s mandate that Act is administered by the Mine Safety and Health Administration federal agencies study the environmental impact of their actions. (MSHA) and covers operators and miners throughout the US. The Act requires the MSHA to inspect mines to ensure safe and healthy 38 How do the rights of aboriginal, indigenous or currently or work environments for miners. Additionally, the MSHA must inves- previously disadvantaged peoples affect the acquisition or tigate all fatal accidents and miners’ complaints of discrimination exercise of mining rights? based upon the exercise of their rights under the Act. To promote compliance with the provisions of the Act and its safety and health The rights of aboriginal, indigenous or currently or previously disad- standards, all violations found during inspections and investiga- vantaged peoples do not generally affect the acquisition or exercise tions may be cited. All violations are subject to civil penalties, and of mining rights unless those rights are located within an Indian res- all violations must be corrected within the time frames established ervation. Indian reservations are federal lands set aside by treaty or by the MSHA. In addition to setting and enforcing safety and health administrative action for the occupancy and use of specified Indian standards for preventing hazardous and unhealthy conditions, the tribes or Alaska Natives. As a general rule, title to Indian reservation MSHA’s regulations require immediate notification of accidents, lands are held in trust by the US and administered by the Bureau injuries, and illnesses; training programmes that meet the statutory of Indian Affairs. To the extent such lands are available for min- requirements of the Act; and approval for use of certain equipment eral exploration and exploitation, the terms of such arrangements must be negotiated with the respective Indian tribe and approved www.gettingthedealthrough.com 199 UNITED STATES Holland & Hart LLP by the Bureau of Indian Affairs. Alaska Native lands are owned and tax withholding requirements can apply upon transfers of mineral administered by corporate boards, without Bureau of Indian Affairs interests to or by foreign entities. supervision, and rights to minerals are negotiated with each separate Native corporation. Mineral development can also be impacted by International treaties laws designed to protect cultural resources or historic properties in the US when all or part of a project is located on public lands, is 41 What international treaties apply to the mining industry or an undertaken by the government, or involves either federal funding or investment in the mining industry? a federal permit. The many international treaties that would apply to the mining industry in the US, or to an investment in the mining industry in the US, are too numerous to describe in detail. However, one of the 39 What international treaties, conventions or protocols relating to treaties that is most watched by the mining industry in the US is CSR issues are applicable in your jurisdiction? the North American Free Trade Agreement (NAFTA), and its provi- There are no international treaties, conventions or protocols relating sion regarding expropriation claims. In a matter filed in 2003 under to CSR issues that are generally applicable in the US. chapter 11, article 1,117 of NAFTA, Glamis Gold Ltd, a Canadian mining company, claimed that when the governments of the US and Foreign investment of the state of California took actions that resulted in Glamis being denied permits to operate certain gold mines in California, those 40 Are there any foreign ownership restrictions in your jurisdiction governments violated the anti-expropriation language of NAFTA relevant to the mining industry? and that Glamis was therefore entitled to a large amount of dam- Under the GML, federal mineral leasing laws, and most state laws, ages. Glamis’ claim was unanimously rejected by a NAFTA arbi- only corporations (or similar entities) organised under US state tration tribunal in June 2009. law may hold mineral interests. There are no foreign ownership restrictions regarding private mineral interests although certain

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Mining industry PP-649 dated 7 June 2007 (Regulation PP-649), the Tax Code, Land Code, Labour Code and Environment Protection Law. It shall be 1 What is the nature and importance of the mining industry in noted that Regulation PP-649 established a procedure for granting your country? a licence on subsoil-use rights for all subsoil minerals excluding Uzbekistan’s mining industry is one of the country’s most important construction materials. Granting subsoil-use rights for exploration and strategic industries. Uzbekistan is one of the world’s largest and development of deposits of construction materials is regulated producers of gold (ranked ninth) and of uranium (ranked sev- by the Resolution of the President of the Republic of Uzbekistan enth). Uzbekistan also produces copper, silver, coal, phosphate, on Terms and Conditions on Granting of Subsoil Use Rights for molybdenum, potassium, tungsten, lead, zinc and other minerals. Deposits of Construction Materials No. PP-1524 dated 2 May 2011. In addition to the above, the Law on Concessions dated 30 August 1995 (Concession Law) provides a legal basis for this 2 What are the target minerals? form of right to develop mineral resources. However, this law has Uzbekistan possesses most types of minerals. Different regions focus not yet been widely applied in practice. To date, there have not on different minerals. For example, Navoi province is famous for been any examples of concessions being negotiated and entered for its large deposits of gold and uranium and Tashkent province for mining projects in Uzbekistan. The difference between the regula- copper, coal and gold deposits. tory framework in Uzbekistan and that of other countries is in the absence of any separation between mining and petroleum law 3 Which regions are most active? and a common approach towards regulation of the mining industry and the oil and gas industry. The confusion is exacerbated The most active regions are Navoi, Samarkand and Tashkent by the Law on Production Sharing Agreements dated 7 January provinces. 2001 (PSA Law). The PSA Law applies, in addition to the Subsoil Law, in the case of affairs related to the conclusion, execution Legal and regulatory structure and termination of PSAs in the exploration and mining of mineral 4 Is the legal system civil or common law-based? resources in Uzbekistan. The principal regulatory bodies that administer the laws Uzbekistan’s legal system is based on civil law, which is similar to the and regulations related to mining are the State Committee of Romano–Germanic system of law. the Republic of Uzbekistan on Geology and Mineral Resources (Geology Committee), the State Inspectorate of the Republic 5 How is the mining industry regulated? of Uzbekistan on Control over Industrial Safety of works in Exploration and development of minerals is regulated under a Industry, Mining, Geology and Public Utilities Sectors (Industrial number of national laws and regulations. Exploration and mining Safety Inspectorate) and the State Committee of the Republic rights are granted on the basis of a subsoil-use licence awarded to of Uzbekistan on Protection of the Environment (Environment the subsoil user, through tenders or direct negotiations, by the State Protection Committee). Committee of the Republic of Uzbekistan on Geology and Mineral Resources. 7 What classification system does the mining industry use for reporting mineral resources and mineral reserves? 6 What are the principal laws that regulate the mining industry? Uzbekistan’s mineral resource and reserve reporting system is What are the principal regulatory bodies that administer those quite different from generally recognised international systems, laws? such as Canada’s CIM Standards, Australia’s JORC Code or South The main act regulating the mining industry is the Law on Subsoil Africa’s SAMREC Code. Uzbekistan, along with many other CIS No. 444-II, new edition, dated 13 December 2002 (Subsoil Law). countries, still uses the former Soviet system for classification of The Subsoil Law provides the fundamental legal framework mineral resources and reserves. This categorises mineral concen- governing exploration and development of all subsoil resources, trations according to the extent to which they have been explored including both minerals and oil and gas. The Subsoil Law provides and substantiated, specifically: categories A, B, C1 and C2 and for state licensing and control, rights and obligations, basic rules three categories of potential resources P1, P2, P3 and, also, on regarding efficient use of resources, types of subsoil use, duration an economic-value basis, with two categories: balance reserves of subsoil use, and other matters. (commercial reserves) and off-balance reserves (reserves lacking The industry is also regulated under a number of other laws and commercial potential). regulations, including the Resolution of the President of Uzbekistan on Terms and Conditions on Granting of Subsoil Use Rights No. www.gettingthedealthrough.com 201 UZBEKISTAN Grata Law Firm

Mining rights and title • draw up geological, survey and other documents in the process of the development of mineral deposits, the use of subsoil for 8 To what extent does the state control mining rights in your other purposes not connected with the mining of minerals and jurisdiction? Can those rights be granted to private parties and to to protect their safety; what extent will they have title to minerals in the ground? Are there • keep records of the volume and quality of extracted and reserved large areas where the mining rights are held privately or which belong principal and other jointly deposited mineral resources; to the owner of the surface rights? Is there a separate legal regime • preserve extracted but temporarily unused associated subsoil or process for third parties to obtain mining rights in those areas? resources; Under the Subsoil Law all subsoil resources are owned by the state. • ensure compliance with standards of loss when mining minerals Title to minerals passes from the state to the subsoil user on extrac- and processing mineral raw materials; tion from the ground, pursuant to the terms of the subsoil-use • not exercise selective extraction of rich blocks within the licensed licence. Any transfer of subsoil ownership rights (including the right area; of use) to a non-state party is subject to approval by the Cabinet of • update the Geology Committee on the status of, and changes Ministers of the Republic of Uzbekistan (government or Cabinet of in reserves of, the principal and other jointly deposited subsoil Ministers). resources; Uzbekistan differs from many other countries, where there is • provide information on the volume of extracted subsoil private ownership of minerals in the ground and where landlords resources to the Geology Committee; have title to all mineral resources located under their land plots. All • ensure the safety of human life, health and the natural subsoil resources in the ground, until extracted, are owned by the environment; state. Surface rights do not grant rights to natural resources in the • ensure safe execution of work connected with the use of sub- ground and, in this way, are clearly distinct from mineral rights. soil and taking of measures for the prevention of extraordinary situations, elaboration of plans to eliminate accidents; • observe the established procedure for closure and conservation 9 What information and data is publicly available to private parties of enterprises for mining of minerals and underground struc- that wish to engage in exploration and other mining activities? Is tures not associated with mining of minerals; there an agency which collects mineral assessment reports from • ensure execution of works connected with planning or terrac- private parties? Must private parties file mineral assessment ing of dump slopes and pit edges, as well as erosion preventive reports? Does the agency or the government conduct geoscience measures; and surveys, which become part of the database? Is the database • restore land plots and other natural features that have been available online? disturbed as a result of subsoil-use operations to a condition Usually, geological data held by the Geological Committee are treated suitable for further use. as state secrets and the Geological Committee makes very high-level information publicly available, such as the names of given deposits, Depending on the type of the subsoil use, the licence may include their location and respective mineral reserves, as recognised by the other obligations. state. Usually this information is publicly available through the web- The Subsoil Law and Regulation PP-649 grant the exploration sites of government agencies such as the Geology Committee, the licence holder a right to progress from exploration to mining activ- Agency on Information Support and Foreign Investments Promotion ity and states that a party or parties that financed the exploration and the annual geological conference, Uzgeoinvest. activities on a given deposit shall have an exclusive right to obtain Sufficient basic geological data to prepare an aggregated feasi- a licence for mining activities on the same deposit. The explora- bility study (for exploration activities) or a preliminary feasibility tion licence holder is usually treated as the financier of exploration study (for mining activities) is provided by the Geology Committee activities and has the exclusive right to progress to mining activi- in the course of conducting tenders or direct negotiations for the ties. There is no automatic transfer from exploration to mining right to develop a particular deposit or exploration area. This licence. The Subsoil Law and the Regulation PP-649 provide that information may be disclosed to investors subject to their signing the mining licence must be granted upon the application of the a confidentiality agreement. A more detailed package of geological party that financed the exploration activities. The application must information regarding a certain deposit or subsoil area is made be supported by: available to the licensee after the relevant licence for subsoil-use • documents proving that exploration activities on a given deposit rights has been granted. were financed by an applicant and disclosing the source of financing; 10 What mining rights may private parties acquire? How are these • notarised copies of a certificate of incorporation and constitutive acquired? What obligations does the rights holder have? If exploration documents of the applicant; or reconnaissance licences are granted, does such tenure give the • information on the executive management and shareholders of holder an automatic or preferential right to acquire a mining licence? the applicant; and What are the requirements to convert to a mining licence? • information on technical and technological capacities of the applicant demonstrating that the applicant is capable of per- Uzbekistan uses a licensing system for the grant of exploration and forming the intended activity on development of the deposit and mining rights. Therefore, subsoil-use rights are granted on the basis ensuring production, and also information on contractors to be of a subsoil-use licence awarded to the subsoil user on behalf of the involved in performance of the intended activity. In addition, Cabinet of Ministers by the Geology Committee. Such licences are the Geology Committee may request submission of copies of an usually awarded either through tenders or direct negotiations. applicant’s or its contractors’ licences and permits for carrying The primary obligations of the mineral rights holder include out certain types of activities connected with the subsoil use. obligations to: • use the allotment only for the purposes stipulated in the licence; • comply with standards and rules on technology of conducting 11 What is the regime for the renewal and transfer of mineral licences? subsoil-use operations; The term of a licence may be extended provided that a subsoil user • comply with the work programmes on development of applies to the Geology Committee not less than six months before operations; expiry of the validity period of a licence. Pursuant to the Subsoil

202 Getting the Deal Through – Mining 2014 Grata Law Firm UZBEKISTAN

Law, the Geology Committee must take a decision on whether to rights as such are usually acquired after the mineral licence has been grant the extension within 30 days of the submission of the exten- granted, and at the stage of construction or development of the pro- sion application. Usually, this decision is closely coordinated with ject to the extent that such surface rights are required. Although the the government. The extension is subject to the subsoil user’s com- Land Code provides for other types of land rights such as the right of pliance with the terms and conditions of the licence and the sub- permanent or temporary use, in practice, foreign companies or joint soil user demonstrating that it requires an extension to complete ventures engaged in mining activities are granted a lease-right to exploration or mining activities on a given deposit. land. All land rights must be registered with the local state cadaster The Subsoil Law and the Regulation PP-649 are silent on the authority. In addition, Regulation PP-649 provides that subsoil- transfer of licences with respect to exploration activities and only use rights become effective upon registration of such rights by the provide such rights with respect to licences for mining mineral Geology Committee in the state register of the subsoil-use rights. resources and licences for use of technogenic mineral generations. Further, the terms of a licence for mineral extracting activities will The said licences can be transferred (partially or in full) to another provide that the mine allotment must be granted by the Industrial party provided that this party undertakes all obligations under the Safety Inspectorate. The right to the use of a land plot is linked to licence. Transfer of licences is carried out by a licence holder submit- the subsoil-use rights, such that any changes in the title of the sub- ting an application to the Geology Committee with an indication of soil-use rights (transfer or termination) will lead to corresponding the reasons for the transfer. The application shall be supported by changes in the rights to use the land plot. the documents confirming that the party to whom the rights under the licence are being transferred meets the licence requirements. The 15 Does the government or do state agencies have the right to Geology Committee prepares the information related to the licence participate in mining projects? Is there a local listing requirement transfer and coordinates it with the relevant ministries and state for the project company? agencies. Recommendations of the ministries and state agencies are further submitted to the government regarding the decision whether Yes, through its state agencies, committees or wholly owned state to approve or reject the transfer of the licence. companies the government participates in mining projects. In fact, currently, most of the subsoil deposits are being developed by two major state-owned mining companies, NMMC and AMMC. Also, 12 Is there any distinction in law or practice between the mining the Geology Committee has set up a number of joint ventures with rights that may be acquired by domestic parties and those that foreign investors for prospecting and exploring potential fields in may be acquired by foreign parties? Uzbekistan. Generally, there is no distinction, and foreign individuals and legal There is no local listing requirement for the mining project entities can directly hold mining rights in Uzbekistan. Uzbekistan companies in Uzbekistan. has managed to build a powerful mining industry over the past 40 years, thanks to rich uranium and gold deposits. Most of the sub- 16 Are there provisions in law dealing with government expropriation soil deposits are being developed by two major state-owned min- of licences? What are the compensation provisions? ing companies or by joint ventures with these companies – Navoi Mining Metallurgical Combine (NMMC) and Almalyk Mining The Subsoil Law is silent on expropriations of licences by the Metallurgical Combine (AMMC). Thus, in practice, priority in government. However, the Law on Guarantees and Measures for providing mining rights with respect to large deposits of strategic Protection of Foreign Investors’ Rights dated 30 April 1998 (Law minerals, such as gold, silver, copper and uranium are given to these on Protection of Foreign Investors’ Rights) provides that foreign companies. At the same time, the government continues to seek and investments and any other assets of foreign investors located in attract the foreign investors employing innovative technologies and the Republic of Uzbekistan cannot be nationalised or confiscated, best practices, and there are examples of successful cooperation with except in the instance of natural disasters, accidents, epidemics and large Western and Asian companies. epizootics. In the event of nationalisation in the said circumstances, the government is obliged to provide the affected foreign investor with compensation of an amount equal to the damage caused as 13 How are mining rights protected? Are foreign arbitration awards in a result of such nationalisation. The law further provides that the respect of domestic mining disputes freely enforceable in state shall be a guarantor of timely payment of such compensation your jurisdiction? to the foreign investor. Mining rights may only be suspended, restricted or prematurely terminated in the circumstances specified by the Subsoil Law. Subsoil 17 Are any areas designated as protected areas within your users are free to choose a judicial body for protection of the rights and jurisdiction and which are off-limits or specially regulated? they may refer their disputes either to the Uzbek economic courts or foreign arbitrations. Unlike foreign court judgments, foreign arbitral Yes, there are certain areas that have special status and where awards shall be recognised in Uzbekistan without retrial on the mer- mining works may be either prohibited (for example, in natural its, as Uzbekistan is a party to the 1958 New York Convention On parks) or restricted (for example, in frontier zones and certain the Recognition and Enforcement of Foreign Arbitral Awards (New types of agricultural land). York Convention). Accordingly, a foreign arbitral award obtained in a state that is party to the New York Convention should be recog- Duties, royalties and taxes nised and enforced by an Uzbek economic court, subject to the quali- 18 What duties, royalties and taxes are payable by private parties carrying fications in the New York Convention and compliance with Uzbek on mining activities? Are these revenue-based or profit-based? civil procedure and the procedures established by the Uzbek law on commercial arbitration for the enforcement of arbitration decisions. Uzbekistan’s Tax Code specifies several special taxes payable by subsoil users, including mining companies, in addition to general taxes such as corporate income tax (8 per cent), VAT (20 per cent), 14 What surface rights may private parties acquire? How are these social tax (25 per cent), excise and customs duty, tax on petrol and rights acquired? other mandatory duties: For mining purposes and in order to secure mining rights, private • subsoil-use tax (gold, 5 per cent; copper, 8.1 per cent; uranium, parties must acquire the surface rights to relevant land plots. Surface 10 per cent; coal, 4 per cent) is calculated on the value of the www.gettingthedealthrough.com 203 UZBEKISTAN Grata Law Firm

mineral resources produced and is payable on a quarterly basis of Foreign Investors’ Rights, the PSA Law provides similar stability for small entities and on a monthly basis for other types of provisions but for the entire period of validity of the PSA, without entities. The value of the mineral resources for purposes of sub- ten years’ limitation. Pursuant to the PSA Law, if after signing of soil-use tax is generally determined using the average weighted the PSA, the Republic of Uzbekistan adopts any laws or other legal sales price for the reporting period; acts that lead to deterioration of commercial results of the foreign • subscription bonus (gold, 10,000 times the minimum monthly investor’s operations under the PSA, then the provisions prescribed wage (MMW); copper 1,000 times MMW and uranium 500 under the PSA continue to be applicable to the foreign investor. This times MMW) is a one-time fixed payment to the state for the rule does not apply to the changes made in the laws with respect right to explore and extract minerals in accordance with a sub- to standards (norms, rules) for safety of works, preservation of soil-use licence; mineral resources, environmental protection and health of the • commercial discovery bonus (0.1 per cent) is a fixed payment population. that is payable by subsurface users when a commercial discovery is made in the licensed territory. The rate of the commer- 21 Is the government entitled to a carried interest, or a free carried cial discovery bonus is determined on the basis of the value of interest in mining projects? proven extractable reserves (the value of the mineral resources is generally determined using the market price established at Currently, the concept of carried interest or a free carried interest is international exchanges); not used in Uzbekistan with respect to mining projects. • excess profits tax (50 per cent) is payable in respect of the certain types of minerals, which are determined in accordance with leg- 22 Are there any transfer taxes or capital gains imposed regarding islation. In 2014, only natural gas, copper, cement, clinker and the transfer of licences? polyethylene pellets are subject to excess profits tax; and Currently, the Uzbek Tax Code does not provide for a clear proce- • production-sharing agreements. In addition, the Uzbek Tax dure of determining of the capital gains with respect to the trans- Code specifies the special tax regime for foreign companies ferred rights, especially if the entity receiver of the capital gain is conducting activities under PSAs. Thus, a foreign investor, its located outside of Uzbekistan. However, the most recent trends contractors and subcontractors under a PSA are exempt from show that such entities located outside of Uzbekistan are viewed payment of all types of taxes and mandatory duties with regard by local tax authorities as receivers of the capital gain and are thus to exploration activities. Further, during the period of the PSA subject to the tax on capital gains in Uzbekistan. a foreign investor is required to pay corporate profit tax, land tax, water use tax, excise tax, social tax and special taxes for subsoil users (subscription bonus and commercial discovery 23 Is there any distinction between the duties, royalties and taxes bonus), excluding excess profits tax. Incentives granted to a payable by domestic parties and those payable by foreign parties? foreign investor under the PSA are exemption from payment of Generally, the same tax regime applies to domestic companies and VAT and property tax and exemption from customs duties that foreign companies whose activities in Uzbekistan create a perma- would otherwise be levied upon imported goods and works nent establishment for Uzbekistan tax purposes. Otherwise, for- purported for activities under the PSA and upon export of eign companies are subject to Uzbekistan withholding tax with products belonging to a foreign investor in accordance with respect to certain Uzbekistan-sourced income such as dividends, the PSA. interest, royalties and other similar income, subject to reduction or elimination under any applicable double tax treaties. Furthermore, A non-resident company operating or acting through a permanent income received from the provision of goods, work and services establishment must, in addition, pay a net profit tax from its activity that creates no permanent establishment in Uzbekistan is not subject in Uzbekistan at the rate of 10 per cent. Domestic parties are not to any Uzbek withholding tax. subject to this tax, although they must withhold 10 per cent with- As mentioned above, the Uzbek Tax Code specifies the special holding tax from dividends distributed to their foreign shareholders tax regime for foreign companies conducting activities under a PSA. (the rate of dividends withholding tax may also be reduced under Thus, a foreign investor, its contractors and subcontractors relevant double tax treaties). under a PSA are exempt from payment of all types of taxes and No special tax incentives, excluding the incentives under PSAs mandatory duties with regard to exploration activities. Further, referred to above, are generally available to companies conduct- during the period of the PSA, a foreign investor is required to pay ing mining activities in Uzbekistan. However, it may be possible to corporate profit tax, land tax, water use tax, excise tax, social tax negotiate tax incentives directly with the state. These are granted by and special taxes for subsoil users, excluding excess profits tax. special government resolutions. Incentives granted to a foreign investor under the PSA are exemption from payment of VAT and property tax and also exemp- 19 What tax advantages and incentives are available to private tion from customs duties, which would otherwise be levied upon parties carrying on mining activities? imported goods and works destined for activities under the PSA and upon export of products belonging to a foreign investor in Generally, no special tax incentives are provided to companies con- accordance with the PSA. ducting mining activities in Uzbekistan.

Business structures 20 Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force? 24 What are the principal business structures used by private parties carrying on mining activities? There are no direct tax stabilisation provisions under the Uzbek Tax Code, except for general provisions on stability of laws pro- The Subsoil Law contains no restrictions with respect to the business vided by a number of legislative documents. Pursuant to the Law on structures that may be used for the purpose of conducting mining Protection of Foreign Investors’ Rights the foreign investments are activities in Uzbekistan. The Law allows any form of legal entity protected from any subsequent changes in the Uzbek laws, which (whether local or foreign) to acquire mining rights in Uzbekistan. The may worsen investment conditions, for a period of 10 years from two most commonly used business forms in Uzbek mining activity the date of the investment. In contrast to the Law on Protection are the limited liability company (LLC) and joint-stock company

204 Getting the Deal Through – Mining 2014 Grata Law Firm UZBEKISTAN

(JSC). The Law allows for a JSC and an LLC to each be used for 30 What restrictions are imposed on the processing, export or sale of either joint ventures or 100 per cent foreign-owned subsidiaries. minerals? Are there any export quotas, licensing or other mechanisms that prevent producers from freely exporting their production? There are no general requirements in the Subsoil Law or PSA Law 25 Is there a requirement that a local entity be a party to the transaction? that some or all minerals produced must be processed or sold domes- As a general rule, there is no requirement that subsoil users enter tically. However, the PSA Law provides for a pre-emptive right of into the transactions with only local entities. However, in practice, the Republic of Uzbekistan, in case of emergency, to buy mineral the state, through the Geology Committee or its mining companies, resources produced by the subsoil user on a priority basis. Prices is usually involved in mining activities of strategic or high-revenue and other details of such purchase entitlement have to be set out in projects by participation in joint ventures with foreign investors. the PSA. The PSA Law does not provide expressly otherwise, and in Also, there is a general expectation on the subsoil users to use practice the Ministry of Finance is entitled to this pre-emptive right. locally manufactured equipment, materials and finished products wherever possible as well as to engage local organisations for works and services in the course of subsoil-use operations. 31 What restrictions are imposed on the import of funds for exploration and extraction or the use of the proceeds from the export or sale of minerals? 26 Are there jurisdictions with favourable bilateral investment In 2003, Uzbekistan followed article VIII of the IMF Treaty to treaties or tax treaties with your jurisdiction through which ensure free and unrestricted conversion of local currency into for- foreign entities will commonly structure their operations in your eign currency for current operations. In accordance with the law, the jurisdiction? conversion of national currency into hard currency must be done Yes, operations in Uzbekistan are often structured through hold- within five banking days. However, in practice, companies engaged ing companies located in other jurisdictions and in most cases in business activities in non-strategic sectors (retail, trade, etc) of the through Dutch, Swiss and Singaporean holding companies owing economy may experience delays. to favourable tax treaties with these countries. Export proceeds are generally subject to a 50 per cent mandatory sale to local servicing banks. The mandatory sale must be car- Financing ried out within five days following the receipt of export proceeds. The income to be converted may be reduced by specific foreign 27 What are the principal sources of financing available to private currency expenses including transportation, insurance, customs parties carrying on mining activities? What role does the duties, commissions, interest on bank loans, and goods and services domestic public securities market play in financing the mining related to the production of exports. An exemption is also provided industry? for reinvested revenues resulting from an increase in export or the The Subsoil Law does not regulate the financing of mining activi- export of scientific and technological equipment. ties and mining companies are free to choose their funding sources. In practice, the principal sources of financing are a user’s own funds Environment and funds borrowed from foreign private financing institutions, such as EBRD, ADB, IFC, etc. Debt financing is subject to registration 32 What are the principal environmental laws applicable to the with the Central Bank of Uzbekistan (CBU) unless borrowings are mining industry? What are the principal regulatory bodies that made for a period of no more than 360 days. In addition, registra- administer those laws? tion with the CBU is subject to regular reporting to the CBU, which The main act in the area of environmental protection is the Law monitors the relevant debt-financing agreement. on Environmental Protection No. 754-XII dated 9 December 1992, It should be noted that currently there is no well-established as amended, which sets out the rights and duties of individuals legal framework in Uzbekistan for the domestic securities market and legal entities, provides for the regulation of and control over that could enable mining companies to issue domestic bonds or environmental protection, provides a general framework for envi- commercial papers. ronmental impact assessment and environmental monitoring. In addition, it provides requirements for the use of radioactive materi- 28 Please describe the regime for taking security over mining interests. als, atomic energy and dangerous chemical substances. Other key acts regulating environmental protection are: Imposing security interests over any type of subsoil-use licences is • the Land Code; not enforceable under Uzbek law. • the Law on Radiation Safety No. 120-II, dated 31 August 2000, as amended; Restrictions • the Law on Waste No. 362-II, dated 5 April 2002, as amended; 29 What restrictions are imposed on the importation of machinery • the Law on Environmental Assessment No. 73-II, dated 25 May and equipment or services required in connection with exploration 2000; and extraction? • the Law on Atmospheric Air Protection No. 353-I, dated 27 December 1996; There are no direct limitations or restrictions imposed on the import • the Law on Water and Water Use No. 837-XII, dated 6 May of machinery and equipment or services in connection with min- 1993, as amended; and ing activities, although certain types of machinery and equipment • the Law on Subsoil No. 444-II, dated 13 December 2002. may fall under limited restrictions (for example, equipment with integrated radio frequency devices). It should be noted that import The principal regulatory bodies in these areas are the Environmental operations are subject to Uzbek exchange control requirements, such Protection Committee and the Industrial Safety Inspectorate. as registration of import contracts with a local servicing bank and customs authorities. Imported items should conform to Uzbekistan’s technical standards.

www.gettingthedealthrough.com 205 UZBEKISTAN Grata Law Firm

including obligations to ensure that working conditions at each Update and trends workplace meet work safety requirements, that the employees use individual and collective protective gear, that the employees observe Over the past year, the government has continued to steadily the work and rest regime provided for by Uzbekistani laws, that develop a number of new subsoil deposits. In, particular NMMC a work safety service is established, etc. Finally, each employer is launched new operations for production of gold and uranium, and required to develop an extensive set of various labour safety rules AMMC launched new operations of copper, cement and some other commodities. In addition, several leading multinational and regulations, as well as numerous other documents relating to companies obtained licences for the exploration of copper and work safety. uranium in greenfield areas, and several foreign investors started The principal regulatory body administering health and safety, development of silicon, tungsten and molybdenum deposits. and labour laws is the Ministry of Labour and Social Protection of the Population and Industrial Safety Inspectorate.

33 What is the environmental review and permitting process for a mining project? How long does it normally take to obtain the 36 What restrictions and limitations are imposed on the use of necessary permits? domestic and foreign employees in connection with mining There are several types of environmental licences and permits subsoil activities? users must obtain before carrying out their activities. The Law on There are no restrictions or limitations specifically imposed on the Environmental Assessment, No. 73-II, dated 25 May 2000 requires employment of domestic or foreign employees in connection with subsoil users, prior to financing works on construction of mining pro- mining, besides the limitation provided set the PSA Law. Pursuant jects, to obtain a conclusion on environmental assessment from the to the PSA Law, one of the main conditions of carrying out works specialised department of the Environment Protection Committee as under PSAs is that the number of Uzbek citizens in these works to compliance of the intended activity with ecological requirements shall not be less than 80 per cent of the average annual number and that measures undertaken by the subsoil user on environmental of workforce and use of foreign personnel above these quotas is safety ensure sufficiency and feasibleness of efficient use of mineral only allowed in the case of the absence of Uzbek citizens with the resources. The subsoil users must also obtain permits to discharge appropriate qualifications for a vacant position. pollutants into the environment, permits in respect of water con- Hiring of foreign employees for any business activities in sumption, permits setting limits for air pollution and waste disposal Uzbekistan is undertaken on the basis of work permits issued by permits. Obtaining a conclusion on environmental assessment and the relevant state agencies. Legal entities with foreign employ- all other required environmental permits and licences may take up ees in Uzbekistan must obtain a foreign labour licence from the to one month, and on sophisticated projects up to three months. Agency of Foreign Labour Migration Issues (Labour Agency). The Labour Agency functions under the Ministry of Labour and Social Protection of the Population. A licensed company must also 34 What is the closure and remediation process for a mining obtain a work permit (confirmation) from the Labour Agency for project? What performance bonds, guarantees and other financial each foreign employee. The Labour Agency should issue a foreign assurances are required? labour licence within 30 days from the date of submission of all The Subsoil Law and Regulation PP-649 require that subsoil users required documents. conduct closure and remediation. The closure and remediation terms and conditions are usually different, and depend on certain environ- Social and community issues mental, operational and other external circumstances of each mining project. Therefore the Subsoil Law and Regulation PP-649 only set 37 What are the principal community engagement or CSR (corporate out general rules on closure and remediation and require that such social responsibility) laws applicable to the mining industry? What specific provisions be included in the mining licences. are the principal regulatory bodies that administer those laws? No performance bonds, guarantees or other financial assurances To date, Uzbekistan has not introduced such laws. are required of a subsoil user upon closure of a mining project. Pursuant to the general rules established by the Subsoil Law, subsoil users must conduct closure and remediation at their own expense, 38 How do the rights of aboriginal, indigenous or currently or except, for instance, where mining rights are prematurely termi- previously disadvantaged peoples affect the acquisition or nated by the government due to an emergency situation. In the exercise of mining rights? past, mining companies were required to establish special reserve Not applicable. funds for mine reclamation purposes.

39 What international treaties, conventions or protocols relating to Health & safety, and labour issues CSR issues are applicable in your jurisdiction? 35 What are the principal health and safety, and labour laws No specific international treaties, conventions or protocols relat- applicable to the mining industry? What are the principal ing to CSR issues (including indigenous peoples) are applicable in regulatory bodies that administer those laws? Uzbekistan. Uzbekistan has a broad range of laws regulating labour relations, the main element of which is the Uzbek Labour Code (the Labour Foreign investment Code). However, there are no special requirements, standards or labour rules applicable to labour relations in the mining industry. 40 Are there any foreign ownership restrictions in your jurisdiction As for work safety, the general issues related to health and safety relevant to the mining industry? at work are governed by the Labour Code, as well as by the Law There are no foreign ownership restrictions relevant to the mining on Industrial Safety on Hazardous Manufacturing Objects, dated industry in Uzbekistan. In practice, however, the mining industry is 26 September 2006 (Law on Hazardous Objects) and the Law on viewed as a strategic sector of the economy and as result most of Labour Protection, dated 6 May 1993 (Labour Protection Law). the large-scale mining projects are being implemented by the state- These statutes impose on employers a considerable number of obli- owned mining companies. gations related to ensuring safe working conditions and work safety,

206 Getting the Deal Through – Mining 2014 Grata Law Firm UZBEKISTAN

International treaties

41 What international treaties apply to the mining industry or an investment in the mining industry? Uzbekistan is a party to several international treaties relevant to the mining industry, including the Treaty on Cooperation in Study, Exploration and Use of Mineral Resources of 27 March 1997. Uzbekistan has also concluded about 50 bilateral investment treaties with other countries. Uzbekistan is a party to a number of multilateral treaties concerning foreign investment. Thus, on 6 May 1994, Uzbekistan ratified the 1965 Washington Convention on the Procedure of Settlements of Investment Disputes between States and Nationals of Other States.

Bakhodir Jabborov [email protected]

51-A, S. Azimov Street Tel: +998 712 332 623 100000, Tashkent Fax: +998 712 330 924 Uzbekistan www.gratanet.com

www.gettingthedealthrough.com 207 ZAMBIA Corpus Legal Practitioners Zambia

Charles Mkokweza Corpus Legal Practitioners

Mining Industry system or has been heavily influenced by it. Zambian civil procedure is influenced by English law and is reliant upon many of the English 1 What is the nature and importance of the mining industry in your civil procedures and practices. country? Zambia has a long history of mining, predominantly for copper and cobalt. Mine development has been concentrated in an area appro- 5 How is the mining industry regulated? priately known as Copperbelt Province. The Copperbelt mines are Zambia’s mining industry is principally regulated by the government renowned for their high-grade deposits. through the Mines and Minerals Development Act, Act No. 7 of Exploration activity in recent years has raised the potential for 2008 (the Mines Act), which repealed and replaced the Mines and opening up new centres for copper mining in the north-west and east Minerals Act in 2008. The Mines Act has ushered in certain changes, of the country. Zambia’s flagship copper project, Lumwana Mine, including the alteration of mining rights available under the Act. was commissioned in December 2008 and is on course to produce The Mines Act establishes the office of the director of mines, 172,000 tons of copper in the first six years of its 37-year mining life. who is the chief administrator and is responsible for issuing and Zambia also hosts small-scale gold, coal, manganese and zinc renewing large and small-scale mining licences and plays a general deposits. In recent years, exploration has significantly expanded supervisory role; and the office of the director of geological survey, throughout Zambia to include prospecting for non-traditional who is responsible for issuing and renewing prospecting licences, minerals such as nickel and uranium, with some exploration for prospecting permits and mineral processing licences. Matters relat- diamonds. The country’s first nickel mine became operational in ing to mine safety are supervised by the director of mine safety. 2008. Zambia is also renowned for its gemstones and ranks as The Mines Act also establishes a Mining Advisory Committee, one of the world’s leading producers of high-quality stones. Recent which advises the minister on the general administration of the exploration work has also revealed the presence of significant Mines Act. deposits of coal-bed methane. Having undergone a severe decline in the late 1980s and early 6 What are the principal laws that regulate the mining industry? What 1990s, the mining sector had begun to perform well when productiv- are the principal regulatory bodies that administer those laws? ity was severely affected by the global economic downturn in 2008 which had a negative impact on the global mining industry in general. The principal laws regulating the mining industry are the Mines Act Since independence in 1964, the mining industry has provided and the Environmental Management Act. the traditional base for the country’s foreign exchange earnings and The primary regulatory body for the mining sector is the continues to be the major contributor to export receipts, accounting Ministry of Mines, Energy and Water Development (the Ministry). for more than half of the earnings in 2006. The mining sector and its The Ministry has several departments that supervise activities within support industries provide major employment and the infrastruc- the sector. The Environmental Management Act is administered by ture backbone to areas that would otherwise lack the impetus for the Zambia Environmental Management Agency. sustained development. 7 What classification system does the mining industry use for 2 What are the target minerals? reporting mineral resources and mineral reserves? The target minerals are mainly base metals, platinum group metals, Zambia has no national classification system for reporting mineral uranium and gold. resources and mineral reserves. Generally, mining companies in Zambia will adopt the classification system required by the relevant stock exchange to which they are connected either directly or 3 Which regions are most active? through a parent listing. Concentration of mining activity in Zambia has recently diversified out of the Copperbelt Province into virtually all the other nine Mining rights and title provinces but mainly the North-Western Province (largely viewed as ‘the new Copperbelt’), Southern Province, Luapula Province, 8 To what extent does the state control mining rights in your Central Province and Eastern Province. jurisdiction? Can those rights be granted to private parties and to what extent will they have title to minerals in the ground? Are there Legal and regulatory structure large areas where the mining rights are held privately or which belong to the owner of the surface rights? Is there a separate legal regime 4 Is the legal system civil or common law-based? or process for third parties to obtain mining rights in those areas? The Zambian legal system is based on the common law tradition. Following the completion of the privatisation of the mining sec- Most of its private and public law has followed the English legal tor in Zambia in 2000, mining in Zambia is predominantly private

208 Getting the Deal Through – Mining 2014 Corpus Legal Practitioners ZAMBIA sector-driven. The state transformed the parastatal agency that • commence prospecting operations within 90 days, or such fur- owned virtually all the productive mines and tenements before ther period as the director of geological survey may allow, after 2000 into an investment company known as Zambia Consolidated the date of the grant of the licence; Copper Mines Investment Holdings Limited, which retains minority • give notice to the director of geological survey of the discovery interests in most large-scale mining projects. of any mineral deposit of possible commercial value within 30 All the large-scale mines in Zambia as well as most prospective days of the discovery; tenements are in private hands with constitutionally protected title • expend on prospecting operations not less than the amount to minerals discovered or won. The state deliberately promotes a prescribed or required by the terms of the licence to be so policy of a private sector-driven mining industry. expended; There is a clear distinction between mining rights and surface • carry on prospecting operations in accordance with the pro- rights under Zambian law with the former largely dominating the lat- gramme of prospecting operations; ter as a superior right, although a fairly robust compensation mecha- • notify the director of geological survey of the discovery of the nism exists for addressing surface rights that predate the mining right. mineral to which the prospecting licence relates within a period There is generally one regime for administering all mining rights of 30 days of such discovery; and another regime for administering all surface rights in Zambia. • backfill or otherwise make safe any excavation made during the course of the prospecting operations, as the director of geological survey may specify; 9 What information and data is publicly available to private parties • permanently preserve and safeguard any borehole in a manner that wish to engage in exploration and other mining activities? Is directed by the director of geological survey, and to surrender there an agency which collects mineral assessment reports from to government without compensation, the drill cores, mineral private parties? Must private parties file mineral assessment samples, the boreholes and any water rights in respect therefor, reports? Does the agency or the government conduct geoscience on termination; surveys, which become part of the database? Is the database • unless the director of geological survey stipulates otherwise, to available online? remove within 60 days of the expiry of the prospecting licence, The intention under the Mines Act is to render all information in the any camp, temporary buildings or machinery installed or sector publicly available to private parties although this is not the erected, or make good any damage occasioned to the ground on case in reality. The Ministry is both the repository and depository of account of such removal; and information and data for the mining sector. All mining and explora- • maintain full and accurate records of the prospecting operations tion activities are required to be collected and lodged by mining and submit them quarterly to the Ministry indicating: right holders with the Ministry. Both the government and the pri- • the boreholes drilled; vate sector may conduct geosciences surveys although the latter is • the strata penetrated; precluded from undertaking such surveys without the consent of • the minerals discovered the Ministry or over areas where there are existing mining rights. • the results of any seismic survey or geochemical, geophysi- Basic information and data on mining activities and minerali- cal and remote sensing data analysis; sation are available in Zambia mainly via the Ministry website: • the result of any analysis or identification of minerals www.zambiamining.com. removed; • the geological interpretations of records maintained on the 10 What mining rights may private parties acquire? How are these above matters; acquired? What obligations does the rights holder have? If exploration • the number of persons employed; or reconnaissance licences are granted, does such tenure give the • any other prospecting work; holder an automatic or preferential right to acquire a mining licence? • the costs incurred; and What are the requirements to convert to a mining licence? • such other matters as may be prescribed by the minister in a statutory instrument. All mining rights are acquired in accordance with the provisions of the Mines Act. A person may only prospect for minerals or carry On the first two renewals, the holder of a prospecting licence is on mining operations under the authority of a mining right granted required to relinquish 50 per cent of the area held under the licence, under the Mines Act. although if a project is bankable, the licence can at any time be con- All mining rights are acquired by application in the prescribed verted into a large-scale mining licence. Besides the foregoing, the manner and following the payment of the prescribed fee by either an Ministry is obliged to renew the licence in the event that the holder individual or a company. Mining rights are granted on a first-come, does not breach any of the conditions of the licence or any provision first-served basis by either the director of mines or the director of of the Mines Act and where the holder of the licence undertakes geological survey, where the application meets the requirements of to carry out during the renewal period an adequate programme of the Mines Act. prospecting operations. The following mining rights may be acquired: a prospecting licence, a large-scale gemstone licence, a large-scale mining licence, Large-scale gemstone licence a small-scale mining licence, a prospecting permit, a small-scale The holder of a large-scale gemstone licence is granted exclusive gemstone licence, an artisan’s mining right and a mineral process- rights to carry on prospecting and mining gemstones subject to the ing licence. following obligations to: The Mines Act also provides for gemstone sales certificates with • develop the mining area, and carry on mining operations, with respect to gemstones. due diligence and in compliance with the programme of mining The Mines Act confers obligations on specific licence holders, operations and the environmental management plan; as follows: • take all reasonable measures on or under the surface to mine the mineral to which the licence relates; Prospecting licence • implement the local business development proposals attached to Prospecting licences are issued for two years on each application and the licence; can be held for a maximum of seven years under the Mines Act. The • employ and train citizens of Zambia in accordance with the holder of a prospecting licence is obliged by statute to: proposals attached to the licence; www.gettingthedealthrough.com 209 ZAMBIA Corpus Legal Practitioners

• comply with the proposed forecast of capital investment as Small-scale gemstone licence attached to the licence; A small-scale gemstone licence confers on the holder the same • demarcate the mining area and keep it demarcated in the pre- exclusive rights as a prospecting permit and small-scale mining scribed manner; licence, but only in relation to gemstones. A holder of a small-scale • maintain, at the holder’s office: gemstone licence shall: • complete and accurate technical records of the operations of • give notice to the director of the discovery of any small-scale the mining area; mineral deposit of possible commercial value within 30 days of • copies of all maps and geological reports, including inter- the discovery; and pretations, mineral analysis, aerial photographs, core logs, • keep and preserve, for such period as the Minister may prescribe analysis and test results obtained and compiled by the by statutory instrument, the records in relation to the protection holder in respect of the mining area; of the environment. • drill cores in respect of the mining area; • accurate and systematic financial records of the operations Mineral processing licence in the mining area and such other records as the director of The holder of a mineral processing licence is granted exclusive rights mines may require; and to carry on mineral processing in the mineral processing area of the • separate books of account with regard to any other activity minerals specified in the licence. The holder of a mineral processing not connected to the mining licence; licence is obliged by statute to: • permit an authorised officer at any time to inspect the books and • commence mineral processing within 12 months of the grant of records maintained in pursuance of the above; the licence; • deliver to the director of mines, without charge, copies of any part • carry on mineral processing in accordance with the approved of the books and records as the director of mines may require; programme of mineral processing; • keep and preserve, as the Minister may prescribe, records in • give notice to the director of geological survey of mineral relation to the protection of the environment; and recoveries within 30 days of the recovery; • furnish the director of mines with a copy of the annual audited • expend on mineral processing not less than the prescribed financial statements within three months of the end of the amount or as required by the conditions of the licence; and financial year showing the profit or loss for the year and the • submit reports to the director of geological survey on the sources state of the financial affairs of the holder at the end of each of ores, concentrates, railings and slimes. financial year. Once granted, a mineral processing licence is valid for a period of 15 Unless revoked, a large-scale gemstone mining licence is granted for years and it may be renewed. a period not exceeding 10 years. Mining licence Large-scale mining licence The holder of a prospecting or reconnaissance licence has a pref- Large-scale mining licences are issued for 25 years and are renew- erential right to acquire a subsequent mining right and not an able. The holder of a large-scale mining licence must fulfil the same automatic right. The Mines Act gives the holder of a prospecting obligations as the holder of a large-scale gemstone licence. licence the opportunity to apply for a mining licence within the prospecting area. Such application should be made to the director of Small-scale mining licence mines in the prescribed form and upon payment of a prescribed fee. A holder of a prospecting permit may during its term apply for a It appears that the conversion of a prospecting licence to a mining small-scale mining licence, which is granted for a period not exceed- licence would be achieved through making an application for such ing 10 years and is renewable. The holder of a small-scale mining a mining licence. licence must: An application for a mining licence must include the following • develop the mining area, commence and carry on mining to be accepted: operations, with due diligence and in accordance with the pro- • a statement of the period for which the licence is sought; gramme of mining operations; and • a statement of the minerals to be mined under the licence; • maintain at the holder’s office accurate mining, environmental • a comprehensive statement of the mineral deposits in the area and geological reports and all financial records relating to the over which the licence is sought, including details of all known operations of the mining area. minerals proved, estimated or inferred, ore reserves and mining conditions; The holder of a small-scale mining licence is granted exclusive rights • the proposed programme for mining operations, including a to carry on mining operations in the mining area for minerals other forecast of capital investment, the estimated recovery rate of ore than gemstones and perform all such acts necessary to the carrying and mineral products, and the proposed treatment and disposal out of mining operations. of ore and minerals recovered; • an environmental management plan, including proposals for the Prospecting permit prevention of pollution, the treatment of waste, the protection A prospecting permit is issued for a period not exceeding five years and reclamation of land and water resources, and for eliminat- and is not renewable. The holder has the right to carry on prospecting or minimising the adverse effects on the environment of ing operations, except for gemstones. The holder of a prospecting mining operations; permit is obliged to: • details of expected infrastructure requirements; • give notice to the local office of the discovery of any mineral • the applicant’s proposal with respect to the employment and deposit of possible commercial value within 30 days of the training of citizens of Zambia; discovery; • the applicant’s proposals for the promotion of local business • keep at the office of the holder, full and accurate records of the development outlining how the applicant intends to promote; prospecting operations; and • the participation of Zambian entrepreneurs in procurement and • keep and preserve, for such period as the Minister of Mines may supply business opportunities with the applicant; prescribe in a statutory instrument, records with respect to the • the setting up by Zambian entrepreneurs of import substitution, protection of the environment. and repair and maintenance businesses locally;

210 Getting the Deal Through – Mining 2014 Corpus Legal Practitioners ZAMBIA

• partnership between the Zambian entrepreneurs and foreign A prospecting licence or any other interest therein or any other suppliers and contractors; controlling interest in the holder thereof may be transferred to any • skills development to enable the Zambian entrepreneurs to other person. A holder of a prospecting licence who intends to trans- attain quality standards in contract works and supply; fer the prospecting licence or any interest therein is required to notify • a full description, with geographical coordinates, of the area of the Minister not less than 30 days before the intended transfer and land for which the mining licence is sought, but not exceeding is required to give to the Minister, in the notification, the details of 7,485 cadastre units, represented by complete and not partial the transferee as would be required in the case of an application for cadastre units; a prospecting licence, which are as the same as those required for an • a tax clearance certificate issued under the Income Tax Act; application for a mining licence (see question 10). • a plan of the proposed mining area prepared in such manner and Where the Minister is satisfied that the transferee is not dis- showing such particulars as the director of mines may require; qualified under any provision of the Mines Act, from holding a and prospecting licence, the Minister is required to approve the trans- • such further information as the director of geological survey fer of the prospecting licence or an interest therein and notify the may require for the disposal of the application. applicant accordingly. Upon the transfer of the prospecting licence, the transferee assumes and becomes responsible for all the rights, In addition to the above, the Mines Act also requires an applicant to liabilities and duties of the transferor under the prospecting licence. commission and produce for the Director of Mines an environmental impact study on the proposed mining operations approved by Large-scale mining licence the Zambia Environmental Management Agency (ZEMA). With respect to the renewal of a large-scale mining licence, a holder Further, the holder of a small-scale prospecting permit may at of a large-scale mining licence may, at any time not later than one any time during the currency of the permit apply to the director for year before the expiry of the licence, apply to the director of mines a small-scale mining licence over any part of the prospecting area for the renewal of the licence in respect of all or any part of the in the prescribed manner and upon payment of the prescribed fee. mining area. An application for renewal is required to be made to An application for such licence would include the following: the director of mines in the prescribed manner and form upon pay- • an identification of the relevant prospecting permit; ment of the prescribed fee. The application is required to include • a description and sketch of the area of land, not exceeding 120 a statement of the period, not exceeding 25 years, for which the cadastre units, over which the the small-scale mining licence is renewal is sought and details of the following: sought, sufficient to enable identification of the area; • the latest proved, estimated and inferred ore reserves; • a description of the prosposed programme of mining opera- • the capital investment to be made in, and production costs and tions, which shall include a forecast of investment, the estimated revenue forecasts in respect of, the period of renewal; recovery rate of ore and the applicant’s proposal for its treat- • any expected changes in the methods of mining and treatment; ment and disposal; • any expected increase or reduction in mining activities and the • a description to the best of the applicant’s knowledge and belief estimated life of the mine; and of the mineral deposits in the area over which the licence is • the proposed programme of mining operations for the period of sought; renewal. • a statement of the duration, not exceeding 10 years, for which the small-scale mining licence is sought; A large-scale mining licence or any interest therein cannot be trans- • a tax clearance certificate under the Income Tax Act; and ferred, assigned, encumbered or dealt with in any other manner • such other information as the director may require for the without the approval of the director of mines. A holder of a large- disposal of the application. scale mining licence who intends to transfer, assign, encumber or deal in any manner with the licence is required to apply to the Minister giving such particulars concerning the proposed trans- 11 What is the regime for the renewal and transfer of mineral feree, assignee or other party concerned as would be required in an licences? application for a large-scale mining licence. The renewal and transfer of rights relating to exploration, exploitation and mining licences is governed by the provisions of the Mineral processing licence Mines Act. In order to renew a mineral processing licence, the holder thereof must apply for renewal 90 days before the expiry of the said licence Prospecting licence to the director of geological survey in the manner prescribed by the A holder of a prospecting licence may, not later than three months Mines Act and upon payment of the relevant fee. The director of before the expiry of the prospecting licence, apply to the director geological survey shall renew such mineral processing licence for a of geological survey for the renewal of the licence in the prescribed period not exceeding 15 years as long as the licence holder is not manner and upon payment of the prescribed fee. in breach of any condition of the licence and undertakes to carry The director of geological survey is required to renew a pros- out during the renewal period an adequate programme of mineral pecting licence for such a period, not exceeding two years where processing operations. the holder of a licence among other things is not in breach of any The Mines Act also provides for the procedure for the transfer of condition of the licence or any other provision of the Mines Act a mineral processing licence or any other interest contained therein and undertakes to carry out during the renewal period an adequate to be transferred to any other person. A person holding a mineral programme of prospecting operations and relinquishes at least 50 processing licence must apply to the Minister at least 30 days before per cent of the initial prospecting area on the first renewal and at the intended transfer and must provide the Minister with details least 50 per cent of the balance on the second renewal. of the transferee, that is, the person to whom the licence is being Thereafter, the director of geological survey has the discretion transferred. If the Minister has no objections as to the competence to renew the prospecting licence for a further period, but not of the transferee to hold a licence, he then notifies the applicant exceeding one year, where he considers it necessary for the com- of whether he approves the application or not. Once the mineral pletion of a feasibility study commenced by a holder of a prospect- licence has been transferred to the transferee, the transferee assumes ing licence into the prospects for recovery of any mineral deposit all rights, liabilities and duties of the transferor under the mineral and its commercial significance. processing licence for the remaining unexpired period of the licence. www.gettingthedealthrough.com 211 ZAMBIA Corpus Legal Practitioners

Gemstone licences Reconnaissance licences or rights may be granted by the Ministry A large-scale gemstone licence, a large-scale mining licence or any of Mines and Natural Resources for a short period of time, although interest therein cannot be transferred, assigned, encumbered or dealt such rights do not grant exclusivity or priority to the subject area. with in any other manner without the approval of the Minister. A holder of a large-scale gemstone licence who intends to transfer, assign, encumber or deal in any manner with the licence is required 13 How are mining rights protected? Are foreign arbitration awards to apply to the Minister giving such particulars concerning the in respect of domestic mining disputes freely enforceable in your proposed transferee, assignee or other party concerned as would jurisdiction? be required in an application for a large-scale mining licence. The The Mines Act protects mining rights by conferring on the holder requirements are the same as those set out in question 10 for the exclusive rights to carry on prospecting or mining (or both). A licence application for a mining licence. can only be cancelled or suspended by reasons of default. Prior to A small-scale gemstone licence or any interest therein cannot be cancellation or suspension, the licence holder must have failed to transferred, assigned, encumbered or dealt with in any other manner remedy the default within the time allowed or where the default was without the approval of the director of mines. A holder of a small- not capable of remedy, have failed to offer reasonable compensation. scale gemstone licence who intends to transfer, assign, encumber Further protection is provided by the Zambian Constitution, or deal in any manner with the licence is required to apply to the which stipulates that property of any description can only be com- director giving such particulars concerning the proposed transferee, pulsorily acquired, under the authority of an act of parliament that assignee or other party concerned as would be required in an appli- provides for payment of adequate compensation. cation for a small-scale gemstone mining licence. The requirements In addition, foreign arbitration awards with respect to domestic for an application for a small-scale gemstone licence are as follows: disputes are freely enforceable in Zambia subject only to a standard • a description and sketch of the area of land with geographical or universal list of public policy restrictions. coordinates of the area of land over which the gemstone licence is sought but not exceeding 120 cadastre units, over which the 14 What surface rights may private parties acquire? How are these small-scale gemstone mining licence is sought, sufficient to rights acquired? enable identification of the area by local officers; • a description of the proposed programme of mining operations, Surface rights are governed by the Lands Act, chapter 184 of the which shall include a forecast of investment and the estimated Laws of Zambia (the Lands Act). There are two types of land tenure recovery rate of ore and gemstones; systems in Zambia: customary tenure and state tenure. Customary • a statement to the best of the applicant’s knowledge and belief of tenure comprises over 90 per cent of the total land mass. The cus- the mineral deposits in the area over which the licence is sought; tomary land is administered by traditional rulers in various parts of • a statement of the duration, not exceeding 10 years, for which the country. The process for acquisition of customary land begins the small-scale mining licence is sought; with its conversion to leasehold tenure. To obtain a conversion of • a tax clearance certificate under the Income Tax Act; and customary area the following process is normally followed: • such other information as the director may require for dispos- • the preparation of a plan showing the exact extent of the land to ing the application. be converted; • an application to the chief of the area for conversion of such With respect to change of control of the licence holder, the Mines area into a leasehold tenure and the approval of the chief; Act requires that a holder of a mineral right or a mineral processing • upon the consent of the chief, the chief shall refer the application licence should not after the date of the grant of the right of licence to the local council where the land is situated; register transfer of any share or shares in the company to any par- • the local council is required to consider if there is any conflict ticular person or that person’s nominee or enter into an agreement between the customary law of the area and the Lands Act, and with any particular person, if the effect of doing so would be to in the event that there is no conflict make a recommendation to give that person control of the company without the consent of the the commissioner of lands; and Minister. • the commissioner of lands may accept or refuse to accept the Upon application for consent of change of control of the recommendation and the applicant has a right of appeal in the licence holder, the Minister may obtain such information as is rea- event of a refusal to the Lands Tribunal. sonably necessary for purposes of dealing with the application. The Act precludes the unreasonable withholding of such consent Title to land is allocated for a period of 99 years, renewable if the by the Minister. covenants have not been breached. The president may grant land A person is deemed to have control of a company if the person for a longer duration if this is considered to be in the interest of the or that person’s nominee holds or the person and that person’s nation. Any person who desires to sell, transfer or assign land is nominee together hold a total of 50 per cent or more of the equity required to obtain the president’s consent before such land can be shares of the company or if the person is entitled to appoint or to disposed of. Consent must be granted within 45 days and is deemed prevent the appointment of half or more than half of the directors granted thereafter if not refused. Reasons for refusal must be given. of the company. An aggrieved party has the right to appeal against the decision to refuse to grant consent to the Lands Tribunal established under the Lands Act. 12 Is there any distinction in law or practice between the mining In instances where private leasehold interests exist in an area rights that may be acquired by domestic parties and those that covered by a mining or prospecting right, the holder of any licence may be acquired by foreign parties? or permit who requires the exclusive or other use of any portion A prospecting permit, small-scale mining licence, small-scale gem- of the prospecting or mining area may acquire a lease over such stone licence and artisan’s mining rights can only be granted to area or the right of use thereof on terms to be agreed between the a Zambian citizen or a Zambian-owned company. A Zambian- licence holder and the owner of such land. There is an arbitration owned company is deemed to be one in which at least 50.1 per process to determine the matter (largely in respect of compensation), cent of its equity is owned by Zambian citizens and in which the but the owner or occupier cannot prevent the mine from operating Zambian citizens have significant control of the management of on such land. If any portion of the land over which the tenement the company. exists is under customary land, there may be a requirement to obtain

212 Getting the Deal Through – Mining 2014 Corpus Legal Practitioners ZAMBIA permission from the local chief in order to obtain surface rights that Duties, royalties and taxes would require the chief to give his or her written consent to the local council for the conversion of that particular portion of customary 18 What duties, royalties and taxes are payable by private parties tenure to statutory (leasehold) tenure. carrying on mining activities? Are these revenue-based or profit- If a mining right predates any surface right over the same loca- based? tion, it is not technically possible for surface rights independent of The following duties, royalties and taxes are payable by private the mining rights to be acquired subsequently. parties carrying on mining activities, each of which (with the exception of royalties and value added tax) are profit-based.

15 Does the government or do state agencies have the right to Corporate income tax participate in mining projects? Is there a local listing requirement Corporate tax is payable under the Income Tax Act at the rate of for the project company? 30 per cent. The mining industry is private sector driven since the privatisation of the mining sector and liberalisation of the Zambian economy and Variable profit tax therefore the government does not necessarily have a right to par- A variable profit tax, which is intended to capture any windfall gains ticipate in a mining project. However, the law permits the govern- that may arise in the sector (and that replaced the windfall tax), is ment to identify an area which is not subject to existing mining payable at a rate of 15 per cent. rights in relation to which the Director of Geological Survey may carry out prospecting activities on behalf of the government. Royalties In addition the Public-Private Partnership Act No. 14 of 2009 In accordance with the Mines Act, a holder of a large-scale min- provides for the implementation of public-private partnership ing licence, large-scale gemstone licence, small-scale mining licence, agreements between contracting authorities and concessionaires small-scale gemstone licence or an artisan’s mining right shall pay although these are mainly related to infrastructure projects. The Act the government a mineral royalty at the rate of 6 per cent of the enables the government and government agencies to partner with the norm value of base metals produced and 6 per cent of the gross private sector on projects that develop public infrastructure and con- value of industrial and energy minerals produced. Mineral royalty tribute to effective delivery of social services. This may be more vis- for precious metals and gemstones produced is payable at the rate of ible particularly when it relates to projects dealing with sustainability. 6 per cent of norm value and gross value respectively. There are no mandatory listing requirements with respect to the project company. Value added tax Export of goods from Zambia is considered to be a zero-rated sup- 16 Are there provisions in law dealing with government expropriation ply. The commissioner general may require evidence that export of of licences? What are the compensation provisions? goods from Zambia is by or on behalf of a taxable supplier. Where such evidence of exportation is produced it is zero-rated. There are no specific legal provisions relating to expropriation of mining licences. Article 16(1) of the Constitution of Zambia, chapter 1 of the Laws of Zambia provides for the protection of fundamen- Withholding tax tal rights which include the ownership and protection of property Tax required to be deducted from any dividend shall be deducted rights. Mining rights as defined under the Mines Act would qualify at the rate of zero per cent per annum for any dividend paid by a as rights to property protected by the Constitution. Expropriation company carrying on mining operations. Withholding tax of 15 per of property can only be by an act of parliament which provides for cent is payable on interest, management and consultancy fees and payment of adequate compensation for the property or interest or payment to subcontractors. right to be taken possession of or acquired. The Constitution further provides that nothing contained in or done under the authority of 19 What tax advantages and incentives are available to private any law shall be held to be inconsistent with or in contravention of parties carrying on mining activities? the protection of fundamental rights which includes the ownership United States dollar accounting and protection of property rights to the extent that it is shown that Mining companies may be allowed to maintain books of account such law provides for the taking possession or acquisition of any in United States dollars in accordance with generally accepted property or interest therein or right thereof where the property accounting principles if the commissioner general is satisfied that consists of any licence or permit. not less than 75 per cent of the gross income is earned in the form of Any relevant act shall provide that in default of agreement, the foreign exchange from outside Zambia. amount of compensation shall be determined by a court of competent jurisdiction. The only other provision that deals with acquisition Prospecting expenditure deductions of property in general terms is section 3 of the Land Acquisitions All prospecting expenditure incurred in a charge year is allowed as Act, chapter 189, which gives the president of the Republic of a deduction. Zambia power to acquire property of any description where he considers it desirable or expedient in the interests of the republic to do so compulsorily. Section 10 of the same Act further provides for Mining expenditure deductions A deduction is allowed in respect of the capital expenditure incurred the monetary compensation where any property is acquired by the on a mine that is in regular production in the charge year. president under the Act. There has, however, been much debate as to what would constitute property and whether the Act ought to be applied strictly to land acquisition or property of any form. Deductions for mining expenditure on non-producing and non-contiguous mines A person carrying on mining operations in a mine that is in regular 17 Are any areas designated as protected areas within your production and who is also the owner of, or has the right to work jurisdiction and which are off-limits or specially regulated? a mine that is not contiguous with the producing mine and from There are generally no protected areas in Zambia specified as being which the person has made a loss in the charge year, the amount of off-limits for mining purposes apart from declared heritage sites such loss shall not be deducted in ascertaining the gains or profits under the law. from his or her mining operations provided that such loss may be www.gettingthedealthrough.com 213 ZAMBIA Corpus Legal Practitioners allowed as a deduction in ascertaining the gains or profits arising than an unincorporated structure. This is because an unincorporated from the same mine when it commences regular production. entity cannot hold a mining right under Zambian law.

Capital allowance 25 Is there a requirement that a local entity be a party to the Capital allowances are deducted in ascertaining the gains or profits transaction? of a business for each charge year at the rate of 100 per cent. The law in Zambia does not prescribe business structures requiring Carry-forward loss a local entity to be a party. Losses may be carried forward for a period not exceeding 10 years. 26 Are there jurisdictions with favourable bilateral investment treaties Customs duty on imports of mining equipment or tax treaties with your jurisdiction through which foreign entities The holder of a mining right is entitled to exemption from customs will commonly structure their operations in your jurisdiction? and excise duties, and from any other duty or impost levied under Zambia has tax treaties with the following countries, although the Customs and Excise Act, in respect of all machinery and equip- Ireland and Switzerland are the most commonly used tax havens ment (including specialised motor vehicles) required for any of the for tax-structuring purposes in relation to projects based in Zambia: activities carried on or to be carried on in pursuance of the right or otherwise for the purposes of his or her investment in mining or prospecting. Country Effective date of convention Netherlands 15 October 1948 Royalty deferment France 14 December 1950 This option is available under the Mines Act, in that the commis- South Africa 1 April 1957 sioner general of the Zambia Revenue Authority may, on application Sweden 28 May 1958 by the holder of the mining right, defer payment of royalty due from the holder if, during any period for which a payment of royalty is Switzerland 30 May 1961 due the cash operating margin of the holder in respect of mining Tanzania 2 March 1968 operations in the mining area falls below zero. Uganda 24 August 1968 Kenya 27 August 1968

20 Does any legislation provide for tax stabilisation or are there tax Japan 19 February 1970 stabilisation agreements in force? Italy 27 October 1972 There is currently no legislation providing for tax stabilisation United Kingdom 29 March 1973 agreements or clauses. However, the Zambian government has been Germany 13 May 1973 known to enter into concession agreements with individual mining Ireland 22 July 1973 companies in which stabilisation clauses have been included. Norway 22 July 1973 Denmark 13 September 1973 21 Is the government entitled to a carried interest, or a free carried Finland 3 November 1978 interest in mining projects? India 5 June 1981 The government is not entitled to a carried interest or a free carried interest in mining projects. The government plays more of a regula- Financing tory role, but has no direct participation in terms of the direction of mining operations or shareholding in mining rightholders. 27 What are the principal sources of financing available to private parties carrying on mining activities? What role does the domestic public securities market play in financing the mining industry? 22 Are there any transfer taxes or capital gains imposed regarding The principal sources of funding available to small-scale mining the transfer of licences? parties are local banks, macro-finance agencies and the government. Property transfer tax (PTT) is payable on the transfer of any type of Large-scale mining parties may principally source their funds from mining right from one party to another. Any mining right under the local and international commercial and development banks. Mines Act is considered to be property and the Property Transfer Tax (Amendment) Act, 2012 provides that PTT of 10 per cent shall be payable on the transfer, assignment, encumbrance or 28 Please describe the regime for taking security over mining other dealing involving a mining right or mining interest. interests. Under Zambian law, there is no fixed regime for taking security over mining rights. Security may be taken over any mining right 23 Is there any distinction between the duties, royalties and taxes by mortgage, pledge or by any other means used to obtain security payable by domestic parties and those payable by foreign parties? over property, however, there is a requirement that the approval of There is no distinction between duties or royalties for domestic and any encumbrance, assignment or transfer of a mining right under foreign parties. the Mines Act is obtained from the director of mines or the director of geological survey. Business structures Restrictions 24 What are the principal business structures used by private parties carrying on mining activities? 29 What restrictions are imposed on the importation of machinery The main business structures used by private parties are private and equipment or services required in connection with exploration limited companies incorporated under the Companies Act. Foreign and extraction? entities may also utilise joint ventures, subsidiaries or branches to There are no restrictions pertaining to the importation of machinery conduct mining activities in Zambia. Where joint ventures are used, and equipment to be used in connection with mining activities. however, the most appropriate structure is an incorporated rather

214 Getting the Deal Through – Mining 2014 Corpus Legal Practitioners ZAMBIA

30 What restrictions are imposed on the processing, export or sale complete closure of a mine. The application must include an audit of minerals? Are there any export quotas, licensing or other report on the environment surrounding the mine site prepared by an mechanisms that prevent producers from freely exporting their independent person. production? A mine site will stand closed within 60 days of an application. Generally, a person or company cannot import or export through Once all the conditions of closure under the Regulations have been the republic any mineral ore or mineral product without a permit met, the director of mines safety is required to issue a closure cer- issued by the director of mines. The government has further sought tificate for any mine closed and the mining right or permit or part to introduce a new export tax to encourage the development of thereof is to be cancelled by the Minister. infrastructure for downstream processing. There is a government The Mines and Minerals (Environmental Protection Fund) policy in place that restricts the export of minerals in concentrate Regulations provide for refunds to holders of licences, on applica- unless it can be demonstrated that there is limited smelting or pro- tion, when a mine site is closed. In accordance with the Act, this cessing capacity in Zambia. amount would be less any monies owing. The director of mines safety may use any part of the contribution to the fund of a licence holder for the purposes of rehabilitating the site. 31 What restrictions are imposed on the import of funds for exploration and extraction or the use of the proceeds from the Health & safety, and labour issues export or sale of minerals? There are no restrictions on the importation of funds to finance 35 What are the principal health and safety, and labour laws mining activities or use of the proceeds from the export or sale of applicable to the mining industry? What are the principal metallic minerals. regulatory bodies that administer those laws? The main health and safety and labour laws applicable to the mining Environment industry include:

32 What are the principal environmental laws applicable to the Health and safety laws Administering authority mining industry? What are the principal regulatory bodies that administer those laws? Mines and Minerals Development Act Ministry of Mines, Energy and Water Development The principal environmental health and safety laws applicable to Factories Act Inspector of Factories the mining industry are the Environmental Management Act, the Occupational Health and Safety Act and the Mines and Minerals Environmental Management Act Zambia Environmental Management Agency (Environmental Protection) Regulations. The principal regulatory bodies responsible for administra- Public Health Act Inspector tion of the environmental, health and safety protection regulatory Food and Drugs Act Health Inspector framework are the Zambia Environmental Management Agency, the Ionising Radiation Protection Act Radiation Protection Authority Ministry and the Occupational Health and Safety Institute. Workers Compensation Act; Workers’ Compensation Commission Energy Regulation Act Energy Regulation Board 33 What is the environmental review and permitting process for a Industrial and Labour Relations Act Labour Commissioner mining project? How long does it normally take to obtain the Employment Act Labour Commissioner necessary permits? Occupational Health and Safety Act Occupational Health and Safety Environmental Protection and Pollution Control (Environmental Institute Impact Assessment) Regulations specify that any person included in the regulations would be required to prepare a project brief. The 36 What restrictions and limitations are imposed on the use of brief should set out the perceived impact of the particular project domestic and foreign employees in connection with mining on the environment, following the procedures set out in the Impact activities? Assessment Regulations. After submission of the project brief, it is considered by the Companies carrying out large-scale mining operations are legally ZEMA, which determines whether the project is likely to have a obliged to employ and train citizens of Zambia. Immigration rules significant impact on the environment, and shall, within 40 days of require a party seeking to recruit foreign employees to justify such receiving the project brief, require the developer to prepare an envi- recruitment prior to the grant of immigration permits. ronmental impact statement. The ZEMA shall assess the environmental impact statement in accordance with the procedures in the Social and community issues regulations and eventually issue a decision stating that the project 37 What are the principal community engagement or CSR (corporate is approved, rejected or approved subject to the developer meeting social responsibility) laws applicable to the mining industry? What certain conditions. are the principal regulatory bodies that administer those laws? The process of obtaining the approval of the mining project can take between six weeks and several months owing to the time Not applicable. required for public hearings and the relevant notifications and waiting periods related thereto. 38 How do the rights of aboriginal, indigenous or currently or previously disadvantaged peoples affect the acquisition or 34 What is the closure and remediation process for a mining exercise of mining rights? project? What performance bonds, guarantees and other financial Not yet applicable. assurances are required? The closure procedure of a mining project is fully set out in the 39 What international treaties, conventions or protocols relating to Mines and Minerals (Environmental) Regulations (the Regulations). CSR issues are applicable in your jurisdiction? Under the Regulations, closure of a mine can only occur where the Not applicable. applicant has applied to the director of mines safety for a partial or www.gettingthedealthrough.com 215 ZAMBIA Corpus Legal Practitioners

Update and trends

The prescribed fees, area charges, maximum areas and minimum Mining in the Lower Zambezi National Park annual prospecting expenditure cost of mining licences was increased The government of the Republic of Zambia gave a conditional by issuance of Statutory Instrument No. 17 of 2013, the Mines and approval of the Kangaluwi Copper Project that would be developed Minerals Development (General) (Amendment) Regulations 2013. The by Mwembeshi Resources, which is owned by Zambezi Resources effect of this was that the cost of acquiring and maintaining mining of Australia, to mine in the Lower Zambezi National Park. This licences was increased. However, as payment of these fees is a development prompted environmental activists and some civil society statutory obligation, holders of mining licences are required to pay the organisations to seek the intervention of the courts. The High Court fees to avoid being in breach of the condition to the mining licence has granted an injunction to stop large-scale mining activities in the relating to payment of statutory fees. Lower Zambezi National Park pending hearing of an appeal.

Government takes control of Chinese coal mine First Quantum Minerals’ Trident Project under way In February last year, a Chinese-owned coal mine was taken over In July last year the Minister of Lands, Environmental and Natural by the Zambian government following breaches to safety and resources allowed for the continuation of First Quantum Minerals’ Trident environmental standards. This caused holders of mining rights to Project. The project had been halted following concerns raised over the take stringent measures and ensure that they were compliant with construction of a dam meant to benefit the mining site. The Trident the safety and environmental conditions of their mining rights. Project involves the construction of Sentinel Mine which is expected to produce 600,000 tonnes of copper a year in its first six years of operation. The project is expected to be completed by the end of 2014.

Foreign investment International treaties

40 Are there any foreign ownership restrictions in your jurisdiction 41 What international treaties apply to the mining industry or an relevant to the mining industry? investment in the mining industry? Under the Mines and Mineral Development Act, foreign owner- Zambia is a signatory to several international treaties and conven- ship of mining rights is not strictly prohibited. However, there is a tions; most of these treaties, however, are not directly related to the requirement that a foreigner or foreign entity would be required to mining industry. incorporate a company under the Companies Act or establish an Zambia is a signatory to the International Convention on the office in Zambia. Foreign entities usually use joint ventures, subsidi- Settlement of Investment Disputes. Zambia is also a member of aries or branches to conduct mining activities in Zambia. Further, the International Monetary Fund and World Bank and follows the there is a restriction on persons who are not Zambian citizens or investment guidelines and conditions issued by these organisations. companies that are not owned by Zambian citizens with regards The Zambian government has signed several investor protection to prospecting permits, small-scale mining licences, small-scale gem- agreements with other governments. The signing of these agreements stone licences and an artisan’s mining right. gives rise to the protection of nationals of these countries and can facilitate the implementation of rights under the Investment Dispute Convention Act, which incorporates the International Convention on the Settlement of Investment Disputes.

Charles Mkokweza [email protected]

Elunda II, Ground Floor Tel: +260 211 372 300 Stand No. 4645, Addis Ababa Roundabout Fax: +260 211 372 323 Rhodespark Lusaka Zambia

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MINING 2014 ISSN 1748-3085