1 Relevant Authorities and Legislation
1.1 What regulates mining law?
The Mineral Resources Law (“MRL”) is the national law governing the prospection for and extraction of mines in China and the registration of mining rights. The MRL was promulgated by the Standing Committee of the National People’s Congress on March 19, 1986 and amended in 1996 and 2009, respectively.
1.2 Which Government body/ies administer the mining industry?
The Ministry of Natural Resources (“MNR”) and its local bureaus are the primary governmental bodies administering the mining industry together with other ministries and departments that regulate other aspects of the mining industry. For example, the Ministry of Ecology and Environment (“MEE”) is responsible for environmental protection, and the Ministry of Commerce is responsible for regulating the import and export of mineral products.
1.3 Describe any other sources of law affecting the mining industry.
Other sources of law affecting the mining industry include: rules, regulations and guidelines by the State Council, for example, the Measures for the Administration of Transfer of Mineral Exploration Rights and Mining Rights; by local People’s Congresses and their standing committees at various governmental levels, for example, the Administrative Regulations on Mineral Resources in Beijing; and by central-level ministries, commissions, and agencies under the direct supervision of the State Council, for example, the Administrative Rules on Shanghai Mining Rights Market.
2 Mechanics of Acquisition of Rights
2.1 What rights are required to conduct reconnaissance?
In China, mining rights are divided into prospection rights and extraction rights. Under Chinese law, prospection rights are similar to the concepts of reconnaissance and exploration rights.
2.2 What rights are required to conduct exploration?
See question 2.1.
2.3 What rights are required to conduct mining?
The extraction right is required to conduct mining.
2.4 Are different procedures applicable to different minerals and on different types of land?
Yes. For example, procedures for prospecting for and extracting oil and natural gas are different from those for solid minerals. Such differences are elaborated under question 2.5.
Procedures differ depending on whether the land used for mining is urban land or agricultural land.
On a very high level, for example, the procedures for applying to use land for mining are as follows:
For urban land, a holder of mining rights must submit an application to the local land resources administrative body for a land use permit. After a preliminary review, the local land resources administrative body will forward the application to the local government for consideration and approval. Once the local government approves the application, it will issue a land use permit.
For agricultural land, a holder of mining rights must submit an application to the local land resources administrative body. Then the administrative body will formulate a land conversion plan (to convert agricultural land into construction land because agricultural land in China cannot be directly expropriated by the government), a land expropriation plan, a land supply plan, and a farmland provision plan. All these plans must be approved by the local government. After such approvals are issued, the local government will issue a land use permit.
2.5 Are different procedures applicable to natural oil and gas?
Yes. In addition to the materials necessary for prospecting for and extracting solid minerals, an applicant that wants to extract oil and natural gas must obtain approval from the State Council for the establishment of an oil company or for prospecting for or extracting oil and gas. The applicant must also have the legal person certificate. In addition, mining rights for oil and gas can only be granted by the MNR as opposed to local land resources bureaus for other types of minerals.
3 Foreign Ownership and Indigenous Ownership Requirements and Restrictions
3.1 What types of entity can own reconnaissance, exploration and mining rights?
Mining rights can only be owned by corporate entities.
3.2 Can the entity owning the rights be a foreign entity or owned (directly or indirectly) by a foreign entity and are there special rules for foreign applicants?
Yes to both questions. A foreign entity can own mining rights in China. However, foreign investors are prohibited from investing directly or indirectly in prospecting for or extracting tungsten, molybdenum, tin, stibonium, fluorite, and rare earth and radioactive minerals. They are allowed to invest in prospecting for and extracting oil and natural gas (including coalbed gas but excluding kerogen shale, oil sands and shale gas) only in the form of equity or co-operative joint ventures with Chinese entities (there are no restrictions on equity ratios for foreign investors).
3.3 Are there any change of control restrictions applicable?
Except for the restrictions mentioned in question 3.2, there are no other restrictions on foreign ownership.
3.4 Are there requirements for ownership by indigenous persons or entities?
This is not applicable in China.
3.5 Does the State have free carry rights or options to acquire shareholdings?
Ownership of mineral resources is vested in the State.
4 Processing, Refining, Beneficiation and Export
4.1 Are there special regulatory provisions relating to processing, refining and further beneficiation of mined minerals?
There are certain restrictions on the extraction and processing of mineral resources, which are primarily set out in the 2011 Industrial Structure Adjustment Catalogue (the “Catalogue”). This Catalogue categorizes various construction projects into three categories: encouraged projects, restricted projects, and obsolete projects. According to the Catalogue, no investment is allowed in new restricted projects. Restricted projects include but are not limited to: (i) production of certain petrochemical products, such as certain pesticides and nitrogen fertilizers; (ii) extracting and smelting tungsten, tin and antimony; and (iii) smelting of gold ores by pyrometallurgy with a daily processing amount below 100 metric tonnes.
4.2 Are there restrictions on the export of minerals and levies payable in respect thereof?
According to the 2018 Export License Catalogue, an exporter of phosphorus ore, coal, crude oil, and refined oil (excluding lubricating oil) must first apply to the Quota & License Administrative Bureau of Commerce (the “Bureau”) for an export quota and then apply to the Bureau for an export licence after the export quota is approved; an exporter of rare earth minerals, tin and tin products, tungsten and tungsten products, molybdenum and molybdenum products, antimony and antimony products, indium and indium products, coke, lubricating oil, and fluorspar must apply to the Bureau for an export licence.
Generally, customs duties apply to the export of mineral resources. Consignors of exported goods must pay customs duties.
5 Transfer and Encumbrance
5.1 Are there restrictions on the transfer of rights to conduct reconnaissance, exploration and mining?
The following conditions must be met before transferring a prospection permit:
1. Two years have passed since the permit was granted, or mineral resources were found.
2. A certain level of minimum investment has been made.
3. There is no dispute over transfer rights.
4. Consideration for the rights has been paid.
5. Any other conditions stipulated by the MNR.
The following conditions must be met before transferring an extraction permit:
1. One year has passed since extraction was commenced.
2. There are no disputes over transfer rights.
3. Consideration for the extraction right has been paid.
4. Any other conditions stipulated by the MNR.
Additionally, the transferee must meet the same qualification requirements that the applicant for the prospecting for or extraction of the mineral resources is subject to.
5.2 Are the rights to conduct reconnaissance, exploration and mining capable of being mortgaged or otherwise secured to raise finance?
Yes. Mining rights can be mortgaged. According to the Tentative Regulations on the Administration of Assignment and Transfer of Mining Right (the “Tentative Regulations”), to set a mortgage on mining rights, mining rights holders must submit application materials, including but not limited to, the mortgage contract and mining permits, to the permit issuance bureau and go through certain record filing procedures.
It should be noted, however, that the Tentative Regulations do not specify the record filing procedures and requirements, which leaves a gap for interpretations by local authorities. We recommend that foreign investors pay special attention to local implementation rules and policies in the provinces where their mining projects are located.
For example, Gansu Province and Shandong Province do not accept applications for record filings of mortgages for the benefit of third parties, which means that mortgagors must be mining rights holders in these two provinces. In addition, in certain provinces, mortgagees must be banks (in Shandong Province, mortgagees must be state-owned banks) or other qualified financial institutions. Finally, requirements for application materials also differ significantly from region to region.
6 Dealing in Rights by Means of Transferring Subdivisions, Ceding Undivided Shares and Mining of Mixed Minerals
6.1 Are rights to conduct reconnaissance, exploration and mining capable of being subdivided?
Mining rights cannot be subdivided in China.
6.2 Are rights to conduct reconnaissance, exploration and mining capable of being held in undivided shares?
Mining rights cannot be held in undivided shares in China.
6.3 Is the holder of rights to explore for or mine a primary mineral entitled to explore or mine for secondary minerals?
Currently, there are no laws or regulations on the exploration or mining of secondary minerals.
6.4 Is the holder of a right to conduct reconnaissance, exploration and mining entitled to exercise rights also over residue deposits on the land concerned?
A mining rights holder has more of an obligation than a right to deal with residue deposits, tailings and mine dumps. A mining rights holder must register with the local environmental protection bureau for pollution discharge, formulate a pollution control plan, and install certain facilities in order to ensure that residue deposits, tailings, and mine dumps do not pose considerable risks to the public and the environment. A mining rights holder failing to comply with these obligations may be fined or forced to temporarily shut down the mine.
6.5 Are there any special rules relating to offshore exploration and mining?
Yes. The Law on the Exploration and Development of Deep Seabed Resources regulates the prospecting for and extraction of resources located at the seabed, ocean floor and subsoil outside the jurisdiction of China and other countries. The Regulations on Sino-Foreign Cooperation in the Exploration of Offshore Petroleum Resources regulates the exploration and extraction of offshore petroleum resources through cooperation between China National Offshore Oil Corporation and foreign entities.
7 Rights to Use Surface of Land
7.1 Does the holder of a right to conduct reconnaissance, exploration or mining automatically own the right to use the surface of land?
No, a mining rights holder does not automatically own the right to use the land’s surface. In fact, mining rights and the right to own and use land are two separate and independent rights and are regulated under different legal regimes.
7.2 What obligations does the holder of a reconnaissance right, exploration right or mining right have vis-à-vis the landowner or lawful occupier?
A mining rights holder cannot encroach on the rights of the landowner or lawful occupier.
7.3 What rights of expropriation exist?
As mentioned under question 2.4, if a piece of land used for mining is agricultural land, the mining rights holder must apply to the local government for the expropriation of that piece of land.
8.1 What environmental authorisations are required in order to conduct reconnaissance, exploration and mining operations?
An environmental impact assessment (EIA) must be conducted for construction projects affecting the environment. An EIA is subject to approval or filing procedures from local bureaus of MEE.
8.2 What provisions need to be made for storage of tailings and other waste products and for the closure of mines?
China implemented a restoration fund system in November 2017. A holder of mining rights may use the fund at its own discretion in accordance with the restoration plan formulated prior to the issuance of the mining permit.
The new system is expected to give holders of mining rights more discretion on how to use the funds and reduce their financial burdens. In the meantime, the government has strengthened enforcement on the supervision and inspection of the restoration of the mine’s geological environment; those who do not comply with these regulations will face more stringent consequences. Consequences for failing to comply with environment restoration obligations include but are not limited to: fines, rejections for extensions of mining permits, being black-listed on the “Credit China” website, and environmental public interest lawsuits.
8.3 What are the closure obligations of the holder of a reconnaissance right, exploration right or mining right?
The following procedures must be completed:
1. filing an application for closing the mine with the same governmental authority which originally approved the establishment of the mine (“Approving Authority”);
2. submitting for approving the geological report of the mine to be closed to Approving Authority; and
3. after the geological report is approved, preparing, compiling and submitting a mine closing report to Approving Authority.
After the mine closing report is approved, the following work must be completed:
1. classifying and sorting out the geological, survey, and mining information, and submitting the geological report and mine closing report and other related materials; and
2. completing remaining work related to labor safety, water and soil conservation, land reclamation and environmental protection pursuant to the approved mine closing report, and paying in full any outstanding charges.
8.4 Are there any zoning or planning requirements applicable to the exercise of a reconnaissance, exploration or mining right?
There are zoning and planning requirements for the prospecting for and extraction of mineral resources at the national, provincial, municipal and county levels. The exercise of mining rights must comply with the zoning and planning requirements at all levels.
9 Native Title and Land Rights
9.1 Does the holding of native title or other statutory surface use rights have an impact upon reconnaissance, exploration or mining operations?
This is not applicable in China.
10 Health and Safety
10.1 What legislation governs health and safety in mining?
Health in mining is mainly regulated under the Mine Safety Law and Regulations for the Implementation of Mine Safety Law. Safety in mining is mainly regulated under the Law on the Prevention and Control of Occupational Diseases.
10.2 Are there obligations imposed upon owners, employers, managers and employees in relation to health and safety?
As to safety, holders of mining rights must have in place facilities that can ensure safety in production, establish a system of safety management, take effective measures to improve working conditions for workers and staff, and strengthen safety control in mines. Managers must be responsible for safe production in mines and must have special knowledge and the capability to ensure safe production and handle accidents. Employees must possess specialized knowledge of and experiences in work safety.
As to health, employers must ensure that working conditions meet national standards and requirements for occupational health and take measures to ensure that workers are protected from occupational diseases.
11 Administrative Aspects
11.1 Is there a central titles registration office?
The MNR is the central titles registration authority.
11.2 Is there a system of appeals against administrative decisions in terms of the relevant mining legislation?
There is no appeals system specifically promulgated for mining matters only. Those wishing to challenge administrative decisions can either seek an administrative review or an administrative lawsuit in the usual manner where an actionable cause of action arises.
However, according to the Law of Administrative Review, if the subject matter is about ownership of natural resources or the right to use natural resources, an administrative review must first be initiated.
12 Constitutional Law
12.1 Is there a constitution which has an impact upon rights to conduct reconnaissance, exploration and mining?
The Mineral Resources Law covers all of these rights.
12.2 Are there any State investment treaties which are applicable?
No. As of the publication of this article, we are not aware of any investment treaties that China has joined which specifically address mining investment matters. However, there are a few bilateral investment treaties between China and other countries covering mining activities and investments in the mining industry, such as the Agreement on the Promotion and Mutual Protection of Investment between China and Canada, the Free Trade Agreement between China and the Republic of Chile, and the Free Trade Agreement between China and the Republic of Peru.
13 Taxes and Royalties
13.1 Are there any special rules applicable to taxation of exploration and mining entities?
Basic resource tax rates for some mineral resources are as follows:
· crude oil: 6% of gross sales;
· natural gas: 6% of gross sales;
· coking coal and other coal: 2%-10% of gross sales;
· iron (concentrate): 1%-6% of gross sales;
· gold (bullion): 1%-4% of gross sales;
· copper (concentrate): 2%-8% of gross sales;
· nickel (concentrate): 2%-6% of gross sales;
· graphite (concentrate): 3%-10%;
· diatomite (concentrate): 1%-6%; and
· kaolin (ore): 1%-6%.
13.2 Are there royalties payable to the State over and above any taxes?
According to the Mineral Royalties Reform Plan promulgated on April 20, 2017, an applicant for mining rights must pay mineral royalties to the State.
Royalties are calculated as follows:
(i) the price offered by the winning bidder if the mining rights are assigned by auction;
(ii) the price (not necessarily the highest) offered by the winning tenderer if the mining rights are assigned by tender; or
(iii) the valuation of the mining rights or the market benchmark price for mining rights of similar conditions (whichever is higher) if the mining rights are assigned by written agreements between the permit holder and government authorities.
14 Regional and Local Rules and Laws
14.1 Are there any local provincial or municipal laws that need to be taken account of by a mining company over and above National Legislation?
Yes. Local legislatures have the authority to stipulate special rules and regulations governing local activities. See also the discussion in question 1.3.
14.2 Are there any regional rules, protocols, policies or laws relating to several countries in the particular region that need to be taken account of by an exploration or mining company?
This is not applicable in China.
15 Cancellation, Abandonment and Relinquishment
15.1 Are there any provisions in mining laws entitling the holder of a right to abandon it either totally or partially?
We are not aware of any provisions in Chinese mining laws entitling rights holders to surrender these rights in part or in their entirety. Having said that, under Chinese law, any rights, unless otherwise prohibited by law, can be abandoned in part or in their entirety. Therefore, we are of the view that mining rights can be surrendered, provided that the surrender of rights does not result in a failure to fulfill the obligations assumed at the time such rights are granted. Additionally, a holder of mining rights intending to abandon those rights or close a mine must follow the procedures discussed in question 8.3.
15.2 Are there obligations upon the holder of an exploration right or a mining right to relinquish a part thereof after a certain period of time?
Please see our answers under questions 15.1 and 8.3.
15.3 Are there any entitlements in the law for the State to cancel an exploration or mining right on the basis of failure to comply with conditions?
Yes. Among others, any of the following circumstances may lead to the revocation of exploration or extraction permits: (i) a failure to pay royalties or register changes to the range of mines or major minerals or name of the mining entity, (ii) refusal to cooperate with governmental authorities on supervision and inspection, or (iii) acts of fraud.
This news alert is published solely for the interests of friends and clients of JT&N and should in no way be relied upon or construed as legal advice. The views expressed in this publication reflect those of the authors and not necessarily the views of JT&N. For specific information on recent developments or particular factual situations, the opinion of legal counsel should be sought. Copyright ? 2018 JT&N.