China: PRC Regulator Update - Mining

Last Updated: 3 May 2006
Article by Paul D. McKenzie and George Zhao

Originally published April 2006
On January 20, 2006, the Ministry of Land and Resources of the PRC ("MOLAR") issued the Notice of Further Regulating the Administration of the Grant of Mineral Rights, Guo Tu Zi Fa [2006] No. 12 ("Notice") to standardize procedures for the grant of exploration and mining rights. The Notice specifically repeals existing rules governing the invitation to bid, auction and listing of mineral rights, as stipulated under Articles 7, 8 and 9 of the Measures for the Administration of Invitation to Bid, Auction and Listing of Exploration Rights and Mining Rights (for Trial Implementation), Guo Tu Zi Fa [2003] No. 197 ("2003 Measures") issued by MOLAR on June 11, 2003. The other provisions of the 2003 Measures remain effective.

The Notice was issued in part to comply with a State Council directive-the Notice Concerning the Comprehensive Rectification and Standardization of the Regulation for Mineral Resource Development, Guo Fa [2005] No. 28 ("State Council Directive"), which instructs MOLAR to "clean up" or reauthorize existing mineral rights that were granted in violation of relevant laws and regulations and requires MOLAR to scrutinize future applications for mineral rights.

The Notice provides some useful guidance on the circumstances when it may be necessary to obtain exploration or mining rights through invitation to bid, auction or listing procedures. However, as a review of its provisions makes clear, it leaves the relevant local departments of land and resources ("DOLARs") with considerable discretion to determine whether invitation to bid, auction and listing procedures will be required in specific cases.

General Provisions Relevant to the Grant of Exploration Rights and Mining Rights

The Notice provides certain general rules that are relevant to the grant of both exploration and mining rights and to all types of minerals.

1. Grant By Agreement

With government approval, exploration rights and mining rights otherwise subject to an invitation to bid, auction or listing process can be granted by agreement in the following cases:
(i) key mining projects approved by the State Council and for deposits reserved specifically for key construction projects approved by the State Council;

(ii) where an adjacent area is already subject to mining rights and an extension of mining or exploration rights is required for integration purposes or to utilize an existing production system;

(iii) large mining projects approved by the provincial or municipal government and authorized by MOLAR; or

(iv) mineral exploration projects with State investment that replace mines in a critical supply shortage.

According to the Notice, grants by agreement can be approved only after collective review and rigorous appraisal. The price for the grant may not be lower than the market price.

2. Invitation to Bid

Exploration licenses and mining licenses must be granted by invitation to bid in the following cases:
(i) environmentally sensitive areas or areas below the national environment standard;

(ii) mineral resource areas that require advanced integrated technologies to exploit a number of joint or associated mineral components; or

(iii) other situations stipulated by the State’s mineral resources plan.

Rules Based on Categorization of Minerals

The Notice classifies minerals into the three categories. In cases where the general rules outlined above do not apply, whether the grant of exploration or mining rights is subject to invitation to bid, auction or listing is determined by under which category the relevant mineral falls under. Some examples of minerals include:

  • Category One minerals: copper, gold, silver and most other metals, diamonds and jade, among others;
  • Category Two minerals: coal, iron, graphite, phosphorus, quartz, limestone, rock salt, iodine and diatomaceous earth, among others;
  • Category Three minerals: limestone, sandstone, natural quartz sand, clay and shale.

In respect of these categories of minerals, the Notice provides as follows:

1. Exploration rights

  • To be granted on the basis of a "first come – first served" principle for Category One minerals in cases where no exploration activities have ever been carried out or where initial exploration work did not identify a deposit justifying further exploration.
  • To be granted through and invitation to bid, auction or listing for:
    • Category Two minerals; or
    • Category One minerals in cases where initial exploration work was undertaken that identified a deposit justifying further exploration.

  • Category Three minerals are not subject to exploration rights.

2. Mining rights

  • To be granted by invitation to bid, auction or listing for:
    • Category Three minerals;
    • Category One and Category Two minerals in relation to which the exploration rights have been extinguished, but in relation to which exploration work has reached the level of detailed exploration or above and the deposit area conforms to mining design requirements; or
    • Category One and Category Two minerals in relation to which the mining rights have been extinguished or in relation to which mining activities have been carried out in the past and the mineral reserve in the deposit area has been verified as being minable or of economic value.

Other Provisions of Note

  • The Notice provides that DOLARs at the county level or above are the competent authorities to grant exploration and mining rights.
  • The Notice reaffirms the priority right of the holder of exploration rights to apply for mining rights with respect to the licensed area of exploration.
  • However, the Notice does reserve for DOLARs some degree of discretion to adjust the methods for granting exploration and mining licenses and to develop regulations based on local conditions in relation to depth of exploration, tectonic conditions, etc. Local regulations for other special circumstances must be approved by MOLAR.
  • In compliance with the State Council Directive, the Notice requires DOLARs to "clean up" existing exploration and mining licenses in areas of their respective jurisdiction--reissuing exploration rights on the basis of the "first come - first served" procedure and the Notice, making public notification and reporting the same to MOLAR.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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Paul D. McKenzie
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