This Guide is a user friendly introduction to the local mining laws and regulations in over 30 important mining jurisdictions. Each of the country authors have included within their chapters discussions on foreign investment regulation, the terms of exploration and mining rights, the interaction of operations with the environment and matters relating to the rights of indigenous groups and landholders.
The legal themes which came through in this year's update include tightening foreign investment regimes, increased local participation rights, local processing requirements and enhanced sustainability goals.
Is foreign investment welcome?
An issue faced in virtually every country is the extent to which foreign investment should be permitted in the mining industry. Controlling foreign ownership while providing an attractive regulatory regime for mining investment is often a “balancing act” for governments. Governments must weigh the economic benefits of foreign investment capital and expertise against political pressure for a greater share of the benefits derived from exploitation of the country’s natural resources.
Broadly speaking, the 1970s and early ’80s were characterized by considerable nationalization of mining. The trend reversed in the late ’80s and in the ’90s with moves toward free markets generally. The cycle has turned again in the 2000s, with resource nationalism seen as a tool for helping alleviate poverty especially in some African jurisdictions.
In many countries, there are no formal rules or government review processes regarding foreign investment (e.g. Argentina, Chile, Colombia, Kazakhstan and Ukraine) and in others foreign investment is expressly permitted on equal terms with domestic players (e.g. Mexico). A growing number of countries prescribe limits on the percentage interest a foreign investor can hold in a resources project. In some countries foreign ownership rules apply to certain “strategic” or “valuable” minerals such as uranium, gold, or large and "strategic" deposits of minerals (e.g. Azerbaijan, Russia and Mongolia).
In many countries, acquisitions of interests by foreign State-owned entities (SOEs) are subjected to greater levels of scrutiny. Countries such as the US, Canada and Kazakhstan do this through broad “national security” or “ national interest” criteria. Russia, Australia and Venezuela regulate foreign SOEs more expressly.
In a number of countries the foreign investor in a resources project must partner with the host government or its closely held enterprises. While in some cases state-owned companies may not be in the best position to efficiently finance and manage commercial projects, in certain parts of the world there has been a trend toward increasing State participation, especially in more strategically significant projects. This is occurring in Russia, Kazakhstan, Mongolia and certain African and Latin American countries. Commonly, the State's share of the cost of the project must be free carried (funded) by the foreign investor.
In Indonesia and in some jurisdictions in Africa (e.g. South Africa, Mozambique and Tanzania) there is a requirement that a portion of major mining projects is divested to the local "public", either listed or unlisted. The timing and consideration for this divestment is often unclear and uncertain.
It is not uncommon for governments to impose local processing criteria (e.g. South Africa, Indonesia, Brazil, or DR Congo and Vietnam) or local content requirements (e.g. Kazakhstan). How this is implemented, and relevant grandfathering provisions, are being debated in a number of countries such as Indonesia.
The rise of awareness with respect to sustainability in the mining industry means projects are under even stricter scrutiny in terms of environmental compliance and social and community licence. Now more than ever economic development, environmental impact, long term rehabilitation and social responsibility need to be well managed and relationships developed with all stakeholders.
The International Council on Mining and Metals (ICMM) adopted the set of 10 Sustainable Development Principles in 2003 which set out a best practice framework for sustainability. Commitment to the 10 principles is becoming a pre-requisite for companies as host countries expect more from the industry.
Many jurisdictions are seeking to implement programs, such as the Extractive Industries Transparency Initiative of the World Bank, or pay greater attention to the policies of Transparency International, and therefore will require investors to comply with the relevant tenants as well.
The Year Ahead
Since the inception of this Guide, we have seen the resources sector continue through its typical cycle. The industry encountered the post Global Financial Crisis recovery in commodity prices, quickly followed by a five year decline, which was only arrested abruptly and significantly in late 2016. During the declining years, many majors trimmed portfolios, especially their thermal coal assets, while BHP Billiton returned to its four core pillars with the demerger of the South32 assets. At that time all companies concentrated on cutting costs and preserving assets for the future. Access to capital was difficult, and the market produced a number of streaming and pre-paid offtake products which cash-strapped hopefuls entered into at significant discounts.
As the sector recovers, we have seen the true low cost jurisdictions in Africa and South America attract what M&A there has been, and that has, more often than not, only been possible with the assistance of Chinese financing. Copper projects have been the focus of the limited pool of funds available, along with high tech metals linked to renewable energy storage, such as lithium. The market has also taken comfort in gold in the face of uncertain world politics.
It was with cautious optimism that the market entered 2017, seeing an increase in commodity prices, some successful secondary raisings and IPOs returning to the bourses. Encouragingly an exploration mentality has also returned.
Looking forward, during 2017 it is likely mining companies will be attracted to:
demonstratively low cost jurisdictions with high grades, such as Peru and Chile;
less explored frontiers, such as Argentina, Ecuador, Myanmar, Egypt, Ghana and Cote D'Ivoire;
lower risk jurisdictions, where politics play less of a role in project success;
projects with infrastructure connectivity and creative energy solutions;
countries with sound compliance records, so directors can make market disclosures with confidence;
extending mine reserves by further exploration, rather than developing new large scale mines;
consolidation plays between companies with complimentary assets;
more exploration by juniors and majors; and
sustainability of mining operations having regard to global and local considerations.
Chair, Global Mining & Metals
The information set out in the Global Mining Guide is not a substitute for legal advice. The authors have used their reasonable endeavours to ensure the accuracy and completeness of the information as at 1 January 2017, but the authors accept no liability or responsibility for the content of the information nor to update it. You should consult with an attorney in relation to legal advice specific to your circumstances.