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One of the more vexing problems for the Chinese government in promoting the orderly development of its mineral resources sector has been to assure that exploration and mining activities are undertaken only under the terms of a lawfully issued exploration permit or mining license.  The Ministry of Land and Resources ("MOLAR") has had to contend not only with illegal miners but with local departments of land and resources at the provincial, municipal and other levels that issue permits and licenses in circumstances where they do not have the authority to do so or on terms that do not accord with MOLAR regulations.  Foreign and local companies with exploration or mining operations in China are likewise faced with difficulties to assure that they can secure exploration permits and mining licenses on a timely basis from the appropriate level of government that are not subject to later challenge. 

As a major step in its efforts to address these issues, MOLAR issued the Circular on Relevant Issues in Standardizing the Authorization to Grant Exploration Permits and Mining Licenses (hereinafter as the "Circular") on September 30, 2005,  The Circular took effect on the same date. 

Foreign Investment Enterprises Placed on Equal Footing with Domestic Companies

The most significant aspect of the Circular, at least from the perspective of foreign companies, is that it authorizes the departments of land and resources at the provincial level ("provincial DOLARs") to issue certain categories of exploration permit and mining license to foreign-invested enterprises ("FIEs").  Under previous regulations, all such permits and licenses were required to be obtained from MOLAR at the central level, with the provincial DOLARs having not been given that delegated authority.  The only exception in the past were Yunnan and Sichuan Provinces, whose DOLARs did have the authority to issue exploration permits and mining licenses to FIEs under pilot regulations.  The Circular now expressly provides that exploration permits and mining licenses will be granted to an FIE complying with relevant foreign investment rules on the same basis as to a domestic company.  Whether the relevant provincial DOLAR has the authority to issue an exploration permit or mining license for a particular FIE project depends on whether the project falls within the scope of delegation granted to provincial level authorities under the terms of the Circular.   

Exploration Permits and Mining Licenses that must be Obtained from MOLAR

The Circular provides that MOLAR and only MOLAR has the authority to grant exploration permits in respect of the following minerals: 

• petroleum, hydrocarbon gas, coal-derived gas (coal-bed gas) and radioactive minerals; 
• coal, where the exploration area is 30 square kilometers or larger;  
• tungsten, tin, antimony and rare earth metals, where the investment is RMB 5 million or more or the exploration area is 15 square kilometers or larger;  
• oil shale, gold, silver, platinum, manganese, chromium, cobalt, iron, copper, lead, zinc, aluminum, nickel, molybdenum, phosphorous, potassium, strontium, niobium and tantalum, where the investment is RMB 5 million or more; and 
• minerals at sea (including internal waters) or across the boundary of different provinces, autonomous regions or municipalities directly under the central government.  

The Circular also provides that only MOLAR has the authority to grant mining licenses in respect of the following minerals:

• petroleum, hydrocarbon gas, coal-derived gas (coal-bed gas) and radioactive minerals; 
• coal, where the coal reserve of the coal field is 100 million tons or more, of which coking coal constitutes 50 million or more tons, and oil shale with a mineable reserve rated at or above "large scale";  
• tungsten, tin, stibium and rare earth minerals, where the mineable reserve is rated at or above "medium scale"; 
• gold, silver, platinum, manganese, chromium, cobalt, iron, copper, lead, zinc, aluminum, nickel, molybdenum, phosphorous, potassium, strontium, diamond, niobium and tantalum, where the mineable reserve is rated at or above "large scale"; and  
• minerals at sea (including internal waters) or across the boundary of different provinces, autonomous regions or municipalities directly under the central government.  

The provincial DOLARs (including DOLARs of the autonomous regions and of municipalities under the direct jurisdiction of the central government) have the delegated authority from MOLAR to issue exploration permits and mining licenses for other categories of mineral.  Under prior regulations, the departments of land and resources at the county level or higher within a province had the authority to issue certain categories of exploration permits and mining licenses to license holders other than FIEs.  This delegation has been rescinded by operation of the Circular. 

For information regarding the Circular, or to obtain a full-text English translation of the Circular, please contact: Paul McKenzie.