CHINA Trends and Developments Contributed by: Guisheng Yang, Qi Zhu, Yonghui Wang and Ranran Shi, Beijing Dacheng Law Offices
• exploration and exploitation of oil and natural gas (including shale gas and coal bed gas) carried out nationwide; • exploration, mining and ore dressing of minerals that are in acute shortage in China (such as potas- sic salt ores and chromite); • exploration and mining of seabed minerals in Hainan Province; and • exploration, exploitation and dressing of marine shale and lacustrine shale in the mining rights blank area of the upstream oil and gas (especially in the Sichuan Basin), and development and appli- cation of shale oil and gas technologies in Chong- qing Municipality and Sichuan Province. It can be seen that, in the mineral resources indus- try, there are very few mineral species or fields where foreign investment is prohibited or restricted; on the contrary, the state encourages foreign investment in this sector. From Law to Practice: Recommendations for Potential Mining Investors Laws and national policies are the cornerstone for ensuring capital security and realising long-term value in the process of mining investment. The revision of the Mineral Resources Law and the adjustment of the foreign investment access negative lists have a direct impact on mining investment strategies. For mining investors, a deep understanding and proficient appli- cation of these laws and policies is an indispensable path to successful investment. For potential min- ing investors, especially foreign investors, attention should be paid to the following three aspects. In-depth due diligence Macro due diligence on the policy environment China’s mining policies are both strategic and dynam- ic. Investors must thoroughly understand the top-level designs of the state, such as the classified manage- ment of minerals, the catalogue of strategic miner- als, environmental protection red lines and regional industrial plans. Micro due diligence on the project It is necessary to verify one by one the legality and validity of mineral rights certificates and whether there are encumbrances such as mortgages and
seizures; evaluate the authenticity and credibility of the reserve report for mineral resources; and predict whether there are potential obstacles to the approval of land use, forestry, safety assessment, environmen - tal impact assessment, etc, which may be involved in future mining. Rigorous contracts and prudent negotiations After comprehensive due diligence, the next step is to solidify the future uncertainties into protected rights through rigorous contracts and prudent negotiations. The structure design and drafting of transaction docu- ments shall pay special attention to several core links. • The structure design of equity acquisition or asset acquisition is directly related to tax costs and future operational risks. • The payment schedule must be closely linked to key nodes such as property right assignment, cer- tificate modification and payment of earnings from the assignment of mineral rights, so as to achieve a balance between risks and payments. • The representations and warranties clauses shall fully cover the seller’s statements on the absence of defects in mineral rights, no hidden debts in assets, compliance with safety and environmental protection requirements, etc, and be matched with high amount of liability for breach of contract. • In addition to commercial interests, it is also neces- sary to gain an in-depth understanding of China’s mining practice. For example, understand the importance of community relations and incorporate social responsibility clauses into contracts. Full-process compliance system The operation cycle of mining projects is mostly as long as several decades, and the real challenge lies in the long road after operation. Enterprises need to establish a full-process compliance management and control mechanism covering project approval, explo- ration, construction, mining, closure of mines and ecological restoration, so as to ensure the acquisition of government support, community trust and continu- ous operation permits. Enterprises should focus on the following matters. • Establish special compliance positions to continu- ously track and interpret the continuously improved
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