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PERU - CHINA: BRIDGING KEY

CONCEPTS IN MINING TENURE

Raul Ferreyra

RFerreyra@EstudioGrau.com

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Content

(1) Introduction to the Peruvian Mining Legal Framework

(2) Mining Tenure

(3) Land Access in Peru

(4) Other Licenses and Authorizations – Compared

(5) Basic Mining Tax Structure

(6) Concluding Remarks

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Introduction to the Peruvian

Mining Legal Framework

Peru

Civil Law country

Unitary and decentralized government

Non federal government

Strong private property Institution

Latin America Mining Law Model scheme

Market-oriented economy

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Mining Tenure

Natural resources belong to the Nation, the State holds them in trust pursuing

sustainable exploitation. Peruvian State grants rights over the natural resources

by means of the concession system.

Concession System

Mining Activity Concession Regulated Activity

Reconnaissance Not applicable Free

Prospecting Not applicable Free

Exploration Mining Concession Subject to concession granting

Exploitation

Processing Processing Concession Subject to concession granting

Ancillary facilities General Labour Concession Subject to concession granting

Transport Transport Concession Subject to concession granting

Commercialization Not applicable Free

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Mining Tenure (cont’d)

The Mining Concession

• The Mining Concession grants exploration and exploitation rights, within the

internal boundaries of the applied area, for metallic or non-metallic

substances, subject to further specific permits and authorizations.

• It comprises similar rights and obligations as those granted by the Chinese

Exploration and Mining Rights, all in one.

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Mining Tenure (cont’d)

Conditions to access

• There is no pre-qualification in order to be granted a mining concession in

Peru.

• The access to mining concessions in Peru is not subject to the authority’s

discretion but subject to the verification of compliance with certain simple

steps.

• Nevertheless, certain mineral deposits or projects are reserved for bidding

processes, as it is done by the Department of Geology and Mineral

Resources of the Chinese State Council.

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Mining Tenure (cont’d)

Conditions to access (cont’d)

Requirement China Peru Have the status of a legal entity, enterprise or institution.

Requested Not requested,

individuals can

apply for mining

concessions. Count on specialists according to the category and class of the geological exploration of the project to undertake.

Requested Not requested

(H&S Regulations)

Have the equipment and instruments needed for the category and class of the geological exploration of the project to undertake.

Requested Not requested

Have the quality control systems and work safety management systems needed for the category and class of the geological exploration of the project to undertake.

Requested Not requested

(H&S Regulations)

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Mining Tenure (cont’d)

Mining Concession’s Term

• Back in 2001 the trend was to lengthen exploration and mining rights’ term.

A Sillitoe study for the Metals Mining Agency of Japan, showed that major

mineral deposits in the Pacific rim from 1976 to 2001 took an average of 19

years of exploration time and required approximately 9 years to develop.

• The unified concession in Peru, Bolivia and Venezuela presented one

solution to the short exploration terms problem; another was the retention

license regulated in Tanzania and China which allowed a company to hold

an area in care and maintenance status for an extended period (e.g. 7-10

years)

• Now mining concessions in Peru are granted for an indefinite term, but

subject to the condition that they are put into production within a maximum

term of 20 years.

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Mining Tenure (cont’d) Peru’s Maintenance Obligations

China’s Maintenance Obligations

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Mining Tenure (cont’d)

Peru’s Reporting Obligations

Titleholders have to provide technical, environmental, financial and health and

safety information, on annual and monthly basis.

Online submission

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Mining Tenure (cont’d)

Legal Security of Tenure

Peru: Single “licensing” approach

China: Multi “licensing” approach

Exploration Transit

to Mining Mining

Exploration Mining

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Mining Tenure (cont’d) Concerns related to Security of Tenure

China Peru

Duration of

the title 3 Years (Exploration Rights)

Irrevocable, subject to

compliance with

Maintenance Obligations

Ability to

cancel the title

Fail to renew the registration.

Apply for mining rights.

Rescind the Exploration Right of

the undertaken project.

Breach any reporting obligation.

Not incurring in minimum

exploration expenditure.

Fail to begin construction on the

exploration project within 6

months from the date of

exploration license issuance or

halting the work-in-progress for 6

consecutive months without a

valid reason.

Default in License fee

and/or Penalty

payment for 2 years.

Not attaining the

Minimum Production

when due.

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Mining Tenure (cont’d)

Concerns related to Security of Tenure (cont’d) China Peru

Renewability 2 years each time Not needed

Transferability

Is allowed under the following

circumstances and subject to

further approval by the competent

authority:

Upon attaining minimum

exploration expenditures; and

For corporate reasons such as

mergers, spin-offs, etc.

Free

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Land Access in Peru

Direct negotiation is required

Administrative easements are discouraged

The mining concession in Peru is different and independent from the

surface land

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Other Licenses and Authorizations - compared

China Peru

Business Certificate

Incorporation of a Peruvian corporate

vehicle to carry out mining activities

Exploration Right

Mining Concession

Mining Right

Land Use Certificate

Agreement with the surface owner

Environmental Impact Assessment approval

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Other Licenses and Authorizations – compared

(Cont’d)

China Peru

Work Safety License

Compliance with Health and Safety

regulations

Others that may apply

Licenses, Permits and Authorizations

for project implementation

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Basic Mining Tax Structure

China Peru

Income Tax Income Tax

(30%)

Resource Compensation Tax

Mining Royalty

sliding scale (1% - 12%)

deductible from Income Tax

Special Mining Tax

sliding scale (2% - 8.4%)

deductible from Income Tax

Special Levy to the Mining Sector

sliding scale (4% - 13.2%)

legal or contractual royalty payments shall

be deducted for calculation purposes

deductible from Income Tax

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Concluding Remarks

• Peruvian Mining Tenure has more similarities to Chinese regulation than

one may think of;

• Nevertheless, It provides freedom to access, hold, and transfer mining

properties; and a higher standard of security of tenure;

• Peruvian mining regulation fosters certainty, objectivity, and predictability for

investors, whether nationals or not;

• It is designed to attract foreign investment, guaranteeing compliance with

transnational investment law;

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