It has been close to 30 years since China opened its doors to foreign investors and spectacular progress has been made in some sectors such as the manufacturing industry. Unfortunately, such progress has yet to be achieved in the mining sector.
The problems that impede the progress of foreign miners are discussed with the release of the China International Mining Group white paper. CIMG is the peak lobbying body for international miners in China.
According to CIMG head Nigel Clark, the most exciting thing happening in China as far as foreign miners are concerned is that exploration has developed in China to the point that there are several Sino-foreign joint ventures in production and several near production.
This is good news as the experience is a good illustration and example to the other explorers and the industry at large and hopefully will stimulate more investment.
As far as securing mining rights from the Chinese Government, Clark argues that most CIMG members are working in joint ventures with local entities and report that the transfer of rights can be a relatively smooth process.
However, there is a significant problem related to the granting of new licences as many provinces have suspended this process for some time and there is an issue regarding the interpretation of what constitutes "open ground" for new licences and which prospects would be subject to a bidding or auction process.
The issues/barriers perceived to impede foreign investment into the Chinese mining sector that are covered in the white paper are related to open ground/bidding; security of title; valuation of exploration and mining assets; the qualification to explore; irregular application of the law between national and provincial departments; getting access to geological information; and vagaries surrounding project approval processes and what constitutes fair competition and procurement.
The bidding regulations for exploration rights should be amended, according to CIMG, to expressly permit a foreign company to be a qualified applicant under the regulations and clear guidelines should be adopted to specify those deposits that will be offered for auction and the criteria under which bids will be accepted.
With security of title, the legal certainty and legal mobility of exploration and mining rights is critical in attracting investments given the high risk involved in the mining industry. Clear, fair and transparent rules in relation to the granting of exploration and mining licences and transferring of exploration and mining licences will create security of title for investors and increase the attractiveness of China as an investment location.
The CIMG believes that despite recent advances, the Chinese legal system for exploration and mining is not as developed as other countries that now attract more investment. China still only attracts about 2% of global exploration expenditure, which is surprisingly low considering the overall prospectivity of the country, and its economic vibrancy.
CIMG believes China should be aiming for at least 10% of international exploration expenditure. Potential investors are still concerned about issues such as lack of transparent approval procedures and unwritten or unpublished laws and policies.
Although activity in the mining sector has increased in recent years, with a number of junior mining companies entering China, as well as the introduction of several new laws further improving the business environment, many companies are still waiting in the wings and hesitate to invest or are maintaining a "watching brief".
The current legal regime in China for exploration and mining does not guarantee security of title to foreign investors, particularly through the project approval process.
Under the current system, a variety of approvals are required and in most cases the required approvals, as well as the standards to be applied, are unclear, overlapping and bureaucratic.
Chinese regulations stipulate that state-level ministries must approve investment projects worth more than $US100 million. The Provincial Development and Planning Commission of the province in question needs only approve investments below this amount. This creates challenges for the mining sector.
Part two of Giant Stirring will be published on International Longwall News tomorrow.
