mineral resources

Foreword Mining rights acquisition is a complex systematic project involving many legal, financial, and technical issues. In the cases handled by lawyers Ying Ting, many acquirers often experienced post-acquisition problems because they did not understand the risks. Today, lawyer Ying Ting combined many years of practical experience to summarize the 10 major risks in mineral rights acquisition and gave suggestions for resolving them.

Risk point 1: Mining rights ownership risk

Risk description: The ownership of mineral rights is unclear, controversial, or there are problems with the mineral rights themselves.

Specific performance

•

The mining rights certificate is false or expired

•

There is a "one mine and many sell" mining rights.

•

There are ownership disputes over mineral rights

•

The seller has no right to dispose

Suggestions for solving the problem: 1. Go to the registration authority to verify the mineral rights certificate. 2. Verify the history of the mineral rights. 3. Verify the seller’s right of disposal. 4. Process the change registration in a timely manner.

Risk point two: rights burden risk

Risk description: Mineral rights are subject to rights restrictions such as mortgage, seizure, and freezing.

Specific performance

•

Mineral rights are mortgaged to banks or other creditors

•

Mining rights were seized and frozen by the court

•

Mining rights are leased or contracted to third parties

•

Other rights restrictions exist

Suggestions for resolution: 1. Go to the registration authority to inquire about the encumbrances of rights. 2. Verify all contracts of the target company. 3. Request the seller to release the encumbrances before delivery. 4. Set up corresponding default clauses.

Risk point three: Resource reserve risk

Risk description: Resource reserve reporting is inaccurate, reserves are falsely reported, or there are negative changes.

Specific performance

•

False reserve reports

•

Actual reserves are much lower than reported data

•

Decline in quality

•

Reserves have been consumed by mining

Recommendations: 1. Verify the authenticity of the reserve report 2. Hire an independent third party to review 3. Conduct on-site investigation 4. Set up a reserve guarantee clause in the contract

Risk point four: Historical arrears risk

Risk description: There are unpaid mining rights transfer proceeds, resource taxes and other statutory fees.

Specific performance

•

Unpaid mining rights transfer income

•

Unpaid exploration rights/mining rights royalties

•

Resource tax arrears

•

Unpaid ecological environment restoration fees

Resolving suggestions: 1. Go to the competent authority to inquire about the arrears. 2. Review the amount payable in the financial statements. 3. Require the seller to settle the payment before settlement. 4. Reserve the amount of arrears in the transaction consideration.

Risk point five: Environmental impact assessment land risks

Risk description: Environmental impact assessment approval expires or is invalid, and land use procedures are incomplete.

Specific performance

•

Environmental impact assessment approval expired

•

No environmental acceptance acceptance

•

The land is not approved

•

Occupy basic farmland or forest land

Resolution suggestions 1. Verify the validity of the environmental impact assessment approval 2. Verify the land use approval documents 3. Assess the cost of compliance rectification 4. Request the seller to resolve the issues before delivery

Risk point six: Mining area risk

Risk description: The scope of the mining area involves ecological red lines, basic farmland and other prohibited mining areas, or overlaps with other mineral rights.

Specific performance

•

The mining area is located within the ecological protection red line

•

Occupy basic farmland

•

Located in a nature reserve

•

Overlaps with other mineral rights

Resolving suggestions 1. Verify the planning attributes of the mining area 2. Verify the relationship with surrounding mining areas 3. Assess policy risks 4. Consider whether to abandon the transaction

Risk point seven: safety production risks

Risk description: Safety production conditions are not up to standard, and there are potential safety hazards.

Specific performance

•

Safety production license expired

•

Safety facilities do not meet requirements

•

There are unhandled security incidents

•

Safety training is not in place

Resolving suggestions: 1. Verify safety production license 2. Review safety evaluation report 3. On-site inspection of safety facilities 4. Evaluate safety rectification costs

Risk point eight: Hidden debt risk

Risk description: There are undisclosed debts, guarantees, lawsuits, etc.

Specific performance

•

private lending

•

External guarantee

•

Pending litigation, arbitration

•

Potential indemnification obligations

Resolving suggestions: 1. Conduct comprehensive financial due diligence 2. Hire an audit agency to audit 3. Search for lawsuits 4. Request the seller to provide a list of debts and make a commitment

Risk point 9: Ecological restoration risks

Risk description: There are unfulfilled ecological restoration obligations, and the restoration costs are huge.

Specific performance

•

The mine is closed and repairs have not been completed

•

There are hidden dangers of geological disasters

•

Land reclamation not completed

•

Repair costs are estimated to be huge

Solution suggestions 1. Assess ecological restoration obligations 2. Estimate restoration costs 3. Reflect in transaction consideration 4. Agree on historical responsibilities

Risk point 10: Policy change risk

Risk description: Mining rights cannot operate normally due to policy adjustments.

Specific performance

•

Mining policy tightened

•

Expansion of protected areas

•

Industrial policy adjustment

•

Exit mechanism activated

Resolving suggestions 1. Understand relevant policy trends 2. Assess policy risks 3. Agree on the treatment of policy risks in the contract 4. Set exit clauses

Comprehensive advice on risk prevention

Precautions beforehand 1.Adequate due diligence- Legal due diligence - Financial due diligence - Technical due diligence 2.Hire a professional team- Lawyers - Accountants - Technical experts 3.Choose the right deal structure- Equity acquisition vs. asset acquisition - Each has its own pros and cons, and the choice needs to be made based on the situation.

In-process control 1.Set protection terms- Representation and warranty - Liability for breach of contract - Liability for compensation 2.Delivery in stages- Pay part of the payment first - Pay the balance after completing the change registration 3.Set up a custody account- Set aside some funds - to address legacy issues

Subsequent relief 1.Keep evidence- Transaction documents - Communication records - Payment vouchers 2.Timely protection of rights- Claim problems promptly - Avoid exceeding the statute of limitations

Yingting Lawyer Reminder The mining lawyer team of Beijing Yingting Law Firm reminds:There are many risks in mineral rights acquisition, but as long as you do the following three things, you can greatly reduce the risks:1.Investigation in place——No matter the time and expense, conduct due diligence 2.terms in place——The transaction documents must be complete and the protection clauses must be comprehensive 3.Delivery in place——Complete the delivery in strict accordance with the agreement and retain the evidenceLeave professional matters to professionals!--- *Warm reminder: This content is for reference only and does not constitute legal advice. Please consult a professional attorney for specific questions. *