China restructures mining laws for Western players — ‘Friendly’ revisions fail to address concerns over preset gold prices

The Chinese government has upgraded its Mining Code in an attempt to lure more foreign investors, but mining firms remain critical of a component that prohibits gold hedging.

The changes allow foreign mining companies to acquire a 100% equity interest in non-diamond exploration concessions, while eliminating overlapping in government departments and streamlining the permitting procedure.

“The new code is designed to encourage a market economy and is friendly towards foreign exploration and mining companies,” said Zhong Weizhi, director of China’s Department of Geological Exploration, who outlined the changes in a speech in Vancouver.

However, critics say North American mining companies remain frustrated by the Chinese government’s insistence that all gold produced in the country be sold to it a preset price, with no hedging permitted, and that all proceeds of gold sales be paid back in Chinese currency.

When asked why this practice was not eliminated, Weizhi said only that many operating gold mines would be unable to compete in the world market.

The new Mining Code can be summarized as follows:

• Mineral ownership belongs to the state, and royalty payments of 4% for gold and 2% for base metals are mandatory.
• Exploration rights are applied for and obtained through specific laws and regulations. A lease fee of 100 Chinese yuan (US$1= 8.27 yuan) per sq. km applies up until the fourth year, whereupon the fee increases each year by 100 yuan to a limit of 500 yuan per sq. km.
• The minimum exploration investment requirement is 2,000 yuan per km. in the first year, 5,000 yuan in the second, and 10,000 yuan per year thereafter.
• To exploit a deposit, a mining permit must be acquired and a leasing fee of 1,000 yuan per sq. km is charged.
• Foreign companies are permitted to explore for all minerals except diamonds. If a company wishes to explore for diamonds, it must form a joint venture with a Chinese company.
• The transfer of exploration rights can be achieved only after a company holds the property for two years. The exception is when a mineralized body is such that it justifies further exploration or mining, in which case mining rights can be transferred after one year of production.