I. Basic Concepts

(1) Revenue from the payment for exploration rights and mining rights

According to the "Notice of the Ministry of Finance, the Ministry of Natural Resources, and the People's Bank of China on Matters Relating to the Management of Revenue from Fees for Exploration Rights and Mining Rights," the revenue from fees for exploration rights and mining rights refers to all revenues collected by the approval and registration authorities of exploration and mining rights under the central and local governments when they transfer exploration and mining rights—formed through state-funded exploration (including funding from the central government, local governments, and joint funding from both the central and local governments)—via market-based methods such as bidding, auction, and public listing, or through negotiated agreements. It also includes the fees paid by state-owned enterprises to make up for the value of exploration and mining rights that they had previously occupied free of charge through state-funded exploration.

(2) State-funded

According to the "Notice on Clearing Nationally Funded Prospecting Areas for Previously Discovered Mineral Deposits," "nationally funded" refers to funds allocated by the central and local governments—through expenditures such as geological exploration fees, mineral resource compensation fees, mining rights usage fees and revenue from mineral rights transfers, as well as various special funds—for the exploration and development of mineral resources. (Exploration investments previously made by other types of economic entities that have now resulted in the loss of mining rights are also treated as nationally funded.)

II. Payment Status

(1) General Payment Scenarios

According to the "Administrative Measures for the Fees and Prices for Exploration Rights and Mining Rights," when the state transfers exploration rights formed through its own capital investment to the holder of exploration rights, it shall collect the exploration right fee from the holder in accordance with the prescribed rules. Similarly, when the state transfers mining rights formed through its own capital investment to the holder of mining rights, it shall collect the mining right fee from the holder in accordance with the prescribed rules.

(2) Circumstances for Supplementary Payment

1. The mineral type under exploration has been changed from a high-risk mineral type to a low-risk mineral type.

According to the "Notice of the Ministry of Natural Resources on Further Standardizing the Management of Prospecting Rights," in principle, a prospecting rights holder is not permitted to change the type of mineral being explored from a high-risk category to a low-risk category. However, if the change is due to newly discovered minerals during the exploration process, it may be allowed after expert review organized by the registration and management authority at or above the provincial level and public announcement. In such cases, the prospecting rights holder must also assess and pay any additional fee required for the change in the type of mineral being explored.

2. Transfer and dispose of the cooperative exploration rights.

According to the Provisional Measures for the Management of Equity in Central Geological Exploration Fund Projects, if a prospecting rights holder who holds prospecting rights formed through exploration funded by the state intends to engage in cooperative investment with the Geological Exploration Fund, it shall first pay the prospecting rights fee in accordance with relevant state regulations. Alternatively, the parties may agree contractually that, upon completion of the joint exploration and transfer of the cooperative prospecting rights, the original prospecting rights holder shall make up the payment of the original prospecting rights fee to the state.

(3) Circumstances for Reduction or Exemption of Fees

1. Circumstances for Reduction or Exemption of Exploration Rights Fees

According to the "Administrative Measures for the Registration of Mineral Resource Exploration Blocks," if any of the following circumstances apply, the holder of the exploration right may submit an application. Upon review and approval by the registration authority in accordance with the reduction and exemption measures for exploration right usage fees and exploration right payments formulated jointly by the competent department of geology and mineral resources under the State Council and the Ministry of Finance under the State Council, the exploration right usage fee and exploration right payment may be reduced or exempted: (1) mineral types that are encouraged for exploration by the state; (2) areas that are encouraged for exploration by the state; (3) other circumstances specified jointly by the competent department of geology and mineral resources under the State Council and the Ministry of Finance under the State Council.

2. Circumstances for Reduction or Exemption of Mining Rights Fees

According to the "Regulations on the Registration and Administration of Mineral Resource Exploitation" (Decree No. 241 of the State Council), if any of the following circumstances apply, the mining right holder may submit an application. After review and approval by the registration and administration authority under the people's government at or above the provincial level, in accordance with the measures for reducing or exempting mining rights usage fees and mining rights payments formulated jointly by the competent department for geology and mineral resources under the State Council and the Ministry of Finance under the State Council, the mining rights usage fee and mining rights payment may be reduced or exempted: (1) Exploiting mineral resources in remote and impoverished areas; (2) Exploiting mineral species that are in short supply nationally; (3) Suffering severe losses or suspension of production due to force majeure events such as natural disasters; (4) Other circumstances specified by the competent department for geology and mineral resources under the State Council and the Ministry of Finance under the State Council.

III. Payment Methods

There are three methods for paying the fees associated with prospecting rights and mining rights: payment in cash, conversion into state capital, and payment in the form of stock issuance.

(1) Pay by means of funds

1. One-time payment of the fees for prospecting rights and mining rights.

According to the "Supplementary Notice from the Ministry of Finance and the Ministry of Natural Resources on Issues Relating to the Reform of the Paid Acquisition System for Prospecting Rights and Mining Rights," for mineral rights registered and licensed by the Ministry of Natural Resources, the prospecting right fee below RMB 5 million and the mining right fee below RMB 30 million shall, in principle, be paid in full at one time. As for prospecting rights registered and licensed by local authorities, the standard for one-time payment shall be determined by each province based on its specific circumstances.

2. Pay the fees for prospecting rights and mining rights in installments.

According to the "Notice on Issues Concerning the Deepening of the Reform of the Paid Acquisition System for Prospecting Rights and Mining Rights," for mining rights registered and licensed by the Ministry of Natural Resources, the payment for prospecting rights may be made in installments over a maximum period of 2 years, with the first-year payment accounting for no less than 60%. The payment for mining rights may be made in installments over a maximum period of 10 years, with the first-year payment accounting for no less than 20%. Meanwhile, holders of prospecting rights and mining rights who pay the fees in installments shall bear a funding occupation fee at a rate no lower than the prevailing bank loan interest rate for the same period.

(2) Conversion to State Capital Investment

The state’s regulations on converting exploration rights into state capital have evolved from being permitted to “prohibited in principle, with exceptions allowed.” According to the “Notice on Deepening Reform of the Paid Acquisition System for Prospecting and Mining Rights,” prospecting right holders shall promptly and fully pay the prospecting right fees to the state in accordance with relevant state regulations. Except as otherwise provided in this notice, prospecting right fees will no longer be converted into state capital under any circumstances. At the same time, the document specifies certain exceptional circumstances: “State-owned geological exploration units may continue to implement the policy of converting the fees paid for prospecting and mining rights—rights that they had already registered and held prior to the issuance of this notice and which were formed through state-funded exploration—into state capital. If the state has other provisions, those provisions shall prevail.”

(3) Pay by converting shares

The state’s regulations regarding the payment of consideration in the form of equity shares have similarly undergone a transition—from being permitted initially to being “generally prohibited, with exceptions allowed.” According to the “Supplementary Notice on the Administration of Fees and Consideration for Exploration and Mining Rights,” state-owned enterprises and institutions holding shares in joint ventures, joint-stock companies, and share-cooperative enterprises may, upon approval by the Ministry of Natural Resources and the Ministry of Finance, convert their payable exploration and mining rights consideration into state-owned shares.

Subsequently, according to the provisions of the “Notice on Issues Concerning the Deepening of the Reform of the Paid Acquisition System for Prospecting Rights and Mining Rights,” except in special circumstances, the fees for both prospecting rights and mining rights may no longer be paid in the form of share conversion. The document specifies two special circumstances under which the fees for prospecting rights and mining rights may be paid in the form of share conversion:

The first scenario: Before October 25, 2006, holders of exploration rights and mining rights who have been occupying free-of-charge mineral deposits identified through state-funded exploration and have obtained mining rights without payment—provided that they genuinely face difficulties in paying the fees for exploration and mining rights in cash and meet one of the following conditions—may, on a voluntary basis and subject to approval by the Ministry of Finance in conjunction with the Ministry of Natural Resources, pay part or all of the fees due for exploration and mining rights to the state by converting such fees into equity shares: (1) Exploration and mining rights obtained free-of-charge prior to the promulgation of the “Administrative Measures for the Registration of Mineral Resource Exploration Blocks” and the “Administrative Measures for the Registration of Mineral Resource Exploitation,” which are currently still valid; (2) Exploration and mining rights that have been reorganized and restructured with the approval of the State Council or a provincial-level people’s government, and whose assessed values as exploration and mining rights have been contributed as assets into the restructured enterprise; (3) Exploration and mining rights explicitly stipulated in documents issued by the State Council or approved by the State Council.

The second scenario: Where, with the approval of the Ministry of Finance and the Ministry of Natural Resources, or of the provincial-level finance departments and natural resources administration authorities, part or all of the consideration paid for prospecting rights and mining rights has already been converted into state capital, the holders of such rights shall first make up the unpaid consideration to the state in cash. If it is genuinely difficult to make up the unpaid consideration in cash, the holders of prospecting rights and mining rights may voluntarily choose to convert the state capital that has already been contributed into equity shares instead.

IV. Amount Determination

(1) Determination of the Assessment Agency

According to the "Notice of the Ministry of Natural Resources on Regulating Matters Relating to the Entrustment of Mineral Rights Transfer Valuation," for projects involving the establishment, transfer, or renewal of mineral rights that require valuation of mineral rights fees, the natural resources administration authorities shall, in accordance with their respective approval and management powers, select and entrust, through an open, fair, and impartial process, appraisal institutions qualified to conduct mineral rights valuations—either by the Ministry of Natural Resources or by the provincial-level natural resources administration authorities.

(2) Requirements for the Assessment

According to the "Notice from the Ministry of Finance and the Ministry of Natural Resources on Strengthening the Management of Mineral Deposits and Rights Identified through State-Funded Exploration," if a mining rights holder obtains a prospecting right for a mineral deposit identified through state-funded exploration free of charge and subsequently undertakes exploration activities on its own initiative, the registration authority, when commissioning an appraisal, shall explicitly require the appraisal agency to clearly distinguish in its appraisal report the portion of the mining rights price that was formed by state-funded exploration.

(3) Confirmation of Assessment Results

According to the "Notice of the Ministry of Natural Resources on Adjusting the Jurisdiction over the Confirmation (Filing) of Mining Rights Premiums and the Filing Management of Reserves Evaluation," for mining rights whose exploration and mining licenses are issued by the Ministry of Natural Resources, the confirmation (filing) of mining rights premiums shall be handled by the Ministry itself. For all other cases, the provincial (autonomous region or municipality) natural resources administration departments shall be responsible. Each quarter, the provincial-level natural resources administration departments shall report to the Ministry of Natural Resources on the status of premium confirmation (filing) and disposal.

V. Consequences of Failure to Pay the Purchase Price

(1) Impact on the ownership of mining rights

1. Impact on Newly Established Mining Rights

According to the "Notice on Matters Relating to the Management of Revenue from Fees for Prospecting Rights and Mining Rights" and the "Supplementary Notice on Issues Concerning the Reform of the Paid Acquisition System for Prospecting Rights and Mining Rights," if the fees for prospecting rights or mining rights are not paid in full and on time as required, the land and resources administration authorities will not process the registration procedures for such rights, nor will they issue exploration licenses or mining right licenses. In cases where the fee payment is made in installments, the land and resources administration authorities will handle the approval and registration of mining rights based on the applicant’s application, the approved installment payment plan, and the proof of payment of the current year’s mining rights fee. Any applicant who fails to pay the full amount of the mining rights fee according to the approved installment payment plan will be barred from proceeding with registration and license issuance. Prospecting right holders who adopt an installment payment system and apply for mining rights must have fully paid the entire prospecting rights fee before applying to delineate the mining area.

2. Impact on the renewal of mining rights

According to the "Notice on Issues Concerning the Deepening of the Reform of the Paid Acquisition System for Prospecting Rights and Mining Rights," if the holders of prospecting rights and mining rights fail to pay the full amount of the fees for such rights as required, the land and resources management departments at all levels will not process renewal procedures when the exploration or mining licenses expire.

(2) Impact on the Transfer of Mining Rights

According to the "Notice on Further Strengthening the Management of Fees for Prospecting Rights and Mining Rights" and the "Supplementary Notice on Issues Relating to the Reform of the Paid Acquisition System for Prospecting Rights and Mining Rights," when applicants for prospecting rights or mining rights submit a request to the land and resources administration department for the transfer of such rights, the department will not accept the application unless the applicant has submitted documentation confirming that the fees for the prospecting rights or mining rights have been fully paid. In cases where the fee is paid in installments, mining right holders applying for the transfer of their mining rights must first pay off the remaining balance of the mining rights fee before they can proceed with the transfer procedures.

(3) The risk of incurring administrative and civil liability

1. The risk of facing administrative penalties

According to the "Administrative Measures for the Fees and Prices for Exploration Rights and Mining Rights," if the fees and prices for exploration rights and mining rights are not paid on time as required, the registration and management authority for exploration and mining rights shall order the holder to pay within 30 days and impose a late payment penalty of 2‰ per day starting from the date of delinquency. If the payment is still not made after the deadline, the registration and management authority for exploration and mining rights shall revoke the exploration license or mining license of the holder.

2. Risk of assuming liability for breach of contract

According to the "Provisional Regulations on the Grant and Transfer of Mining Rights," the purchaser shall, within the prescribed time limit, pay the relevant fees and the auction price as required, complete the registration procedures in accordance with the law, and obtain the mining license. If the purchaser fails to pay all fees and the full auction price by the deadline or fails to complete the registration procedures, the purchaser shall be deemed to have automatically waived the purchase and shall bear the corresponding liability for breach of contract.