Operating mines in accordance with the law is the fundamental guarantee of investors’ interests. What is the core of operating mines in compliance with the law? The core lies in obtaining, or legally possessing, exploration and mining rights—this is the very essence of lawful mine operation. How can we ensure that we obtain—or legally possess—these rights?

Explore minerals in accordance with the law

Prospecting is the prerequisite and foundation of mining; without prospecting, there can be no mining. Many enterprises, upon entering the mining sector, invariably begin by obtaining prospecting rights. According to China’s regulations, there are two main ways to acquire prospecting rights:

The first approach involves directly acquiring exploration rights from the land and resources authorities under provincial-level or higher people's governments. Depending on the specific type and scale of the mineral resource, exploration rights can be obtained either from the provincial-level or the State Council’s land and resources authority. Currently, governments at all levels typically employ two main methods for granting exploration rights: The first is administrative granting, in which exploration rights are directly awarded by the relevant government departments (the land and resources authorities) based on the principle of “first application.” The Ministry of Natural Resources has now explicitly stipulated that exploration rights can be directly granted for 79 types of minerals. These 79 minerals are classified as high-risk minerals—high-risk minerals imply that your investment does not guarantee a 100% chance of discovering mineral resources; the probability of finding such minerals may be as low as 8%, and at most no more than 10%. This category includes gold, silver, copper, lead, zinc, and others. The proportion of successful discoveries is very small: out of 100 exploration permits, only about 8 groups are likely to actually yield mineral resources after geological exploration. Therefore, these high-risk minerals are suitable for administrative granting. The second approach is through competitive bidding—a process in which exploration rights are acquired via tendering organized by the government. This second category comprises 85 types of minerals that are considered low-risk. For these minerals, after investing in exploration, the probability of actually discovering mineral deposits could be several tens of percent. Thus, the government uses a bidding process to grant exploration rights for these low-risk minerals.

The second approach is to acquire the exploration rights through assignment from other exploration right holders. Exploration rights are property rights; after obtaining such rights and meeting the legal requirements, and upon obtaining legal approval, the exploration rights can be transferred to others.

Mining in accordance with the law

Mining must obtain mining rights in accordance with the law. According to China’s current legal provisions, there are typically three ways to acquire mining rights.

The first approach is direct acquisition by people's governments at or above the county level. The entities authorized to acquire mining rights may include relevant departments under the State Council, provincial people's governments, or local authorities at the city and county levels. Mining rights directly acquired by county-level people's governments are primarily low-risk rights—for instance, mining rights for limestone, granite, and similar materials, which pose no significant risks and can thus be directly acquired.

The second approach involves directly converting a prospecting right into a mining right. If you, as the holder of a prospecting right, have conducted geological exploration and discovered mineral resources that are suitable for extraction, and you wish to develop these resources yourself, you can—pursuant to law—directly apply to the relevant government authorities for a mining right, obtain a mining permit, and engage in the exploration, processing, and sale of mineral resources.

The third approach is to acquire the mining rights through transfer from other mining right holders. Mining enterprises that have already obtained mining rights may, upon obtaining legal approval, transfer their mining rights to others for mining purposes. However, there is a crucial issue here—namely, the legitimacy of the transferring entity—which everyone needs to be vigilant about. It’s essential to thoroughly clarify the background and ownership history of the mining rights. (1) The mining enterprise has been engaged in mining production for at least one full year. (2) There are no disputes regarding the mining rights. (3) The enterprise has paid the annual fee for mining rights, the purchase price of mining rights, the compensation fee for mineral resources, and the resource tax in accordance with relevant national regulations. (4) Before applying to transfer mining rights, state-owned mining enterprises must obtain the consent of the competent authority overseeing the mining enterprise. (5) The transferee of mining rights must meet the eligibility requirements for applicants stipulated in either the “Administrative Measures for the Registration of Mineral Exploration Blocks” or the “Administrative Measures for the Registration of Mineral Resource Exploitation.” (6) The transferee must also satisfy any other conditions prescribed by the geological and mineral resources authorities under the State Council.

In practice, the transfer of mining rights takes various forms, including transfer via bidding or auction, negotiated transfer, joint venture, co-management, merger and acquisition, and other similar methods.

Moreover, to safeguard investors’ rights, it is indispensable to adhere strictly to lawful mortgage and lawful transfer practices. As property rights, exploration rights and mining rights may be mortgaged in accordance with the law. At the same time, exploration rights and mining rights are also usufructuary rights. After obtaining these “two rights” in compliance with the law, the holders of exploration rights and mining rights enjoy the rights to possess, use, and derive income from them; however, they do not have the right to directly dispose of these rights, since such rights do not constitute full ownership.

Eight Strategies

How can we prevent risks? The concept of risk prevention is quite comprehensive; here, I’d like to propose eight key ideas for your consideration.

First, when investing in mineral resources, it’s important to guard against market risks.

Which types of minerals should you invest in? First, you should focus on mineral resources that the state encourages and supports—such as energy minerals, iron, copper, and aluminum. These are resources that the country currently faces significant shortages in and actively promotes and supports their development. This ensures a stable, long-term demand for your investment. Second, even if a mineral resource isn't specifically encouraged or supported by the state, you can still invest in those minerals that are experiencing sustained, large-scale, and long-term demand driven by economic and social development. A simple example is sand: urban construction, skyscrapers, and roads—all are built using sand and aggregates. Although sand isn't a mineral resource that the state actively encourages or supports, it undoubtedly remains in high demand.

Second, in terms of investment regions, we must guard against cost risks.

You should, as much as possible, choose regions with relatively well-developed infrastructure—such as transportation and utilities—as well as those close to target markets for mineral products. For example, imagine you’ve discovered a large mineral deposit in Tibet and feel thrilled about it. But when exactly will you start seeing returns? What if you’d invested in Zhejiang instead? There, you’d have access to complete transportation and utility networks. It’s possible that smaller mines there could be developed more effectively and prove more valuable than the larger mines in the north. That’s precisely why some mining entrepreneurs from Xinjiang have been remarking: “The stones from Zhejiang are worth even more than gold from Xinjiang!” Indeed, Zhejiang enjoys a strategic geographic advantage—it’s located in the Yangtze River Delta, China’s most economically advanced region.

Third, in terms of timing for investment, we must guard against decision-making risks.

China’s mineral product market is essentially aligned with the international market and forms a unified global market. Fluctuations in mineral prices follow a cyclical pattern, typically occurring every decade or so. This current round of rising mineral prices began in 2003 and has now lasted roughly five years. It can be said that prices have reached a peak. Since this year, prices of some mineral products have already started to decline. So, how should we make sense of this situation?

I believe that during the phase when mineral prices are falling, we should focus our investments on exploration rights—actively searching and prospecting. At this stage, costs are low; the goal isn't to buy mines but rather to find them. On the other hand, when it comes to mining resource development, we should aim to enter the market during periods of rising mineral prices—extracting the resources and selling them promptly at favorable prices, thus reaping substantial returns. In terms of timing our investments, it’s crucial to align with the broader cycles of fluctuating mineral prices both internationally and domestically.

Fourth, in the investment environment, we must guard against operational risks.

The “environment” referred to here primarily refers to the soft environment for investment. You should, as much as possible, choose regions with well-established supporting regulations and policies for mineral resources, a government that is trustworthy, high-quality service, and high work efficiency. Many business owners from Zhejiang who have ventured out have since returned—not because of issues with the hard infrastructure in other provinces, but rather due to problems with the soft environment. Zhejiang boasts a superior soft environment, whereas the soft environments in other regions are relatively inferior.

Fifth, in expanding investment, we must guard against financial risks.

The exploration and development of mineral resources, in general, involve large investments, long project cycles, and slow returns—this is one of their defining characteristics. Therefore, when expanding mining investments, it’s crucial to base your decisions on your own actual circumstances, act within your means, and avoid reckless expansion. If you run into various risks, your enterprise will easily run into trouble. Today, financial risks have already begun to affect real operating entities: insufficient capital and excessive borrowing have triggered a host of problems. Thus, when expanding investments, you must take precautions against these issues.

Sixth, in terms of technical management, we must prevent resource risks.

Do your utmost to select experts with extensive geological and mineral resource expertise and practical experience to join your company’s core management team, so that during the decision-making process, these experts can provide technical advice and ensure quality control for your company’s leaders. Resource exploration and extraction must strictly adhere to the objective laws of geological work and should never be guided by subjective will or fleeting enthusiasm.

Seventh, safety risks must be prevented during design and construction.

For a company—especially a coal mining enterprise engaged in underground operations—a single safety accident could be enough to drive the entire company into bankruptcy. That’s why it’s crucial to prevent safety issues.

Eighth, in terms of the ecology of mineral resources, we must prevent social risks.

We must pay attention to the concept of harmony between humans and nature, integrate mineral resource development and utilization with environmental protection, and strike a balance between the two. In recent years, Zhejiang has seen numerous enterprises shut down—or even go bankrupt and relocate—due to environmental concerns. The same holds true for mining enterprises: many have been forced to close precisely because of environmental issues. A large number of local residents have filed complaints and appeals, causing significant disruptions to their daily lives and livelihoods, which in turn has given rise to social problems. Therefore, in the ecological management of mineral resources, we must proactively guard against social risks.