Comparing Mineral Regimes: Licensing vs. Contracts

Countries with a well-developed legal system typically grant licenses through a legal framework that fully governs the rights and obligations of the state and the company. In such a licensing system, there is little room, if any, for negotiating key terms. On the other end of the spectrum, however, and particularly in countries with a less-developed legal framework, countries may grant mineral rights to companies through individually negotiated agreements that contain most, if not all, of the rights and obligations of the parties. In cases in which the government has less experience or negotiating power, the resulting deal can often be less favorable for host governments and the communities affected by the mining investment. Such mining contracts may even sit outside of the legal framework of the country altogether, so that no subsequent changes in legislation – whether fiscal, environmental or social— will apply to that mining deal. For this reason, among others, countries increasingly favor licensing regimes that limit the types of and extent to which terms can be negotiated.

In a report commissioned by the Bundesanstalt für Geowissenschaften und Rohstoffe (BGR) on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ), CCSI examined the different types of legal regimes governing mining projects in 18 countries to gain a better understanding of mining deals granted and negotiated under different minerals regimes. CCSI compared the provisions of 30 mining contracts from 13 countries, analyzed a selection of mining-related legislative texts from 18 countries, and surveyed the experiences of mining contract negotiations through dozens of interviews with experts, government officials, company representatives, and members of civil society organizations.

This report sets out some of the reasons for which some countries have adopted a licensing regime whereas other countries have opted to use mining contracts, as well as the advantages and disadvantages of each. For countries with a contractual mining regime, the report further examines the relationship between a country’s mining contracts and its legal regime, taking into account the trend towards more legislated terms that minerals regimes are taking. The report also analyzes the mining contract negotiation and implementation process and identifies potential opportunities for external experts to support resource rich, low income countries to better manage their mining investments from the planning and preparation for a contract negotiation or licensing round, to the implementation and monitoring of the mining investment.