SOURCES OF MINERAL RIGHTS: PERMIT-BASED AND CONTRACT-BASED SYSTEMS

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment
(Apr 2011)
CHAPTER 11B
SOURCES OF MINERAL RIGHTS: PERMIT-BASED AND CONTRACT-BASED SYSTEMS
Adriano Trindade
Pinheiro Neto
Brasilia

ADRIANO TRINDADE is a senior associate of Pinheito Neto Advogados in Brasilia, Brazil. He is also a Lecturer of the Law School of the University of Brasilia and a researcher of the Natural Resources Law Group of that same University. Mr. Trindade is also a Lecturer of Administrative Law at the Institute of Graduate Studies of Brasilia - IESB. He graduated from the University of Brasilia and obtained his Masters degree with Distinction in Natural Resources Law and Policy from the Centre for Energy, Petroleum and Mineral Law and Policy at the University of Dundee, United Kingdom. Mr. Trindade is a member of the Legal Committee of The Brazilian Mining Association - IBRAM and has published articles and delivered conferences in Mining Law issues in Brazil and abroad. He has been several times referred to as a distinguished Mining Law practicioner in Brazil by Chambers & Partners and by Who's Who Legal guides.

Adriano Drummond Cançado Trindade¹

Countries where there is mining production do have a body of rules that lays down the terms, conditions, rights and obligations in connection with mining activities, such as exploration, development, extraction, processing and mine closure. To some extent, the rules pertaining to such activities will derive from a Mining Act, a Mining Law or a Mining Code. Nonetheless, specific instruments need to be put in place to attribute mineral rights to a given company, explorer or producer. In some jurisdictions, this instrument will take the form of an administrative act, an authorization or a concession; in other jurisdictions, a mining agreement will be required.

The purpose of this paper is to highlight basic conceptual differences between legal regimes where administrative acts are employed as instruments whereby mineral rights are attributed - the so-called permit-based system - as opposed to mining agreements. The consequences of one or another approach will be reviewed, so as to point out legal and practical implications of those approaches. The case of Brazil will then be reviewed in more detail, considering the context of proposed changes to the existing Mining Code and the attempt to bring about a new system of rules to deal with the Brazilian mining sector.

(i) Property over Mineral Resources

The first aspect to be considered in the review of instruments whereby mineral rights are granted or attributed is the ownership of mineral resources. In most countries nowadays, the State owns the mineral resources in the ground. There may be variations of such assertion, such as resources owned by the Crown, by the people or by the Nation. In all these cases, the mining licence or concession, and/or the mining agreement, will play a significant role, since it will not only represent the instrument whereby the State grants the right to mine, but also the actual governmental consent to a mining company

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explore and exploit a resource that belongs to the State, and perhaps to become the owner of produced minerals.

Given the strategic nature attached to mineral resources, and considering its nonrenewable nature, States may impose a series of conditions and requirements for the exploitation of their own mineral resources. States may limit the duration of the activity, require minimum technical and financial standards, impose restrictions on the cut off grade and on marketing of the product, inflict a mandatory joint venture or a national content - all such conditions deriving from the exercise of their sovereignty over resources.

On the other hand, in few cases where mineral resources may belong to the owner of the land, any governmental permit, if so required, would have the effect of allowing the performance of a certain economic activity. It would not have the same effect of allowing the exploration and exploitation of a State resource. Accordingly, such permit would be compared to governmental permits that may be required for businesses or industrial activities in general. In those jurisdictions where minerals belong to the owner of the land, one may only deal with the implications of a mining company using or exploiting a resource that belongs to the State, and ultimately becoming owner of the product of a State property, in those situations where mining is to be conducted in public lands.

As in most jurisdictions the mineral resources are public property or property of the State, this review made from the perspective of the public content of mineral resources.

(ii) Common Law and Civil Law Systems

The first hurdle in comparing different legal models whereby mineral rights are granted to mining companies is the nature of the set of rules that deal with rights in general granted by the State to private parties - regardless of the fact that such a party may or may not be a national from that country. Commentators have already pointed out the significant difference between the content of such rules and how they are applied, to the extent that Administrative Law - inasmuch as it governs the relationship between the State and private parties - should not be perceived in the same way in countries with common law and civil law traditions.²

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The differences between these two traditions, which permeate the legal systems of countries based on one or another legal system, are of utmost importance for Mining Law. Since mineral rights derive from State grants to mining companies in the form of permits or contracts, the exercise of such rights, the conditions and requirements will be intrinsically related to Administrative Law as conceived in a given country. Moreover, the extent to which a mineral right granted by the State interacts with the Mining Act, Mining Code or Mining Law will also have different implications in common law- and civil law-based legal systems.

For instance, common law does not admit that an agreement entered into between the State and a mining company takes precedence over or supersedes law, unless the provisions of such an agreement are passed into law through the Parliament. In the civil law system, there may be circumstances where specific provisions of such an agreement may supersede general law regardless of Parliament or Congressional approval, as long as the Constitution or legislation so allows such a phenomenon. This is not to say that laws are in general superseded by agreements entered into between the State and private parties, but rather that the law may provide for mechanisms whereby specific contractual provisions may represent exceptions to statutes applied on a general basis.³

So this initial distinction between the approaches of civil law and common law should not be neglected when reviewing the system of granting of mineral rights in a given country and the legal instruments whereby such rights are granted, as well as the implications thereof.

(iii) Mineral Rights granted through State Unilateral Acts

Many States - and particularly those of Latin America⁴ - have passed Mining Codes or Mining Laws that provide for a set of obligations and rights attributed to private parties which apply for and obtain mineral rights. These Codes of Laws will basically contain all characteristics attributed to mineral rights in general, with a set of rights and obligations that the titleholder - such as any other titleholder in that jurisdiction - must fulfill.

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Under this system, private parties that may be interested to obtaining mineral rights apply for such rights to the State. The instrument whereby such rights are attributed is a unilateral governmental act in the form of a concession or permit. This concession or permit will...