URANIUM EXPLORATION AND DEVELOPMENT LEGAL FRAMEWORK IN PERU

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development and Investment
(Apr 2009)
CHAPTER 11D
URANIUM EXPLORATION AND DEVELOPMENT LEGAL FRAMEWORK IN PERU
Jorge Gutiérrez
Deustua & Halperin Abogados
Lima, Peru

Jorge Gutierrez is partner of the Peruvian law firm Deustua & Halperin Abogados, and focuses his practice in mining, environmental, regulatory and foreign investment law. He heads the firm's mining law and environmental & natural resources law areas. Mr. Gutierrez has extensive experience as external counsel for multinational and domestic companies operating in Peru. Before joining Deustua & Halperin in early 2008, he was a member of the prestigious law firm Estudio Ferrero Abogados since 1995, becoming a partner of the firm in 2003. He has worked closely with management of some of the leading mining, metallurgical and oil & gas companies in Peru, providing legal advice, as well as decision making support in matters of his expertise. As legal consultant, he participated in special task force groups on strategic mining and environmental matters dealing with major projects frequently involving multi-million dollar transactions. Mr. Gutierrez advised companies in environmental law matters in a broad range of corporate affairs. He counseled clients in complex environmental matters including allocation and management of liabilities within the framework of privatization agreements of State-owned mining companies; structuring and implementing a social program to bring indigenous people back to their homeland as part of a mining project closure; negotiating social license agreements for mining projects with local communities; drafting environmental stipulations in infrastructure concession contracts with the Peruvian State, and so forth. He has also provided legal advice to oil companies in environmental matters related to both upstream and downstream operations, including environmental management of port facilities and submarine structures. He has successfully defended clients in administrative litigation at the National Council of Mining and the regulatory agency for mining and energy (OSINERGMIN). Mr. Gutierrez has consistently assisted clients in establishing constructive dialogue with governmental authorities. He has collaborated with the Peruvian government in the elaboration of several mining and environmental regulations such as the former Environmental and Natural Resources Code, the current General Law of the Environment, the laws on mine closure, environmental guaranty, and mining royalties, among others. Mr. Gutierrez obtained his law degree from the Law School of the Pontificia Universidad Católica del Perú, and has been professor of corporate environmental law at the Universidad de Lima Law School. He has published numerous legal articles in specialized journals, and leading newspapers in Lima. He is a frequent speaker in law conferences and seminars on matters of his specialty. He is a founder member of the Peruvian Environmental Law Society and Past-President of the Environmental Law Alliance Worldwide del Perú. He is also a member of the Lima Bar Association, the International Bar Association, the Rocky Mountain Mineral Law Foundation, the Association of Latin American Mining Lawyers, the National Institute of Mining, Oil and Energy Law, and the Environmental Affairs Committee of the National Society of Mining, Oil and Energy. The 2009 edition of the Chambers and Partners legal directory refers to Mr. Gutierrez as a notable practitioner in the field of environmental law, and a well-respected player in the market.

I Introduction

Mining activities related to radioactive substances, including exploration and development of uranium, were reserved for the Peruvian State in 1975.¹ In 1991, the Law on Investment Promotion in the Mining Sector eliminated this restriction and declared radioactive substances open to private mining activities.²

While there is no current production of uranium in Peru, geological potential for uranium mineralization in different areas of the territory has drawn the attention of some of the leading uranium companies in the world, who are conducting exploration in different parts or the country. The main occurrences of uranium under prospection are in the departments of Puno, Piura, Junín, Arequipa, Huánuco and Pasco. Uranium resources have been also found in at least thirty polymetallic mines.

With the exception of a few aspects, in general, the legal framework currently in force for uranium exploration and development in Peru is basically the same one that regulates conventional mining. For the most part, regulations particular to uranium mining are related to environmental, health and safety issues.

Under Peruvian legislation, mining activities are classified in different categories: large and medium scale mining, small scale and artisanal mining. This classification is based in the mining area extension and production capacity.³ While there are some common rules for all kind of mining activities, there are also important regulations specifically applicable to each one of the mentioned categories. This paper is referred to the legal framework applicable to large and medium scale mining as the uranium mineral is usually disseminated in vast extensions of land and involves removal of large portions of soil.

II Mineral ownership

According to the Peruvian Constitution, the General Law of Mining (GLM) and other applicable regulations⁴ all minerals, including uranium, are patrimony of the Nation. The Peruvian State has the authority to grant mining rights over uranium resources to

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private parties through the means of a mining concession. The concession holder acquires ownership over the uranium mineral once removed from its natural source.

III Mineral exploration, development and exploitation

In the mining industry, the term "development" is generally used to designate the operations involved in preparing a mine for ore extraction.⁵ In a broader sense, "development" is also used to refer to commercial production of mineral substances. The legal definition of development in the Peruvian law is consistent with the former notion.

The GLM⁶ defines development as the operations carried out to make possible the exploitation of minerals contained in an ore deposit. The GLM⁷ also defines exploration and exploitation. Exploration is defined as the activity aimed to demonstrate the dimensions, positioning, mineralogical characteristics, reserves and values of mineral deposits. Exploitation is equivalent to ore extraction. As per these legal definitions, development corresponds to the intermediate phase between exploration and exploitation:

Exploration - Development - Exploitation

3.1 Uranium exploration, development and exploitation rights

For the purpose of uranium exploration, development and exploitation, a mining concession for metallic substances is required.⁸

Mining concessions are granted by administrative decision of the Instituto Geológico, Minero y Metalúrgico -- INGEMMET,⁹ and confers the concession holder exclusive rights over mineral resources within the concession area.

Foreign investors can acquire mining concessions in the Peruvian territory following the standard application procedures. However, acquisition of concessions within fifty kilometers from international boundaries (frontier area) is restricted to foreign companies or individuals, who need a special permission from the Government, approved by a Supreme Decree.¹⁰

The following is a general description of the main characteristics of a mining concession:

3.1.1 Concession area

Mining concessions are granted over an ore body with unlimited depth within an area delimited by UTM coordinates. The minimum extension of a mining concession is 100 hectares¹¹ and the maximum is 1000 hectares. Extension of mining concessions in the sea can be from 100 to 10,000 hectares.

Granting concessions within urban areas is prohibited, and restricted in urban expansion areas.¹²¹³ Establishment of concessions within Protected Areas and archeological sites is restricted or prohibited depending on the particularities of the case and specific legal criteria.

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3.1.2 Maintenance fee

The concession holder is required to pay an annual Good Standing Fee (GSF) equivalent to US$ 3 per hectare.

3.1.3 Minimum production requirement

Mining concessions are subject to a minimum production requirement equivalent to one Unidad de Referencia Tributaria - UIT¹⁴ (approximately US$ 1100) per hectare per year.¹⁵ Minimum production must be obtained by the end of the tenth year counting from the granting of the concession. Infringement of this obligation is sanctioned with a penalty equivalent to 10% of the minimum production requirement. If minimum production is not met by the end of the fifteenth year, the concession will expire.¹⁶

3.1.4 Term

Mining concessions are granted for unlimited time, and are irrevocable as long as the titleholder complies with the legal obligations required to keep it in good standing.

The concession expires if GSF and/or penalty are not paid for two years. Default to attain minimum production requirement for two years produces the concession's expiration as well. Expiration must be declared by a formal decision of the INGEMMET.¹⁷

3.1.5 Transfer, lease and other agreements

Mining concessions are freely transferrable, and can be matter of contracts such as lease, mortgage, option, joint-venture and others. Peruvian legislation does not allow co-ownership of concessions.

IV Mineral beneficiation

In order to process uranium mineral, a beneficiation concession is required. The beneficiation concession confers to the title holder the right to treat ore in order to obtain valuable mineral elements by means of different processing techniques (crushing, milling, concentration, flotation, lixiviation, refining, smelting, etc.). This kind of...