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Part B: Mineral Rights - Part B-6: Beneficiation - Processing, Trade & Transport - 35. Beneficiation – Processing, Trade and Transport - 35.13 Incentives for Processing, Trade and Transportation of Development Minerals | 35.13(d) Royalty Exemption

Holders of licences for the exploitation of development minerals generally pay royalties in an amount of local currency per unit volume of the minerals extracted or sold. In some cases, the royalty could be paid by an Authorised Processing Facility or an Authorised Trader/Dealer.

The royalty paid to the government for minerals extracted is intended to compensate the nation for the appropriation of an asset that belongs to the nation. Importantly, part of the royalty payment should be paid or allocated to the local community situated closest to the mineral deposit and/or related processing plant, because it is the group most directly impacted by the activity of extracting and/or processing the minerals. These considerations should be kept in mind when designing any exemption from the obligation to pay royalties on development minerals, which should always be a partial exemption at most.

35.13(d) Example:

Article [_]

(1) For development minerals that are exported for sale, royalties shall be payable on the terms set forth in the section of this law on fiscal terms.

(2) For development minerals that are sold in the domestic market ([Country]) by the holders of exploitation licences for such minerals issued by the [Regulating Authority], the holder of the exploitation licence shall be exempted from one half of the national share of the applicable royalty calculated as set forth in the section of this law on fiscal terms. There shall be no exemption from the provincial/state or local community share(s) of the royalty payment obligation.

(3) For development minerals that are sold in the domestic market (within [Country]) by the holders of exploitation licences for such minerals issued by the [provincial/state regulating entity], the holder of the exploitation licence shall be exempted from all of the national share of the applicable royalty calculated as set forth in the section of this law on fiscal terms. There shall be no exemption from the provincial/state or local community share(s) of the royalty payment obligation.

(4) In the event that the exploitation licence holders referenced in paragraphs 2 and 3 above sell their mineral output to Authorised Trader/Dealers licenced by the national Regulatory Authority who export the development minerals, such Authorised Trader/Dealer licence holders shall pay the amount of the national share of the royalty payment that was not paid by the exploitation licence holder.

Annotation

The example in this case sets out three different levels of partial exemption from the royalty payment obligation. It is expected that all of these would apply to the holders off exploitation licences for development minerals.

The first level of exemption is zero for exported development minerals. If you exploit the nation’s mineral resources in order to ship them abroad for payment, you have to compensate the nation for the permanent loss of its non-renewable resources.

The second level of exemption is 50% of the national share of the royalty payment when the exploitation licence holder is licenced at the national level and sells into the domestic market. This assumes that the mining law distinguishes between that part of the royalty payment that is allocated to the central administration and that part that is allocated to the province/state or community where the exploitation takes place. Because the nation’s non-renewable resources are not permanently exiting the national territory, but are simply being transformed from a latent asset to a useful tangible asset with current economic value to the nation, the nation is benefiting from the exploitation and the nation’s share can be foregone in part.

The third level of exemption is 100% of the national share of the royalty payment, when the exploitation licence holder is licenced by the province/state and sells into the domestic market (as the holder is required to do). In this case, the development minerals are being exploited under provincial/state authority and are being sold for utilization locally. In this case, the nation essentially has no interest other than the well-being of the province/state as a part of the nation, so a total exoneration from the obligation to pay the national share of the royalty seems appropriate.

In all three cases, there is no exemption from the obligation to pay the local community’s share of the royalty.

Finally, if an exploitation licence holder sells to a nationally licenced Authorised Trader/Dealer in an ostensibly domestic sale, and therefore is exonerated from half or all of the national share of the royalty payment obligation, the Authorised Trader/Dealer must pay the amount of the national share of the royalty that was not paid by the exploitation licence holder if the Trader/Dealer exports the minerals.