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Part B: Mineral Rights - Part B-3: Large Scale Exploitation - 26. Large Scale Exploitation Licensing | 26.14 Transfer/Assignment of Rights

Transfer and assignment of rights refers to provisions that deal with whether a licence holder may hand over, sell, rent (either part or the whole) or in any way encumber/place a lien or mortgage on the licence for the benefit of another person or entity. Mining companies generally need the ability to transfer their licence rights either (1) conditionally, in the form of a mortgage or other form of security interest in order to obtain necessary financing, or (2) in whole or in part, in the event of a sale of assets to another company, or (3) in whole in the case of a merger into a new entity. Provisions in the mining law that facilitate transfers of and security interests in exploitation licences are significant components of an investment promotion strategy.

If the licence rights are not transferable (and even if they are transferable), then the investor may seek to achieve the same result as a transfer of the licence by transferring the ownership of the company that holds the licence – often indirectly through the sale of an offshore holding company that is the sole shareholder of the company that holds the licence. Accordingly, the drafters may wish to consider language that reaches indirect as well as direct transfers.

The key issue for the licensing authority with respect to transfers is to assure that the transferee possesses, or will possess at the time when the transfer becomes effective, the capability to conduct the mining operations pursuant to the large scale exploitation licence, in accordance with the applicable law and regulations. The law should also specify that the transferee must assume all of the obligations of the transferor under the licence, and also specify whether the transferor continues to be responsible under the licence after the transfer.

Provisions on the transfer of licence rights should deal with the consequences of securitization of these rights and the requirement for the transferee, in the event of default by the licence holder, to meet the same eligibility requirements as were applicable for original allocation of the licence, subject to the need to contemplate that financial institutions holding a mortgage (if possible under the mining law) or other form of security interest in the licence may meet the eligibility requirements either by substituting a qualified operator for a licence holder in default or by transferring the licence to an eligible and qualified mining company within a specified period of time. Such provisions should involve a procedure for the approval of a proposed mortgage or other negotiated lien at the time when it is entered into in order to enable financing of large scale exploitation projects.

The mining law should specifically require the registration of all mortgages or other liens on the books maintained by the mining cadastre service or licence registry in order for such conditional transfers to be enforceable against third parties, including the State.

Another form of transfer that may be contemplated by the mining law is a sublease (“amodiation” in French) pursuant to which a third party conducts operations under the exploitation licence and shares the benefits with the licence holder. Provisions approving such practices generally require proof of the eligibility of the sublessee as a condition for required administrative approval of the sublease, continuing responsibility of the licence holder for all obligations and potential liabilities under the licence, and registration of the approved sublease on the books of the mining cadastre or licence registry.

26.14. Example 1:

Article [_]

(1) No mining licence or any interest therein shall be transferred, assigned, encumbered or dealt with in any other way without the approval of the [Regulating Authority].

(2) In any application to the [Regulating Authority] for his approval under subsection (1), the applicant shall give such particulars concerning the proposed transferee, assignee, or other party concerned as would be required in an application for a mining licence.

(3) Subject to section [_] (requiring the negotiation with the Government of the terms and conditions of a diamond mining licence, including Government participation), the [Regulating Authority] shall grant approval to the transfer, assignment, encumbrance or other dealing with any mining licence or interest therein provided the transferee is not disqualified under any provision of this [Act][Code][Law] from holding a mining licence and the [Regulating Authority] is satisfied in accordance with section [_] (stating the grounds on which the [Regulating Authority] must be satisfied in order to grant a mining licence).

(4) For the purposes of this section, “interest” in a mining licence shall mean in the case of a holder who is a private company, a controlling interest in such holder.

(5) Any application for the issue, renewal, transfer or amendment of a licence to mine diamonds shall initiate a negotiating process, in good faith, between Government and the applicant covering all technical, financial and commercial aspects of the proposed project including Government participation.

(6) Should the negotiations not lead to agreement within six months or such extended period as the [Regulating Authority] may allow, the application shall fail.

(7) Upon successful conclusion of the negotiation under subsection (1), the [Regulating Authority] shall issue a licence reflecting the terms and conditions agreed.

Annotation

Drawn from Botswana’s mining law (1999), this provision provides for transfer but only with the approval of the Regulating Authority, which is based on a review by the Regulating Authority of the particulars concerning the transferee as would be required in an application for a mining licence. Except in the case of diamond mining, the Regulating Authority must approve the transfer if the transferee is not a disqualified person or entity and the Regulating Authority is satisfied as to all of the criteria for the grant of an initial mining licence.

In the case of the proposed transfer of a licence to mine diamonds, approval of the transfer is subject to the conclusion of a successful negotiating process between the transferee and the Government on issues such as technical, financial and commercial aspects related to the project, including Government participation. This provision protects Botswana’s privileged state participation interest in the diamond mining industry, which is a situation particular to that country.

Note that this provision explicitly applies to transfers of a controlling interest in the licence holder. The term “controlling interest” is not defined in this provision, but it is clear that the intent is to require disclosure of the transferees and approval of the transfer by the Regulating Authority in the case of offshore transfers of the shares of the licence holder (the situation described in the introduction to this section).

26.14. Example 2:

Article [_] Assignment and Transfer of Mineral Rights

Mineral rights may be assigned only upon the approval of the Government, except for an assignment to an affiliate of the holder of the mineral right. Any purported assignment in contravention of this section shall be null and void, and shall constitute a material violation of the [Law][Act][Code]. The death of an individual holder of a mineral right, or dissociation or termination of existence of any holder, shall result in the termination of the mineral right unless, within a reasonable period of time to be prescribed in the regulations, an assignment of those mineral rights is made to a person who is an eligible applicant.

Article [_] Assignment as Security

Mineral rights may be assigned to a creditor as security for an obligation or indebtedness, upon notice to the [Regulating Authority] and pursuant to the laws of [Country]. The holder’s right in any such mineral right thus assigned shall terminate upon any foreclosure thereof pursuant to judgement of a court having competent jurisdiction over the persons and the subject matter, or otherwise pursuant to the laws of [Country], provided that the judgement creditor or lien creditor shall have no right to conduct operations under any such mineral right unless, within one hundred and twenty (120) days after such foreclosure or other judgement in its favour, the judgement creditor or lien creditor either demonstrates the [Regulating Authority] that it is an eligible applicant for that mineral right under this [Law][Act][Code], in which case the [Regulating Authority] shall grant the judgement appropriate mineral right for its remaining term, or assigns that mineral right to another person that is an eligible applicant, in which case the [Regulating Authority] shall grant the mineral right to that person.

Article [_] Condition for Transfer

Where there is more than one Holder of Mineral Right, all the Holders thereof must agree to assignment or transfer of the Mineral Right.

Annotation

Drawn from Liberia’s mining law (2000), in this provision the Regulating Authority requires approval by the Government for all transfers of the licence, except transfers to an affiliate of the licence holder, which are allowed without approval of the Regulating Authority. In contrast to Botswana’s provision above, the provision in this example does not state the grounds for approval or denial of such transfers and in that sense does not provide any assurance of the approval of such transfers.

On the other hand, for transfers of security interests, the Liberian provision provides a very good example of the type of provision necessary to facilitate financing of a large scale exploitation project, as described in the Introduction to this Section 26.14. It allows for the creation of security interests in the mineral licence to secure debt; and only requires notice of such security interests to the Regulating Authority. If a security interest is enforced in accordance with the relevant statutory procedures governing security interests, the Liberian provision states that the Regulating Authority will transfer the licence to the judgment creditor if it is eligible to hold the licence. If the judgment creditor is not eligible to hold the mineral right, it may assign its rights to another person who is eligible, in which case the Regulating Authority will transfer the licence to that eligible person.

This provision does not go as far as the preceding Botswana provision in that it does not attempt to apply to indirect transfers of interests in the exploitation licence by transfers of share interests in the licence holder or in the offshore holding company that owns the latter.