Minerals Legal Perspective | Personality Issues of Legal Due Diligence in Mining Mergers and Acquisitions
Published:
2022-09-27
1. what are mining mergers and acquisitions? Mining M & A refers to the merger and acquisition of mining projects under the premise that the acquirer or at least one of the target companies is a mining enterprise. Why should legal due diligence be conducted in 2. mining mergers and acquisitions? In the process of mergers and acquisitions, the acquirer and the acquired party's grasp of the target company's information is asymmetric. From the perspective of the acquirer, in order to reduce the legal risks caused by information asymmetry, conduct legal due diligence on the target company, understand all the information of the target company as much as possible, fully understand the basic situation of the target company, find possible legal risks, and propose solutions to related risks; as for mineral mergers and acquisitions, the personality problem of legal due diligence lies in the need to confirm the legality and risk controllability of the circulation of mining rights, the circulation process of mineral enterprises is often very complicated and there are many unknown inside stories, including but not limited to holding on behalf of others, doubtful consideration, third-party interests such as collectives, non-payment of resource prices, administrative penalties brought about by cross-border and barbaric mining, and so on. These will bring unpredictable obstacles to the realization of value through mineral rights. For the acquired party, by conducting due diligence on the acquirer, it is verified whether the assignee of the mining right meets the requirements of the applicant for the prospecting right or the applicant for the mining right as stipulated in the Measures for the Administration of the Registration of Mineral Resources Exploration Blocks or the Measures for the Administration of the Registration of Mineral Resources Mining. At the same time, we can also know as much as possible about the buying strength and sincerity of the acquirer, and estimate the probability of a successful transaction. Main Contents of Legal Due Diligence in 3. Mining Mergers and Acquisitions 1, the legality of the acquisition and disposal of mining rights. (1) Method of acquisition. The acquisition method includes the transfer method and the transfer method, of which the transfer method is mainly bidding, auction, listing, application in advance, agreement, etc. In the process of due diligence, the mining rights obtained in different ways need to pay attention to different problems. If the mining right is acquired by auction or listing, it is necessary to pay attention to whether the transaction price is directly linked to the transfer period of the mining right. If the transfer method is adopted, it is necessary to pay attention to whether the mining certificate meets the transfer conditions stipulated in Articles 3, 5 and 6 of the "Administrative Measures for the Transfer of Prospecting Rights and Mining Rights. It is important to note whether the mining rights transfer contract has been approved by the mining rights approval and registration authority at or above the provincial level (including the provincial level). (2) Evaluate the reasonableness of the parameters. Specifically, it includes the validity period of the mining right and the exploration stage specified in the exploration license. The number and continuation stage of the exploration right, and whether there is the possibility that the area of the exploration block will be reduced when the next application for renewal is made; Whether the mining right is included in the integration plan and scope by the government, and whether the mining right may not be renewed after the transaction is completed; Whether the mining right passed the annual inspection of the previous year. (3) Whether the owner of the mineral right has paid the price of the prospecting right or the mining right. (4) Whether there are rights restrictions on the mining rights of the target enterprise. Whether the mining right holder leases or mortgages the mining right to the outside world, and whether he cooperates with a third party in prospecting or mining. (5) Whether the actual mined minerals are consistent with the registered minerals. China has a registration system for mining species, and if the main mineral species changes, it is necessary to register the change, otherwise mining beyond the provisions of the license (except for symbiotic and associated minerals) may constitute the crime of illegal mining. 2, the authenticity of mineral resources reserves. (1) Go to the land department to inquire about the reserve record certificate. (2) Entrust the Reserve Assessment Center or professional consulting agency to conduct review and verification, and make comprehensive judgments on the geological structure and causes of mineralization. Generally speaking, legal due diligence only needs to check the reserve record certificate of the land department, but if the project is significant and the mining area resources directly affect the production and operation of the acquirer, it is the key factor to decide whether the acquirer will carry out the merger or not, so it is necessary to review and verify the mining area resources and analyze the feasibility and investment value of the project. 3. Legal compliance of land use According to the "Land Management Law", "Mineral Resources Law", "Mineral Resources Law Implementation Rules" and other laws and regulations, the land use right of the ground shall be obtained in accordance with the law before obtaining the prospecting right or mining right for exploration or mining. According to the provisions of the the People's Republic of China National Standard Land Use Status Classification (GB/T 21010-2007), mining land belongs to the second-class land, which belongs to the first-class industrial and mining storage land together with industrial land and storage land, specifically refers to mining, quarrying, sand (sand) field, salt field, brick kiln and other ground production land and tailings stacking land. Therefore, the definition of mining land in China mainly includes ground production land and tailings stacking land. Mining land belongs to the category of construction land. In the process of legal due diligence, it is necessary to review whether the target company conducts review and approval in accordance with the procedures for obtaining construction land. If the target company does not use the land in accordance with the regulations, there is a deadline for demolition of buildings and restoration of the land The risk of being fined will affect the normal production and operation of the enterprise. 4. Safety production situation in mining area (1) Check the safety production license of the target company, including but not limited to the authenticity and validity of the safety production license, whether it has been revoked or detained. (2) Whether the target enterprise is ordered to make safety rectification within a time limit according to law, and if so, whether the rectification is completed. (3) Whether the person in charge of minerals of the target company has obtained the certificate of safety production qualification, and whether the staff of special types of work hold the certificate. 5. Ecological and environmental protection issues Review whether the target company's "Environmental Impact Assessment Report (Form)" has passed the approval of the competent department of ecological environment, and whether the relevant personnel of the target company have been subject to administrative sanctions by the competent department of ecological environment. Check whether the target company has received administrative punishment for environmental protection substandard in the process of production and operation and whether it has made corrections. Go to the natural resources, forestry and other relevant departments to check whether the scope of mining rights is in the areas where mining is prohibited, such as nature reserves, scenic spots, national parks, ecological red lines, and so on. If all the mining rights are in the protected areas, there will be legal risks that they will not be able to be renewed. 6. Understand the industrial policy of the mineral location The Circular of the Ministry of Land and Resources on improving the Administration of examination, approval and Registration of Mineral Resources Mining stipulates that if the mining right is closed and announced by the people's government at or above the county level due to ecological protection, production safety, public interest, industrial policies, etc., the competent department of land and resources at the same level shall notify the original registration authority by letter. According to the regulation, the government has the right to decide to close the mining right if it is not in line with the industrial policy. Therefore, during the legal due diligence, we should have an understanding of the industrial policy of the mineral location to avoid legal risks arising from non-compliance with the industrial policy. 4. Summary In mining mergers and acquisitions, in addition to the above-mentioned individual issues, lawyers should also review the common issues of the target company during the legal due diligence process, including but not limited to the establishment and survival, subject qualification, shareholder qualification and equity structure, corporate governance structure, whether the merger and acquisition has been approved and authorized, major contracts, external claims and debts, litigation and administrative penalties, labor and employment, etc.
1. what are mining mergers and acquisitions?
Mining M & A refers to the merger and acquisition of mining projects under the premise that the acquirer or at least one of the target companies is a mining enterprise.
Why should legal due diligence be conducted in 2. mining mergers and acquisitions?
In the process of mergers and acquisitions, the acquirer and the acquired party's grasp of the target company's information is asymmetric. From the perspective of the acquirer, in order to reduce the legal risks caused by information asymmetry, conduct legal due diligence on the target company, understand all the information of the target company as much as possible, fully understand the basic situation of the target company, find possible legal risks, and propose solutions to related risks; as for mineral mergers and acquisitions, the personality problem of legal due diligence lies in the need to confirm the legality and risk controllability of the circulation of mining rights, the circulation process of mineral enterprises is often very complicated and there are many unknown inside stories, including but not limited to holding on behalf of others, doubtful consideration, third-party interests such as collectives, non-payment of resource prices, administrative penalties brought about by cross-border and barbaric mining, and so on. These will bring unpredictable obstacles to the realization of value through mineral rights.
For the acquired party, by conducting due diligence on the acquirer, it is verified whether the assignee of the mining right meets the requirements of the applicant for the prospecting right or the applicant for the mining right as stipulated in the Measures for the Administration of the Registration of Mineral Resources Exploration Blocks or the Measures for the Administration of the Registration of Mineral Resources Mining. At the same time, we can also know as much as possible about the buying strength and sincerity of the acquirer, and estimate the probability of a successful transaction.
Main Contents of Legal Due Diligence in 3. Mining Mergers and Acquisitions
1, the legality of the acquisition and disposal of mining rights.
(1) Method of acquisition. The acquisition method includes the transfer method and the transfer method, of which the transfer method is mainly bidding, auction, listing, application in advance, agreement, etc. In the process of due diligence, the mining rights obtained in different ways need to pay attention to different problems. If the mining right is acquired by auction or listing, it is necessary to pay attention to whether the transaction price is directly linked to the transfer period of the mining right. If the transfer method is adopted, it is necessary to pay attention to whether the mining certificate meets the transfer conditions stipulated in Articles 3, 5 and 6 of the "Administrative Measures for the Transfer of Prospecting Rights and Mining Rights. It is important to note whether the mining rights transfer contract has been approved by the mining rights approval and registration authority at or above the provincial level (including the provincial level).
(2) Evaluate the reasonableness of the parameters. Specifically, it includes the validity period of the mining right and the exploration stage specified in the exploration license. The number and continuation stage of the exploration right, and whether there is the possibility that the area of the exploration block will be reduced when the next application for renewal is made; Whether the mining right is included in the integration plan and scope by the government, and whether the mining right may not be renewed after the transaction is completed; Whether the mining right passed the annual inspection of the previous year.
(3) Whether the owner of the mineral right has paid the price of the prospecting right or the mining right.
(4) Whether there are rights restrictions on the mining rights of the target enterprise. Whether the mining right holder leases or mortgages the mining right to the outside world, and whether he cooperates with a third party in prospecting or mining.
(5) Whether the actual mined minerals are consistent with the registered minerals. China has a registration system for mining species, and if the main mineral species changes, it is necessary to register the change, otherwise mining beyond the provisions of the license (except for symbiotic and associated minerals) may constitute the crime of illegal mining.
2, the authenticity of mineral resources reserves.
(1) Go to the land department to inquire about the reserve record certificate.
(2) Entrust the Reserve Assessment Center or professional consulting agency to conduct review and verification, and make comprehensive judgments on the geological structure and causes of mineralization.
Generally speaking, legal due diligence only needs to check the reserve record certificate of the land department, but if the project is significant and the mining area resources directly affect the production and operation of the acquirer, it is the key factor to decide whether the acquirer will carry out the merger or not, so it is necessary to review and verify the mining area resources and analyze the feasibility and investment value of the project.
3. Legal compliance of land use
According to the "Land Management Law", "Mineral Resources Law", "Mineral Resources Law Implementation Rules" and other laws and regulations, the land use right of the ground shall be obtained in accordance with the law before obtaining the prospecting right or mining right for exploration or mining. According to the provisions of the the People's Republic of China National Standard Land Use Status Classification (GB/T 21010-2007), mining land belongs to the second-class land, which belongs to the first-class industrial and mining storage land together with industrial land and storage land, specifically refers to mining, quarrying, sand (sand) field, salt field, brick kiln and other ground production land and tailings stacking land. Therefore, the definition of mining land in China mainly includes ground production land and tailings stacking land.
Mining land belongs to the category of construction land. In the process of legal due diligence, it is necessary to review whether the target company conducts review and approval in accordance with the procedures for obtaining construction land. If the target company does not use the land in accordance with the regulations, there is a deadline for demolition of buildings and restoration of the land The risk of being fined will affect the normal production and operation of the enterprise.
4. Safety production situation in mining area
(1) Check the safety production license of the target company, including but not limited to the authenticity and validity of the safety production license, whether it has been revoked or detained.
(2) Whether the target enterprise is ordered to make safety rectification within a time limit according to law, and if so, whether the rectification is completed.
(3) Whether the person in charge of minerals of the target company has obtained the certificate of safety production qualification, and whether the staff of special types of work hold the certificate.
5. Ecological and environmental protection issues
Review whether the target company's "Environmental Impact Assessment Report (Form)" has passed the approval of the competent department of ecological environment, and whether the relevant personnel of the target company have been subject to administrative sanctions by the competent department of ecological environment. Check whether the target company has received administrative punishment for environmental protection substandard in the process of production and operation and whether it has made corrections.
Go to the natural resources, forestry and other relevant departments to check whether the scope of mining rights is in the areas where mining is prohibited, such as nature reserves, scenic spots, national parks, ecological red lines, and so on. If all the mining rights are in the protected areas, there will be legal risks that they will not be able to be renewed.
6. Understand the industrial policy of the mineral location
The Circular of the Ministry of Land and Resources on improving the Administration of examination, approval and Registration of Mineral Resources Mining stipulates that if the mining right is closed and announced by the people's government at or above the county level due to ecological protection, production safety, public interest, industrial policies, etc., the competent department of land and resources at the same level shall notify the original registration authority by letter. According to the regulation, the government has the right to decide to close the mining right if it is not in line with the industrial policy. Therefore, during the legal due diligence, we should have an understanding of the industrial policy of the mineral location to avoid legal risks arising from non-compliance with the industrial policy.
In mining mergers and acquisitions, in addition to the above-mentioned individual issues, lawyers should also review the common issues of the target company during the legal due diligence process, including but not limited to the establishment and survival, subject qualification, shareholder qualification and equity structure, corporate governance structure, whether the merger and acquisition has been approved and authorized, major contracts, external claims and debts, litigation and administrative penalties, labor and employment, etc.
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