1. Allocation of Mineral Exploration Rights Good Global Practices Gary McMahon, World Bank* MINEX CENTRAL ASIA-2014 Astana, Kazakhstan, April 1-2, 2014 This presentation is largely based on Dalton, Diana (Sofreco) (2013), “Kazakhstan: Legislation for Allocation of Mining Exploration Rights—Report 1: Allocation of exploration rights for mining in a sample of major global mining countries,” report undertaken for the Government of Kazakhstan.

2. Outline I.Main Issues on Licensing and Exploration II.Western Australia III.Chile IV.Conclusions 2

3. I. Main Issues on Licensing & Exploration 3

4. Exploration is the Heart of Mining Without exploration there is no long-term Decision to explore depends on many factors – Prices, actual and forecast – Prospective geology including availability of information – Economic environment of country, including infrastructure & labor skills – General government policy in mining sector & regulatory capacity – Exploration licensing system and the ability to discover, develop or transfer rights Without attractive/reasonable exploration licensing system, geology may not matter 4

5. Exploration in Eastern Europe and Central Asia Most FSU & Soviet Bloc countries have had very little exploration since early 1980s; living off ‘their laurels’ 2014 Fraser study on exploration attractiveness of 112 jurisdictions – Eastern FSU & SB: Kyrgyz Republic-112; Mongolia-101; Russia-91; Kazakhstan-87 – Western FSU & SB: Romania-86; Poland-59, Serbia-55, Bulgaria-49 Non-ferrous global exploration; FSU plus Mongolia minus Russia was 2% in 2013, same as DRC 14 Tier 1 discoveries (non-iron/coal) since 2000; none in FSU No Tier 2 discoveries in FSU minus Russia (2) since 2000 Projected investment of metal mining (includes conceptual, prefeasibility, feasibility, construction): Less than 1% in FSU minus Russia at end 2013 5

6. A Costly Business "Think of geologic risk here as the probability that a specific exploration or development project leads to an operating mine. It sometimes is said that it takes 500-1,000 grassroots exploration projects to identify 100 targets for advanced exploration, which in turn lead to 10 development projects, 1 of which becomes a profitable mine.” (R.J. Eggert, Colorado School of Mines) Role of Government in exploration often different in FSU countries than rest of the world Geological agencies like to think of themselves as exploration companies but budgets are much too small to be effective Expenditure on non-ferrous exploration of $18.5b in 2012 and 60 discoveries including quite small ones; $308m per discovery and doesn’t include the costs of moving to a bankable feasibility study Most exploration fails; let someone else pay for it 6

7. Basic Principles Security of Title (Tenure) Exclusivity First-come, First-Served Non-Discrimination Transferability Dispute Resolution Work Programs Access to Geological Information (National Security, Strategic Interests) Regulatory Practices Downstream Concerns (e.g. taxation, local content requirements, mining culture, physical security, political stability) 7

8. II. Western Australia 8

9. Western Australia, I US$ 1.9b of exploration in 2012; 975 operating mines; 7,000 exploration licenses; $47b of mineral sales 7.5% royalty on bulk minerals; 5% on concentrate; 2.5% on metals Capital gains of 50% Obtaining an exploration license – First a public hearing – Warden (like a judge) recommends – Minister then grants if positive – Must make good argument to overturn Warden – EL has all basic desirable characteristics Application for a license is made on line and registered Vast majority decided within 2 months Vast majority of work programs decided within one month Public can see all licenses that are granted on line 9

10. Western Australia, II Prospecting license (PL) – Maximum of 200 hectares (ha) – Can extract or disturb maximum of 500t of material – $4600 security for each PL – Application fee $270; rent $2/ha annually – Minimum annual spend is $40/ha but $140/ha year 8 on Exploration license (EL) – Maximum of 200 square kilometers (km2) – Can extract or disturb maximum of 1000t of material – $4600 security deposit for each EL – Rent $40/km2; minimum annual spend $230/km2 but $19000 in total, $46,000 in years 6& 7, & $93,000 in years 8+ – 5 years renewable once and then once for 2 years – Must surrender 40% after year 6 – Cannot transfer for one year 10

11. Western Australia, III Must provide all survey work to GoWA Must also get clearing permits, and land access Must consult & negotiate with indigenous peoples if relevant Note that environmental objections can be made during license hearing Must do minor rehabilitation; e.g. fill in any holes In WA all mining operations (not exploration) must have a financial surety but also setting up Mining Rehabilitation Fund that all operating mines pay into to be used for cleaning-up abandoned mines WA has a world class geological survey unit Western Australia Mineral and Energy Resource Institute established in 1995 11

12. III. Chile 12

13. Chile, I US$ 1.0b of exploration in 2012; 8000 operating mines, 20 by very large companies; projection of US$67b of investment by 2020; over 700,000 jobs in mining and mining supply sectors; $37.8b of GDP from sector in 2011 3% royalty; corporate income tax 20%; special mining tax <5% for medium- sized mines, 5-14% for large mines (earthquake) Capital gains of 15% Don’t need license for prospecting Obtaining an exploration license – Application made to local civil court; 90 days to respond – If has all necessary information, goes to Mines Bureau for technical assessment, another 60 days (to change to 32 days) – If positive report, court grants concession Public can see all licenses 13

14. Chile, II Exploration license (EL) – Maximum of 5000 hectares – Application fee increases/ha with size; e.g. $7000 for 2500 hectares – Annual fee of $2/ha – No minimum spend on work program Low costs of holding concessions might tie up land – 2 years renewable once – Must surrender 50% after year 2 EL has all basic desirable characteristics 14

15. Chile, III Must do minor rehabilitation or compensate land owner; e.g. fill in any holes If move to mining project, have EIA assessed by Environment Agency but also can have constitutional challenge as all citizens are guaranteed right to live in an unpolluted environment – Causing lots of problems and trying to harmonize these two assessments All mining operations (not exploration) must have a financial surety By 2016 will publish geological maps on 82% of country Strong record on developing mining supplier linkages New Innovation for Competitiveness Fund 15

16. IV. Conclusions 16

17. Conclusions If exploration is not reasonably attractive, a country’s mining future is limited For exploration to be reasonably attractive, it also means that policies for exploitation must be reasonably attractive Exploration is a costly business; let the professionals do it with other people’s money Most countries receiving lots of exploration follow the ten basic principles presented above We saw 2 successful examples, Western Australia and Chile, that have some significant variation There are many ways to encourage exploration so important to study success stories and pull out what fits your country situation 17