The Implication of the New Integration in the Mineral Resources on the CBM/CMM in China


The foreign investors with interests in the CBM/CMM projects in China have to face the challenges from the new Notice on the Further Pushing the Integration of the Mineral Resources Development issued by the twelve authorities on September 28, 2009 (the Notice 2009). Though the integration was initiated since 2005, the goals set by the government has not been achieved, which bring the birth of the Notice 2009.

The Notice 2009 was drafted in order to realize the sustainable and healthy development of the resource industry. CBM/CMM plays an important role in the administration of the operating coal mines. There is no doubt that enhancing the safe production of the mines and ameliorating the ecological environment are the most concern for the administrators. In addition, the other basic purposes, such as optimizing the layout of the prospecting and development of the mineral resources (PDMR), scaling and concentration of PDMR and establishing the long lasting regime in PDMR, are also listed herein. Around 150 mine workers died in the accidents caused directly or indirectly by CMM by August 1 this year in accordance with the released information on SAWS website.

The integration scope covers 15 minerals (including coal) and the other minerals which are significant to the economic and social development. As an associated mineral, CBM/CMM will definitely fall into the scope of the integration or at least be affected heavily. In addition, the Notice 2009 also clarifies the integration scope from the perspective of exploration right which is not included in the past alike notices issued by the relevant authorities in this field. It further states that the following exploration areas will be integrated:



a. The areas having the conditions for the “major exploration” arranged in an unified and planned way;
b. The metallogenic provinces having many granted exploration rights and the layouts being obviously unreasonable;
c. The investment in the metallogenic provinces not satisfying the requirements of the exploration plan and being “holding without exploration” area;
d. Not compliance with the mine areas plan or not suitable to independently grant mining right;
e. Necessary to be integrated.

Some of the CBM fields invested by the foreign investors have the feature listed above, esp. the feature listed in above c. Those foreign investors have successfully obtained the exploration right license from the MLR. But the minimum follow-up fund is contributed for the exploration work in accordance with the requirement of the relevant laws, regulations and rules. The complex reasons for that include the lack of the commercial utilization environment in China, including but not limited to the lack of the infrastructure, unwillingness of the miner to extract CMM, no utilization product and less incentives from the government and the private investors. However, we also can find there exists some CBM investors to hold the exploration right for vend, which will bring more profit than the further exploration and mining. Facing the coming integration surf, those holders waiting for the transfer of the exploration right to the CBM zones in China may require taking actions as soon as possible, such as the risk analysis (esp. the local policies) and strategy adjustment in China.

The time frame for the integration set by the Notice 2009 is as the following:



– By the end of March 2010, the integration plan must be drafted and approved by the Provincial, municipal and autonomous region’s government and registered with the MLR;
– By the end of 2010, the integration must be completed in accordance with the approved integration plan. And the mineral resources administration regime must be established. The preliminary long-lasting regime on the mineral resources development needs to be set up;
– Beginning from 2011, the integration will be under the daily administration.

The entity that will acquire the integrated CBM zones will be those having strengths in capital, technology, management and social liability. The Notice 2009 also states that the integrating entity will be mainly from those located in the integrated areas or zones. The CBM exploration right holders, such as the foreign investors, need to open eyes on the coal mines or CBM zones surrounding or adjacent to theirs. In some cases, the integrating entity will be the one outside the integrated zones. The government also reserve the right to withdraw the mineral right (including the exploration right to CBM) granted to the foreign investors. The question is that how




to compensate those integrated CBM exploration right holders, esp. those foreign investors. The Notice 2009 is ambiguous on this. The experience in Shanxi province shows that the CBM holders have no bargain in the pricing, which will be a big risk. If foreign investor’s zone falls into the integration scope, we may anticipate that the government will treat foreign investors in a beneficial way in order to protect its reputation in the world. But we can not expect too much because the equal treatment to the domestic and international investors is the acceptable and popular way in China since the access to WTO in 2001.

The foreign investors may also have the opportunity to become the integrating entity with some approvals in coal/CBM industry. But the phenomenon like “holding without exploration” seems not allowed by the government. If the mining license is issued, the license holder must meet the requirements for the mining operation within 2 years. This will also affect those foreign investors who intend to produce CBM/CMM in China for commercial utilization.

The Notice 2009 clarify the mineral zones into exploration zones and mining zones, both of which are further divided into encouraged, restricted and forbidden zones. The exploration right assignment will be in the model of zoning. The thresholds for the exploration and mining will be lifted to a higher level, which will




forces those lagging behind entities out of the market. These will be uniformly applied to the domestic and international CBM investors. Furthermore, the Notice 2009 emphasizes that the mineral right should be granted in accordance with the plan and, generally speaking, there will be only one entity in one mining area. For the same mining area with grants of more than one exploration rights, those right holders must be integrated into one entity when they start the mining operation. For the foreign CBM investors, the first step is to make sure that their exploration zone will be defined as “one mining zone” and there are no other granted and conflicted exploration rights or mining rights. Otherwise, they can not escape from the destiny of integration organized by the local government in accordance with the Notice 2009. There is no doubt that the government has the decision right to define the “mining zone”, the standard of which has not been clear now.

We also notes that CBM is administered by the MLR, not like the coal by its local branches. How to handle these conflicts between CBM and coal administration will definitely be a challenge to the MLR and its branches. It is reported that a new CBM administration regime is in consideration. But how it will affect the current integration is unclear at this stage.


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