Mining Cadastre & Licensing


5. Key issues for governments

Legal framework

The legal basis for management of a country’s mineral resources are typically split by three levels:

1. General principles are established in a country’s constitution;

2. Sectorial rules are prescribed in a specific law approved by parliament. Typically, this includes details of the state’s role, security of title, freedom to operate on a commercial basis, access to mineral resources, comprehensive social and environmental protection requirements, and competitive (attractive for investments) fiscal terms. From a licensing point of view, the essential items to be detailed and prescribed in the law are as follows:

  • Institutional definitions;

  • That mineral rights (licences and leases) are exclusive;

  • That licence granting is based on the principle "first come, first served" as a standard method. In some exceptional cases, tender bids are applied;

  • The criteria to evaluate applications are objective and non-discretionary;

  • Security of tenure, especially in the transition from exploration to mining; and

  • Geometric and cartographic rules for the delimitation and positioning of the mineral rights.

 

3. Other provisions, such as those that may need periodic adjustments (technical requirements, administrative procedures, and administrative fees), are set in regulations or decrees.

Security of tenure

Security of tenure is defined as the legal protection afforded to tenants, reinforcing the the legal right to continue living in or using a building, land, etc. that is rented from the owner: the legal right to continue living in or using a building, land, etc. that is rented from the ownerlegal right to continue using a rented or leased right or property. This security, required in any type of property, is especially sensible and important in mineral rights because investments in mining are typically risky (as a guide, approximately only one out of every 100 exploration projects is successful).

In most countries, mineral rights are divided into exploration licences and mining leases. Exploration licences give holders the right to explore and evaluate the economic exploitation of any mineral resource that potentially exist within the granted area. If an economic resource is confirmed, access normally requires that the exploration licence be converted into a mining licence. It is during this transition from one stage to the next that important risks may arise. Addressing security of tenure is essential because it is difficult to attract investments for mineral exploration if there is a risk that the discoverer of ore deposits will not receive exploitation rights and will thus not recover his or her capital investment. For this reason, one of the fundamental priorities for investors is to be guaranteed access to exploit any discovered minerals (“discoverer rights”). This is normally provided through the following principles which should be clearly established in the legal and regulatory framework:

  • The titleholder of an exploration license has the exclusive right to apply for a mining lease in the perimeter delineated by the exploration licence; and

  • The titleholder of a mineral right has exclusive rights to any mineral discovered inside the licence area.

In some countries, holders can apply for (and be granted) overlapping exploration licences, with each licence valid for a different mineral substance or a group of substances. In other words, the titleholder’s rights are non-exclusive; a license to the same piece of land can be granted several times, just for different mineral types.

The rationale for this practice is to promote simultaneous exploration for different types of minerals. In practice, it can present serious difficulties, because two or more minerals are frequently present in the same deposit or hosted in the same rock, making separate exploitation impossible.

For this reason, in countries where an overlap is allowed in exploration licences, it is normally prohibited for mining licences. Only the first holder (from among several overlapped licences) asking for the transformation of a licence from exploration to mining has the right to be granted a mining licence. This implies important risks for the titleholders of such overlapping leases, because the basic principles of discoverer rights are not respected, thus affecting the security of tenure.

In addition, from a technical point of view, there is little consensus that overlapping licences for different mineral types actually encourage diversified and wider exploration. Modern exploration techniques based on multi-elemental geochemistry, geophysics, and drilling are able to detect many types of ore. However, these are expensive and cannot be applied if the holder does not have a guarantee of access to exploitation rights. Consequently, practical experience demonstrates that the real effects of granting non-exclusive licences are contrary to its aims, and allowing overlaps may actually generate conflicts between holders and discourage investments.

Exploitation/mining rights should be given for a sufficiently long period of time and should be able to be renewed until termination of economic reserves of mineral. In general, mining rights are granted for periods of up to 25–50 years and are usually renewable one or several times. The termination of a mining right at the end of an arbitrary period may have unintended negative consequences, discouraging reinvestment and forcing mine closure even when a deposit can still be economically exploited. For this reason, some countries do not have terms for mining rights; they last for as long as the holder continues to comply with the applicable maintenance requirements.

Some governments take steps to reinforce security of tenure, with a view to increasing sector attractiveness for investors. This can be achieved by:

  • Allowing titleholders to automatically renew exploration licences, so long as the titleholder has fulfilled stipulated objectives;

  • Allowing titleholders who fulfil their responsibilities during exploration phase in a particular exploration licence to be granted automatic rights to the mining lease in the same area; and

  • Some countries provide greater security for holders by granting a single licence for both exploration and exploitation, which avoids the transformation procedure from the exploration licence to the mining licence and absolutely guarantees the rights of the discoverer. However, it should be highlighted that such automatic transition still does not confer the right to start mining operations without approval of exploitation and related environmental and social plans.

Institutional framework: organisational position of the cadastre.

One of the basic principles applied in the reform of the mining sector in countries that have succeeded in attracting investment in the two last decades has been to have strong institutional organisation. A key factor is the need to have institutional separation between the administrative responsibilities for granting mineral licenses, the control of mining activity, and the generation of geological infrastructure. Each of these activities are complementary functions for management of the mining sector, but practical experience shows that the system is more efficient and the risk lower for the investor if they are responsibilities of separate entities.

To address these challenges, different governments around the world have adopted a variety of different organisational solutions to administer mineral rights cadastres. Some examples are as follows:

  • In some countries, the cadastre agency is an independent department inside the ministry or the state institution responsible for the mining sector. In other countries, the cadastre is an agency external to the ministry but reports directly to the minister. In each of these cases, the granting regime is defined as “administrative.”

In other countries, the desire to ensure maximum institutional transparency and to avoid the concentration of decision-making power inside a single ministry has led to a split in cadastral management between two different ministries. For example, procedures for the granting of mineral rights could be developed and overseen by both the Ministries of Mines and Justice. Such regimes are defined as “adjudicative.”

However, the effectiveness of a cadastre depends less on following predefined organisational models, but on there being respect for the institutional separation between the administrative functions. Regardless of the type of organisational model adopted, it is important to ensure there is a clear and effective structure so that each institution’s role and responsibilities are clearly defined.

It is also difficult to recommend one organisational structure over the other. Each has produced excellent results in some countries while encountering difficulties in others. An operational solution that has been successful in one country will not necessarily work so well in another context, and will need to be adapted to the characteristics of that particular country to guarantee effectiveness.

Generally speaking, however, the more commonly adopted scheme is integrated by separate administrative units as follows (see Figure on next page):

  • The of ministry charged with responsibility for mining, acts as the political head of the sector and is responsible for mining policy and definition of laws and regulations, coordination with other ministries, supervision of the agencies responsible for implementing policy and compliance with regulations, compilation of statistical data and promotion of mining activities and investment opportunities.

  • The Mineral Rights Cadastre receives applications and issues and administers mineral rights.

  • The Geological Survey develops and maintains reliable national earth science infrastructure, including geological maps and related databases.

The Directorate of Mines monitors mining operations and ensures compliance with laws, regulations, and procedures related mostly to environmental, social, health, and safety issues.

 

 

The importance of the mining cadastre varies from one country to another, depending on organisational structure of the government’s mining industry. However, some basic prerequisites must be considered:

  • To guarantee coordination between the cadastral activity and the other agencies focused on geological infrastructure, control and inspectorate or environmental monitoring, the cadastre should be linked to the ministry that is responsible for the management of the mining sector;

  • To avoid technical interference and unnecessary operational interactions, the cadastre should be hierarchically independent from the Geological Survey and mining inspectorate or environmental monitoring agencies, regardless of the need for coordination. All agencies responsible for the management of the mining sector should have complementary and well-differentiated functions. They should be coordinated or linked with the same ministry, while still maintaining their operational autonomy; and

  • To guarantee objectivity, transparency, equity, and fairness in decisions affecting the granting of mineral rights, the cadastre should be independent from any state entity authorised to hold, explore, develop, operate, or dispose of mining properties, in order to avoid any conflict of interest.

International experience shows that whatever type of organisational model is adopted, it is important to ensure that, independent of hierarchic levels and the names for each unit, there is a clear and effectively structured organisation where the respective functions and responsibilities are clearly defined in order to restrict undesirable manoeuvres and corruption.

Mandates and functions.

As the agency responsible for the administration of mineral rights, the mineral rights cadastre shall be responsible for:

  • Acting as a liaison between the state and the holders or applicants on any question related to mineral rights;

  • Receiving applications for new licences, as well as requests for renewal, extension, reduction, transfer, and abandonment, and initiating procedures for the revocation, cancellation, or expiration of licences.

  • Chronologically recording new applications in an official registry.

  • Evaluating applications and making decisions to grant or refuse.

  • Producing updated cadastral maps on which existing minerals rights, pending applications, and areas restricted for mining activities are correctly plotted

  • Verifying that licences do not overlap

  • Keeping cadastral maps and registries open and accessible for public consultation

  • Acting as a technical referee in the event of dissension between holders about the location of areas granted.

  • Organisation and execution of tender bids for granting, when required.

  • Collecting administrative fees and annual rental fees.

Consistent with these functions and duties, the mineral rights cadastre should not:

  • Take care of geological and metallogenic information.

  • Develop control activities related to the technical aspects of exploitation, ore processing or production.

  • Monitor health, safety or environmental impacts.

  • Be responsible for setting and collecting royalty payments.

  • Evaluate technical, production or environmental reports.

Interaction between mineral rights and land property: the relationship between mineral rights cadastre and other cadastres

In addition to the mineral rights cadastre, the majority of countries normally have other cadastres managing different types of land-use. These include hydrocarbons rights (oil and gas), land cadastre, and forestry concessions cadastres. In many countries, there is not necessarily clarity as to how different cadastre types should be interacting with one another.  

From a government perspective, it is generally advisable that different cadastres exchange information. This allows for complete and multi-sectorial information on  land-use, and facilitates the process of land-use planning. However, data and information exchange should not interfere in the functioning of each cadastre. In the majority of the countries in the world:

  • Mineral, oil and gas rights are independent from surface or land ownership rights. This necessarily implies that the mineral rights cadastre does not consider land-use and land ownership as preconditions for the granting of mineral rights. Clearly, access to land for exploration or mining activities will not take place without consent of the landowner, but such consent relates only to access, not to the actual granting of the right.

  • Normally, a similar arrangement is put in place with licences for solid mineral and fluid hydrocarbons. In most countries, solid hydrocarbons such as coal or bitumen schist are regulated under mineral legislation, because the exploitation techniques for these products are similar to those of other minerals. On the other hand, non-solid hydrocarbons (oil and gas) are generally regulated under a separate regime, with different rules for the granting of rights. As a result, oil and gas are normally excluded from the mineral rights cadastre, and both types of licences can overlap without any great issue.  

  • In some instances, countries adopt an institutional organisation where a single directorate hosts both minerals and hydrocarbons cadastres. The two organisations work as separate units and follow different rules. However, they share common infrastructure such as topographic and geodetic information, GPS field equipment, an administrative database and GIS tools.

Conceptual and operational principles.

The mineral rights cadastre must focus on protecting and guaranteeing the rights of both the state and the titleholders, for example, facilitating an understanding of tax units due for the state and ensuring security of ownership to titleholders. To achieve this balance, a well-functioning cadastre should include the following:

1. Adequate procedures

The conceptual basis for licensing and operational principles should be properly applied and implemented through explicit, simple, fast and direct procedures, clearly prescribing the detailed requirements and preconditions for obtaining, maintaining, and terminating mineral rights. The procedures must determine the maximum deadlines in order to avoid unnecessary and unlimited waiting periods. These conditions must be fulfilled for “first come, first served” licensing processes, as well as auctions.

2. Transparency

Transparency in cadastral management should be ensured for both cadastral procedures and information. To guarantee transparency, the legal and regulatory texts must provide guaranties and prescriptions for:

  • Any holder, applicant, or public in general must be able to access information about the requirements and eligibility conditions of applying for mineral rights and the criteria to maintain the validity of granted licences.

  • Applications for new mineral rights must be registered in a specific registry book, with the exact date, hour, and minute of application. This should be signed by the applicant and the cadastre agent.

 

  • Cadastral procedures must be clear about minimum required conditions for an application to be accepted (receivability) and registered.

  • Deadlines for specific timeframes within which applicants, titleholders, and cadastre agents are required to take certain actions or make certain decisions, for example, a maximum duration of granting procedures, maximum time before expiration when a holder can apply for the renewal of a licence.

  • Requirements for written notifications regarding any decision affecting applications or existing grants of mineral rights, followed by a hearing opportunity (including administrative or judicial procedures, if appropriate) before any significant action affecting solicited or acquired rights is taken.

  • To guarantee the transparency of cadastral information, the mineral rights cadastre office should be open for consultation and the cadastral maps and registries (at least the part considered “public”) should be accessible to applicants and license holders. Figure 4, as example, show the Mozambique cadastre office.


 

  

As a minimum, the following types of information should be made available to the public:

  • The cartographic position of granted mineral rights as well as any pending applications;

  • The cartographic position of areas where mining activity is restricted or prohibited;

  • The registry book for verification of licence applications, sequence, and chronology; and

  • Relevant cadastral information about any granted or applied mineral rights, (application date, name of the applicant, applied-for or granted mineral substances, and expiration date).

It is not possible to establish and effectively manage a mineral rights cadastre without transparency. Furthermore, international experience shows that a lack of transparency leads to corruption. During the last few years, many countries have taken advantage of available technology to disseminate cadastral information through the internet on public websites. This practice helps ensure that all potentially marketable data is freely accessible. This helps to eliminate potential black markets for “confidential” information. The more accessible the information is to the public, fewer channels of corruption will remain open.

No subjectivity in evaluation criteria

This principle implies the removal or minimisation of subjective evaluation criteria as preconditions for granting mineral rights. In practical terms, it means that all the criteria and parameters to be considered and evaluated for granting a licence must be objective and not subject to interpretation. This avoids the risk of discretion that would arise every time a rule or procedure needs interpretation—and prevents the application of different interpretations to different applicants or holders.

While this principle is easy to state, it is not easy to apply in some cases. For instance, it can be relatively simple to predefine the eligibility conditions required to apply for a mineral right, something that could be established without ambiguity and based on simple and objective criteria. Something similar happens with the cartographic and geometric criteria, strictly technical—for example, verifying that a licence does not overlap with others before granting the application, based on the use of mapping techniques—then the related decisions are simple and can be 100% objective. Unfortunately, things are not always so simple. For example, in many countries, a fixed precondition for granting a license is that applicants must demonstrate their financial capacity or the availability of an adequate exploration and/ or exploitation plan. Such preconditions are well intentioned, but it is very difficult to evaluate such capacity objectively.

Nondiscretionary decisions

Licensing procedures and methodology must apply identical criteria and grant the same conditions to any applicant, independent of nationality and company size, if they correctly fulfil eligibility conditions. This is particularly important in “contractual regimes”. These used to be very common, and still exist in some countries. In these cases, the conditions for granting mineral licences are variable and negotiable, and essential parameters such as the duration of validity or the value of rental fees differs from one licence to another. In general it is advisable to avoid case-by-case negotiations that are discretional, lack transparency, and can be a source of corruption. Avoiding discretionary decision making can be achieved by predetermining the legal and regulatory framework and the standardised conditions for the granting of mineral licenses (duration, size, geometry, fees, conditions for renewal, and so on). Based on these legal provisions, the mineral rights cadastre should ensure that standard principles are applied to any type of applicant and holder.

 

Different alternatives for granting mineral rights.

1. Differentiation between “property rights” and “activity authorisations”

Countries that have been successful in reforming their mining sector over the past two decades (measured in terms of investment attractiveness) are those where the management of mineral rights is liberalised and conditions normally applied to other types of real-estate properties have been implemented. By comparison, such separation is obvious for other types of properties. For instance, ownership of a piece of land does not imply the automatic right to build a new building without the specific authorisation from the local municipality, while at the same time, maintaining ownership of the land does not require any special actions or demonstration of capacities, other than the ability to pay any required tax or mortgage or rental fees. Such differentiation also implies an institutional division between the management of property and the activity. For example, land ownership may be registered in the land cadastre, but authorisation for buildings is normally granted by another authority. Other consequences of the restrictions liberalisation may bring for mineral rights include:

  • Ability of holders to use their licences as collateral for bank loans or mortgages or to transfer their rights without previous authorisation from the state.

  • The simplification of minimum conditions to maintain these rights.

The practical consequences of these innovations have been very positive during the two last decades in several countries, resulting in increased investment attractiveness. Primarily this is because liberalisation results in a decrease in risks. This is the case for the following reasons:

  • Titleholders that fulfil all their obligations during the validity period of an exploration licence have the automatic right to transform it into a mining licence.

  • The granting procedures should be the sole responsibility of the mineral rights cadastre, excepting signature by the granting authority.

  • When applying for the new mining licence, if titleholders must present their mining plans as well as their environmental and social impact assessment (ESIA) and environmental and social management plans, these plans will not be evaluated as part of the granting procedure. The initiation of operations should be dependent on approval of plans. However, rejection of such plans should not imply the loss of the mineral rights.

  • When plans are not approved, the holder will always have the right to revise them, or, if he or she estimates mining the resource would not be profitable under more stringent conditions, to recover their exploration investment by transferring the mineral property to another holder.

However, it must be recognised that practical implementation of these principles in some countries is not simple. For instance, use of licences as guarantees for bank loans or mortgages requires the presence of a banking sector that is familiar with mining practices, and the development of a market for mineral properties. Such conditions are only available in countries which have a long history of mining.

On the other hand, governments are normally reluctant to grant a title without a previous evaluation of the mining operation plans. Certainly, any government must have the right to evaluate technical projects before authorising their implementation and the start of operations, in order to guarantee that the projects meet safety, health, and environmental standards.

The key question is whether this evaluation should be done before or after the licence is granted. It should be understood, based on the differentiation between “property rights” and “activity authorisations" that the granting of the mining licence does not necessarily give the right to initiate operations immediately. This must wait until evaluation of the operating plans and obtaining the corresponding authorisation.

First-come, first-served versus auctioning

In many countries  there is little consensus on the relative merits of first come, first served licensing processes and auctioning (tender). As a rule, most of the petroleum licences are allocated using the “auctioning” or “competitive” approach, while mining licences are generally allocated on a first-come, first served basis. In addition to the long tradition on this respect, there are also technical reasons which explain these different approaches. The primary differences are as follows:

  • Geological differences between fluid hydrocarbons and solid minerals are a core reason for approaching the licensing process differently. The success rate for exploration is extremely different (20 %, for hydrocarbons, about 2 % for base metals and 0.1 % for precious metals). In the mining sector, only one  outof every 1,000 discoveries is likely to have economic potential. Out of these, about one in every 100 reaches the feasibility study stage, and fewer still turn into profitable operations. The vast majority of mining exploration projects donot conclude with the discovery of a profitable exploitation. For this reason, whereas oil and gas companies are ready to participate in auction processes, even if the available information is inconclusive, in contrast, mining companies are reluctant to participate in tender bids when the available information is not sufficient to assess reasonably the potential size and quality of a deposit. In consequence,  governments find themselves in the  dominant position when tendering for oil and gas, but not for the mining sector.

  • Normally, cadastral activity in the petroleum sector (number of rights granted per year) is low. Often it comprises just a few dozen blocks and only a very small number of auctions per year are organised. In contrast, in the mining sector, licensing of mineral rights implies (even in medium size countries) the management of several hundred or even thousand applications per year and consequently it would be impossible to grant the entire mineral rights through a competitive tender process.

However, the first-come, first-served method, which has been prevalent in the granting of mineral rights for centuries, does have its advantages and disadvantages. On the positive side, the removal of any discretion or subjectivity makes cadastral procedures transparent and impartial. Furthermore, rules are easily applicable and controllable, using only the priority registry book. For these reasons, this principle is widely accepted worldwide by both titleholders and applicants.

On the other hand, some governments feel that the application of this method can lead to the granting of licenses to “inadequate” applicants —for instance, those that may not have the technical or economic capacity to properly develop the mineral resource in question. In these cases, governments may prefer directed procedures that permit the selection of the “best” holder. But, depending on the rigour and transparency of such a directed selection process, there may be significant risks for titleholders and applicants, affecting their security of tenure because potential discrimination and subjective evaluations (and consequently also for corruption) may appear if some minimal required conditions are not fulfilled.

Based on the transparency and effectiveness of the auctioning process—as well as its success in the granting of oil concessions—some countries have decided to adopt it  for the mining sector. As a result, the use of tender bids as an exclusive methodology for granting mineral rights has not generated the positive impacts expected; in fact, in some cases, it has posed an obstacle to effective mining sector development. Because the governments using the tender bid methodology could only offer areas that have known geological potential, this process has a tendency to slow the exploration process, and some potentially interesting areas are completely ignored. Recent experiences of countries that established tender bids as standard method for licensing had quite negative consequences, resulting in deterred investment and hindering the explorations process.

In consequence, the “first-come, first-served” approach is considered best practice for the mining sector. Competitive tendering  should be restricted to special cases with exceptional circumstances, when there are known mineral reserves.

The decision flowchart shown in Figure 5 presents the issues and parameters to be considered in making the decision to award mineral rights on "first come, first served" basis or via a tender process. In the majority of cases, in the solid mineral world, the available information is not enough for tendering, and for such reason "first come, first served" should be the standard methodology for the granting of licences. To illustrate this, it can be said that there is not a single country in the world where the mining industry has been developed using tender bids as standard method.

Controlling and discouraging speculative practices

In the mining sector, the term "speculation" is most often used negatively. It refers to titleholders who apply for licenses with the intention of selling them later and, in the meantime, retain the licences without development of significant activity on site. In countries where this practice is very common, it may impede development of the mining sector, and cadastral management may be needed to decrease the negative effects of speculation, mainly by setting conditions for the validity of mineral licences.

Before taking steps to limit speculation, however, it is important to understand the practice and consider its negative and positive effects. In fact, not all speculative practices should be considered totally negative. In some cases speculation may be “active,” where reconnaissance or exploration activities are developed in order to promote the property and increase its selling value. This type of active speculation (typically done by junior companies) plays an essential role in the development of the mining sector. Consequently, any measures taken to decrease speculative practices should be focused on passive rather than active speculation. Furthermore, any measures introduced to decrease speculative practices should respect the essential principles guaranteeing the security of tenure, otherwise the effects derived from discouraging speculation may be opposite to the expected ones. The different corrective measures that have been implemented to decrease speculation in many countries are analysed below.

1. Escalating annual rental fees

This requires the holder of a licence to make regular yearly payments of a fee per unit of area (square kilometre or hectare) in order to retain the concession. These fees have the following advantages:

  • Implementation is easy, direct, and guarantees transparency without discretion since no interpretative or subjective evaluations are required, and thus minimises potential corruption.

  • It generates revenue that may guarantee economic sustainability for the administration of the entire mining sector.

  • It can be easily adapted to the evolution of the metals market and the mining sector in general, as well as to the local conditions and characteristics of each country.

  • It guarantees security of tenure because it stimulates voluntary relinquishment by offering incentives for reducing the surface area of a licence, without the introduction of risks for the titleholder.

In the recent past, countries established rental fees as fixed amounts (the same every year), but the inefficiency of this method soon became apparent, as it did not encourage voluntary relinquishment of unwanted parts of the licence areas. The method was improved by introducing the escalating fee, which was promptly adopted by many countries in two different modalities, with values increasing year by year, or values increasing every two or three years. Practical experience has shown that for values to escalate yearly is much more efficient.

Ideally, the level of fees must be high enough to avoid speculation, but, at the same time, low enough to attract investors and to allow for the participation of national and small-scale miners. This balance should be adapted to the particularities of each country: low fees can be seen as adequate to attract investment in little-explored mining countries, which cannot establish levels as high as those in very well-known and attractive countries. At the same time, the design of an escalating fee system must be well adapted to the most frequent strategy for exploration; in other words, low-cost during the first validity period when companies are obliged to apply for large areas, and, progressively, more expensive during the subsequent validity period when companies normally reduce the area of interest to focus on detected targets (and when, in other cases, the real passive speculation starts).

Thus, the adequate implementation of these principles requires fine-tuning the level of the fees to the situation and characteristics of each country, as well as to the market prices. For this reason, rental fees should be managed in a dynamic and flexible way, ready to be adapted to any changes in the parameters controlling the mining sector and it is recommended that these values be established in regulations or in a specific decree (where they can be modified) and not in the text of the law, where amendment is always more difficult. Table I shows examples of rental annual rental fees (expressed in US $ / hectare per year) applied in different countries.

It is important to note that similar discussions also occur regarding exploration fees. Mining licences should also be subject to rental fees, but the problems related to speculation and investment level are completely different because passive speculation is predominantly focused on the exploration phase.

2. Mandatory relinquishment requirements: An alternative to the escalating surface rental fees methodology for decreasing speculative practices is a mandatory relinquishment requirement that involves periodic obligation to reduce the surface area of the exploration licences. This reduction is normally required when the licence must be renewed and the percentage of required surface reduction varies from one country to another, sometimes reaching as high as 50 percent.   

As in the case of escalating rental fees, the application of this methodology is easily implemented; it is transparent, objective, and involves no discretion. This methodology can also be very efficient because it guarantees that no large surfaces (after successive and mandatory relinquishments) will be controlled by a single titleholder. In practical terms, however, this is not always the case because it would imply additional provisions such as a prohibition against reapplying for areas relinquished and not always clearly stipulated in the legal framework or otherwise very difficult to verify (for example, if a lease is reapplied for by intermediaries).

Another disadvantage of the mandatory relinquishment method is the lack of flexibility; it is impossible to adapt it to the evolution of the metals market or the mining sector, in general. In addition, it also risks decreasing the security of tenure, particularly in the case of successful prospecting projects, because the holder may have difficulties maintaining the property over the discovered resources and discouraging other prospecting investments. Some countries have already seen these practical difficulties in the application of the mandatory relinquishment requirement.

3. Minimum investment requirements and minimum work obligations: Another option to encourage exploration and decrease passive speculation is the use of annual minimum investment requirements or minimum work obligations. Conceptually, this is an excellent idea because it guarantees that the titleholder is really developing exploration activities and the license is not dormant. But experience shows that there are practical difficulties that may arise in the implementation of this option. One challenge is how to set the value of the minimum requirement for work or investment that must take place to ensure that an adequate exploration level is carried out. The requirement must be substantial enough to efficiently discourage speculation and in line with the standard exploration costs of any type of deposits in any geological environment. Taking into consideration the variety of metallogenic contexts, there is no simple technical solution for this question. The more practical option would be to adopt a single calculation linked to the applied surface and to the rental fee (for instance, 100 times the rental fee per surface unit). The requirement can then be easily adapted to the evolution of the metals market and mining sector in general, as well as to country-specific characteristics (as in the case of the surface rental fees) by just updating the values of the required amounts.

However, the main difficulty lies in the practical verification of the amount of resources, in terms of investment, time, or effort spent by the titleholder. One condition for proper control relates to the availability in the Mines Administration of qualified staff and resources to facilitate a well-functioning mining inspectorate able to asses on the ground the reports submitted to demonstrate the works developed and the investments realized. In addition, there are also cases when such evaluations imply a certain degree of subjectivity, with the consequent potential for bureaucratic bottlenecks or risks of discretion or corruption.

4. Other types of measures to restrict speculation.- Other methodology to discourage speculative practices has been to introduce limitations on the maximum size (surface area) per licence in the legislation. This measure is logical for rationalising cadastral management by avoiding excessively large and unmanageable licences, but is not effective against speculation because it is not linked to the renewal fees or the activity to be developed. Furthermore, in many countries there is no limitation on the number of licences to be held by a single titleholder, and, consequently, no limitation on the maximum surface area to be held by a single titleholder.

Also, some countries have introduced such restrictions which prevent a single holder from having more than a limited number of licences, determined by law. Nevertheless, this rule could be equally inefficient because, in practical terms, holders may control many licences through intermediate holders, exceeding the authorised number; generally, the Mineral Rights Cadastre does not have the capacity to detect these irregularities.

Another option, also applied in many countries, is to “filter” the entry of potential speculators by requiring a minimum level of economic and financial capacity as a precondition for granting a licence (i.e., "eligibility"). It is assumed that many speculators do not have the economic resources to properly develop exploration activities and, with an obligation to prove the availability of certain economic resources, this rule would (statistically) prevent the entry of passive speculators. Technically, the application of this rule is very similar to that of the minimum investment requirement or minimum work obligations explained above, and the required capacity may be established by a simple calculation linked to the applied surface and the rental fee. As in the previous case, the implementation of this rule appears direct, objective, and can be easily adapted to the evolution of the metals market. The availability of the required amount may be demonstrated by a bank certificate showing the applicant’s own or borrowed funds. The main limitation of this method is that certificates prove the availability of resources just for that particular date, and such resources may be mobilised and transferred for other purposes a few days later. Practical experience demonstrates that many of the titleholders who exhibit the availability of the required capacity do not use the funds for developing exploration activities after being granted a licence.

Based on the analysis of discouraging methodologies described above, a system of escalating rental fees, properly applied and adapted to local circumstances, is recommended as the more flexible and easily adapted measure to decrease passive speculation. The system also has the additional advantage of generating significant revenues for the sustainability of the mining sector administration and not introducing subsequent risks for security of tenure.

Sustainability and financial management.

Institutions need to be financially sustainable to succeed. In the case of the Mineral Rights Cadastre, an institution responsible for collecting annual rental fees linked to mineral licences should not have trouble generating enough income to be economically sustainable. In fact, in most mining countries, the revenues generated by the fees with just a standard level of mining activity (sometimes combined with a percentage of the royalties) would be sufficient to guarantee the required economic resources for management of the entire mining sector, including the cadastral activity itself as well as the Geological Survey, the mining inspectorate, and the environmental monitoring agency. The concept of redistribution of income generated by the mining sector among all the agencies responsible for its management is even prescribed in the legislation of many countries.

Practical experience, however, has demonstrated that, in some cases (and sometimes against the legal provisions), the generated economic resources are not received by these agencies, thus creating obstacles to effective mining sector management. While there is no substantial difference, from the viewpoint of organisational efficiency, between locating the Mineral Rights Cadastre as a department inside the ministry or as an agency external to the ministry, this decision may seriously affect the economic sustainability of the institutions. Normally (although these rules may vary from one country to other), budgets for the departments or administrative units located inside the ministry organisation are exclusively dependent on the general state budget and controlled by the Ministry of Finance. In contrast, an agency external to the organisation of the ministry, created as an autonomous institution empowered with the capacity to manage its own income (although with the necessary restrictions on how to use and distribute such resources), can provide solutions for the sustainability of management of the whole mining sector. Some countries, have successfully adopted this model, although normally, the Ministry of Finance is reluctant to lose control of the income generated by fees derived from mining activity.

The important point here is, although there is no difference between internal and external cadastre agencies solely from an organisational efficiency point of view, the selection of the external option (if compatible with the existing legal framework) may have substantial advantages for the institutional sustainability for the whole mining sector.