1. Background and Impact of the Amendment
This year, the Mining Act of Japan was amended for the first time in 61 years. The Mining Amendment Act came into force on January 21, 2012.
The Mining Amendment Act was enacted during a period where international competition for natural resources is intensifying. In recent years global energy demand has been growing rapidly in both emerging economies as well as in developed countires.
The Mining Amendment Act was enacted for the following reasons: (i) to ensure proper maintenance and management of domestic mineral resources, including "unconventional" resources, the development of which has become possible through recent technological innovation; and (ii) to overcome the existing problems of the Mining Act.
Traditionally, Japan has been regarded as a non-natural resource country, which has been dependent on imports for most of its mineral resources and energy. However, with the remarkable advancements in technological innovation, mineral development in Japan, specifically marine mineral resource development, has become feasible and attractive.
Mineral resource development in the ocean around Japan has attracted a lot of attention from the international business community. Japan’s ocean area, including the territorial waters1 and the exclusive economic zone2, is the world's sixth largest. Japan’s ocean resources greatly expand its mineral deposits available for development. Further attention to the proper management and development of domestic mineral resources (including development with foreign capital3) is expected in the near future.
2. Problems prior to the Mining Amendment Act
The Mining Act was never amended since its enactment in 1951. That time lag in amending the Mining Act has resulted in a number of problems that needed to be addressed with the Mining Amendment Act. Below is a summary of some of the key problems and issues with the old Mining Act:
(1) The old Mining Act has no provisions setting out the requirements (such as financial strength or technical ability, etc.) for applicants desiring to be granted mining rights. Without such provisions, the government has not had the ability to adequately screen applicants that seek mining and development rights to ensure that they have the ability to develop the mineral resources. The result has been that numerous applications have been made for new mining rights by persons with no ability to undertake the mineral development. From the government’s perspective that is inappropriate in light of its resource policy.
(2) The old Mining Act has the “first-to-file” policy, where the first person to file an application for the mineral rights is granted priority. This, together with the new opportunities opening up in marine mineral development, have contributed to the increase in applications for mining rights by applicants without substantial ability or incentive to undertake development. This situation can lead to speculative actions in the market.
(3) The old Mining Act has no regulations governing the exploration of mineral resources. This has resulted in disordered exploration activities being conducted. The government has been especially concerned with mineral exploration activities by foreign ships in Japan’s ocean areas.
3. Summary of Amendments
To address each problem discussed in paragraph 2 above, the following amendments were made under the Mining Amendment Act:
(1) Addition of new Permission Criteria Requirements for the Creation of Mining Rights
To ensure that mineral resources are developed by appropriate entities with the ability to carry out development, the Mining Amendment Act has new permission criteria requirements for applicants. The new requirements must be met by applicants before they are granted new mining rights, or any permission is granted to change or transfer mining rights (Section 29.1.1 and 2, Section 44.3, Section 45.2.1 and 2, Section 51-2.3.1 and 2, etc. of the Act).
In summary, under the new requirements in the Mining Amendment Act, the applicant must demonstrate that it has: (i) the necessary “financial basis” – for example, the applicant must show it has sufficient funds and certainty of funding to conduct the mining businesses; (ii) the necessary “technical capability” – for example, the applicant must demonstrate that it has the technical capability to conduct the mining businesses, including organization and structure, business history with the primary technicians; and (iii) the necessary level of “social credibility” – for example, the applicant must demonstrate that it has no relationship with anti-social groups such as crime syndicates, it has not violated criminal laws or other relevant laws, and it has no material disputes with its investors.
In addition to the requirements outlined above, there is an additional and more comprehensive requirement. This comprehensive requirement allows the government to deny permission for mining rights to an applicant where it has been determined that granting the rights would hinder the promotion of public interest from the viewpoint of stable supply of minerals. More specifically, the requirement is that the mineral resource development cannot be "extremely inappropriate" in light of domestic and foreign social and economic circumstances, nor can it be likely to hinder the promotion of public interest. This permission criteria requirement overrides the others (which are summarized above) and allows the government to deny an application for mining rights even though the other permission criteria requirements have been satisfied (Section 29.1.9, Section 44.3, Section 45.2.5, Section 51-2.3.4, etc. of the Act).
The Minister of Economy, Trade and Industry has provided some guidance to interpret this comprehensive requirement, by way of illustrating cases that would not be in compliance, such as (i) a case where the application for mineral resource development would be only for the purpose of exporting the minerals overseas, even where sufficient demand for the minerals can be reasonably expected in Japan; and (ii) a case where the development and sale of the minerals by the applicant can be reasonably expected to be delayed to take speculative advantage of future price inflation. That speculation could involve intentionally delaying the mining development activities to a later period when the demand for those minerals is expected to increase substantially, even though there is current demand and commercially feasible production ability now. (Item 1.1.[v] of “Concerning the Review Criteria Regarding Disposition by the Minister of Economy, Trade and Industry pursuant to the Mining Act” dated March 15, 2012).
(2) Establishment of a New Procedure to Create Mining Rights (Specified lot system concerning Specified Minerals)
The Mining Amendment Act defines “Specified Minerals.” Specified minerals include oil, natural gas, certain ocean floor minerals4 and asphalt. Specified Minerals have been determined to be particularly important for the national economy and stable supply is particularly necessary.
There is a new application procedure for mineral rights in respect of Specified Minerals. The previous application procedure that was based on a "first-to-file" policy does not apply to Specified Minerals. Under the new procedure the national government will designate a Specific Mineral Lot and solicit for applications for mineral rights. The national government will grant the permission for the mineral rights to the applicant it determines is most appropriate in accordance with the applicant’s satisfying the permission criteria requirements (Sections 38 to 42 of the Act).
(3) Establishment of a New Permission System for Exploration of Minerals
As mentioned above, under the old Mining Act, the exploration for minerals was not subject to regulation. That has changed under the Mining Amendment Act.
The term "exploration for minerals" generally means activities involving the "investigation" into geological structure that are necessary for developing mineral resources. It is limited to investigations that do not accompany mining activities and which are undertaken in a fixed area5.
Under the Mining Amendment Act a new exploration permission system has been established, whereby an applicant desiring to undertake exploration for minerals will be required to apply for a permission in advance (Sections 100-2 to 100-11). The requirements being granted permission to explore for minerals include a determination of the appropriateness of the applicant’s proposed exploration methods and that it has not violated the Mining Act. Another requirement is that the exploration is not "extremely inappropriate" in light of domestic and foreign social and economic circumstances, nor is it likely to hinder the promotion of public interest.
1. Coastal waters extending at most 12 nautical miles from the baseline of a coastal state.
2. A sea zone extending at most 200 nautical miles from the coast, over which a state has special rights over the exploration and use of economical and marine resources pursuant to the United Nations Convention on the Law of the Sea.
3. A person owning mining rights must be a “Japanese individual” or a “Japanese corporation” under the Act. However, since the Act has no definition or requirements for a “Japanese corporation”, it will be possible for a foreign corporation to acquire a mining right through its wholly-owned corporation established under Japanese law and there are already precedents of that case.
4. Specifically, the following ocean floor minerals are designated as “Specified Minerals” pursuant to the Cabinet Order:
(i) “gold ore, silver ore, copper ore, lead ore, bismuth ore, tin ore, antimony ore, mercury ore, zinc ore, iron ore, pyrites, manganese ore, tungsten ore, molybdenum ore, nickel ore, cobalt ore, uranium ore, thorium ore and barites” which comprise of “hydrothermal polymetallic ore which exists on or beneath the ocean floor”.
(ii) “copper ore, lead ore, zinc ore, iron ore, manganese ore, tungsten ore, molybdenum ore, nickel ore and cobalt ore” which comprise of “sedimentary deposit which exists on or beneath the ocean floor”.
5. Specifically, the following methods are provided (Section 100-2.1 of the Act, Section 44-2.1 and 2 of the Enforcement Ordinance):
(i) “Seismic method” (i.e., the method to measure the reflected waves by artificially creating seismic waves)
(ii) “Electronic magnetic method” (i.e., the method to measure the change occurred in the electronic magnetic field by creating electronic magnetic waves near the ocean floor)
(iii) “Concentrating sampling exploration method” (i.e., the method to intensively collect bottom materials by use of facilities to collect bottom materials)