What Are Mining Development Agreements?
Mining development agreements are agreements between mining companies and governments. These agreements can be broadly grouped into two categories:
- Stability agreements between the host government and the mining company
- Community benefit agreements (also known as impact and benefit agreements) between local communities and the mining company
Stability agreements are most often made between federal governments and mining companies, but can also exist at a regional level; state or provincial governments may also work with the federal government to draft stability agreements with mining companies.
Community benefit agreements are most often made between Indigenous communities and mining companies, though one could ostensibly occur between other local communities that are affected by mining operations and the mining company.
The Purpose Of Mining Development Agreements
Mining projects are capital-intensive, and mining companies seek to reduce risk to increase the viability of any project they undertake.
Host governments and local communities are also incentivized to create predictable frameworks; mining projects can be important economic drivers for a region, and some can help host governments secure a steady supply of critical minerals.
Mining development agreements create the predictability that all parties desire. Our information on mining international agreements touches on several aspects of a mining project, including:
Through these frameworks, governments and local communities seek to ensure that they will benefit from mining activities, while mining companies aim for the reduced risk and increased predictability that will make their project viable.
Pre-Development Planning And Agreements
Feasibility Study Agreements
Mining companies want government and community buy-in to their projects as early as possible. Everyone involved wants predictability, including potential investors. Early in a project, companies involved may seek taxation exemptions and assurances that development can occur with greater certainty.
To offer these concessions, governments and local communities want proof that a project is:
- Realistic
- Beneficial
- Minimally disruptive (both to the environment and to local communities)
Feasibility studies are an excellent way for mining companies to provide governments and communities with the assurances that they need to buy in.
While host governments will often mandate the completion of feasibility studies before offering concessions, local communities will often ask to be included in those feasibility studies. The knowledge of these communities can help mining companies ensure that culturally sensitive sites are protected, that the effects of mining on crucial waterways are mitigated or avoided altogether, and that the communities can find ways to be active participants and beneficiaries of the project.
Site Access & Land Use Agreements
Both host governments and local communities may negotiate land use and site access as part of a development agreement. With host governments, these agreements may regulate access to rail corridors and ports; they may also negotiate where roads can be built and who can access them.
Community benefit agreements can also impact land use; these agreements are more focused on protecting traditional land, culturally sensitive sites, hunting and fishing sites, and other sites important to the communities in question.
Construction And EPC Agreements
Construction contracts, often in the form of engineering, procurement, and construction (EPC) contracts, are fundamental to mining projects. Both host governments and local communities typically want some say in the type of EPC contracts that are signed with mining companies. Mining development agreements may have clauses informing the types of EPC contracts that can be signed, including:
- Requiring that a certain percentage of local workers be hired
- Requiring that a percentage of materials and equipment be acquired from local companies
- Stipulations on knowledge transfer so that community members can learn from the EPC process
Financing Conditions And Security
Project Financing Agreements
Host governments and local communities may want more than a passive role in a mining project; they may want to become active investors in the project. There are several potential advantages to mining companies if they allow these parties to invest. By becoming stakeholders in the project, governments and communities have a financial incentive to help the project overcome any potential roadblocks.
Local communities may also seek royalty sharing or revenue sharing as part of a community benefit agreement.
In exchange for giving host governments a stake in the project, a mining company may negotiate certain tax exemptions; these exemptions can help the project through the crucial exploration and development stages. By negotiating tax exemptions as early in the project as possible, the mining company can better predict revenue streams, allowing it to get a clearer understanding of the viability of the project. That picture can also help host governments determine the potential value of a stake in the project.
Security & Guarantee Provisions
As part of a mining development agreement, mining companies want protection against potential future taxes and fees, as well as protection against expropriation. Governments change, and while one government cannot promise that another will not make changes that could affect a mining project, they can include clauses that protect the mining company; these clauses can include terms of arbitration, financial penalties for changes in taxation or expropriation, and more.
Book Your Free Consultation
Licata Law can help mining companies negotiate mining development agreements, both with host countries and with local communities. We have experience negotiating with First Nations groups; we can help you understand and negotiate Impact and Benefit Agreements, conduct impact assessments, and more. Schedule a consultation with us today!
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