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Company equity and mining rights are two fundamentally different types of civil rights. Equity refers to the rights enjoyed by shareholders based on their capital contributions to a company, including rights to asset returns, participation in major decisions and the selection of management.

Exploration rights and extraction rights, collectively referred to as mining rights, are usufructuary rights derived from the ownership of mineral resources. These rights are obtained through a lawful transfer by the competent natural resources authority, granting the holder the right to explore or extract mineral resources within a specific mining area and to obtain mineral products.

An equity transfer contract is an agreement between shareholders or between shareholders and non-shareholders for the transfer of company equity.

A mining rights transfer contract is an agreement by which the holder of mining rights transfers such rights to another party. Once the competent natural resources authority approves the transfer, the exploration or extraction rights held by the transferor are transferred to the transferee.

The transfer of mining rights is one of the main methods of mining rights circulation and constitutes a secondary market transaction, including sale, capital contribution with appraisal, co-operation and restructuring.

No change in holder

The transfer of equity in a mining company that does not result in a change in the holder of the mining rights does not constitute a transfer of mining rights and does not require approval. Provided that there is no violation of mandatory provisions of laws or administrative regulations, such a contract is lawful and valid. The holder of mining rights refers to the legal person or natural person who holds the mining rights.

Differences in transfers

There are numerous differences between transferring mining company equity and transferring mining rights.

First, different laws apply. Equity transfers are governed by the Company Law, the Regulation on the Administration of Market Entity Registration, the Detailed Rules for the Implementation of the Regulation on the Administration of Market Entity Registration, and other laws and administrative regulations. Except for statutory restrictions requiring special approval, equity transfers are relatively free.

In contrast, the transfers of mining rights are governed by the Civil Code, the Mineral Resources Law, the Measures for the Administration of the Transfer of Exploration Right and Mining Right, and other laws and administrative regulations. There are many statutory restrictions regarding the method of transfer, transfer conditions, qualifications of the transferee and administrative approval.

Second, the legal consequences differ. An equity transfer results in a change in the company¡¯s shareholders or the proportion of shares held by shareholders, while a transfer of mining rights results in a change in the holder of the mining rights.

Whether the holder of the mining rights changes is the essential distinction between a mining company equity transfer contract and a mining rights transfer contract. Changes in the shareholders or shareholding proportions resulting from a mining company equity transfer do not necessarily lead to a change in the holder of the mining rights.

The transfer consideration stipulated in the transfer contract is closely related to the subject matter of the transfer. Clearly specifying the transfer consideration is legally significant for the transferee to determine the true intention regarding the transferor of the transfer contract and to identify the legal nature of the transfer contract.

Equity transfer validity

According to article 32 of the Interpretation of the Supreme People¡¯s Court on Issues Concerning the Application of Law for the Trial of Disputes over Sales Contracts (amended 23 December 2020), where laws or administrative regulations govern equity transfer contracts, such provisions shall apply. If no such provisions exist, the People¡¯s Court may refer to the relevant provisions on sales contracts in articles 467 and 646 of the Civil Code.

For mining company equity transfer contracts that do not change the holder of the mining rights, the relevant provisions of the Civil Code on sales contracts may be applied by reference. Such contracts take legal effect from the date of their formation.

Mining rights validity

Article 10 of the administration measures (revised 29 July 2014) provides that the transfer of mining rights shall be subject to the approval of the competent authority, which shall decide whether to approve or disapprove the transfer and notify the transferor and transferee. If approved, the transfer contract becomes effective from the date of approval.

Article 6 of the interpretation provides that a mining rights transfer contract becomes legally effective from the date of its lawful formation. If the application for the transfer has not been approved by the competent natural resources authority, the People¡¯s Court will not support a transferee¡¯s request for the transferor to handle the registration procedures for the change of mining rights.

Although the administration measures and the interpretation provide different stipulations regarding the effective date of mining rights transfer contracts, by reference to article 215 and other provisions of the Civil Code, such contracts become legally effective from the date of lawful formation. A transfer of mining rights becomes legally effective on approval by the competent authority and lawful completion of the registration change.

Subject matter of transfer

In practice, some transfer contracts specify that the subject matter of the transfer comprises both equity and mining rights, together with the boundaries and size of the mining area, and other relevant particulars. Determining the nature of such contracts is relatively complex and should be based on the relevant clauses of the contract, the rights and obligations of the parties and their objectives.

If the contract stipulations and performance do not result in the transfer of mining rights, the holder of the mining rights does not change. If the parties do not further negotiate or perform the transfer of mining rights, then the mining rights remain the main asset of the mining company, and the nature of the contract should be legally determined as a mining company equity transfer contract.

Luo Peijun is a partner at Anli Partners.