Along-time legal adviser to the coal and energy sector, the author has navigated multiple episodes of upheaveal in mining. Drawing on the new legal framework established by the revised Mineral Resources Law and the Supreme People’s Court’s judicial interpretation on mining disputes, together with key cases setting precedents, the author argues that dispute resolution in the mining sector is transitioning from administrative discretion to the rule of law.
Resource consolidation
Resource consolidation is a policy-driven, administrative exercise, launched by the state on grounds of public interest and ownership. Yet the new Mineral Resources Law and the Supreme People’s Court’s guidance have infused dispute resolution with a strong civil contract ethos. Government authority and private autonomy have distinct boundaries, as they cannot replace one another and must operate in parallel.
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Bairui Law Firm
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In practice, consolidation deadlock typically reflects government missteps: either overreach that violates property rights, or abdication that abandons conflicts to the market. The solution rests on a “civil first, administrative second” principle. The government should establish a platform for negotiation, guiding parties towards market-based civil agreements. Only when market mechanisms and consensus fail should the government exercise administrative power to adjudicate or reallocate. The entire process must be transparent, with equal protection for all parties, particularly those with private capital.
Examining Shanxi province’s two coal consolidation drives, with the successful integration of local mines in the Pingshuo mining area, as well as cases where consolidation has dragged on unresolved, a clear pattern emerges: when the government establishes clear rules, integration can succeed; when it fails to co-ordinate and decide, conflict and stagnation follow. The government’s proper role, therefore, is not to make decisions for enterprises, but to provide clear rules and fair safeguards for the market.
Geological survey and exploration contracts
Geological survey and exploration contracts are not construction contracts under the Construction Law, but work contracts under the Civil Code. The distinction is critical, as it governs the parties’ rights and recourse.
The priority right to compensation for construction project costs protects the value of labour embodied in immovable property – the building itself. By contrast, geological exploration yields a report – an information-based asset whose value lies in data and analysis, not in the drilling or trenching. Those physical traces, tied to state-owned mineral resources, have no exchange value apart from the mining rights, and cannot be separately valued or auctioned. Therefore, if an exploration unit claims a priority right over the proceeds of a mining right auction, it conflates the nature of “construction activity” with “output”, a position difficult to sustain in law.
Resolution of exploration contract disputes hinges on performance: the timely and compliant delivery of the geological report; the credentials of the exploration unit; the statutory compliance of the project; and the heightened duty of care or foreseeability imposed by special contract provisions, if any. In the event of a serious breach by the exploration unit, such as delayed or substandard work, causing missed policy windows or project delay, careful consideration should be given to whether the foreseeable loss of business opportunity may be recoverable. Mining companies are advised to assess breaches against a composite standard, balancing reasonable procedural expectations with professional diligence and contractual good faith.
Closure compensation
Article 8 of the Administrative Licensing Law establishes that compensation should be paid when an administrative licence is modified or revoked in the public interest. In practice, however, local governments often impose severely curtailed compensation standards through “red-head documents”, limiting compensation to “direct losses” and “resource fee refunds”. This in effect confiscates the value of mining rights by administrative fiat. The new Mineral Resources Law’s “two rights, two permits” framework provides a stronger legal footing for resolving such disputes.
Mining rights are property rights, valuing both upfront investment and future gains. Policy-mandated closure constitutes an expropriation by the state. Compensation should therefore follow the make-whole principle to restore the rights holder to the position they would have been in without the closure. This requires coverage of direct losses, including facility investment, relocation costs and staff resettlement, which should not be arbitrarily curtailed by local policies.
In litigation, courts may make legal determinations regarding matters submitted for expert appraisal, but should not pre-emptively restrict the scope of appraisal. The value impairment of a mining right requires professional assessment, as it is not just about refunding the paid resource fee. While the resource fee is a one-time consideration for state ownership, the mining right’s value represents the capitalised present value of the extraction profits over the remaining life of the right.
The new Mineral Resources Law prioritises property rights protection. Enterprises should resist unfair local compensation rules by citing the Civil Code and the Administrative Licensing Law to demand full and fair market-based redress. They should also adhere to the principle of “compensation before closure” and, in exceptional circumstances, preserve evidence in advance to avoid being left empty-handed after the closure.
Advancing the rule of law in mining requires defining, defending and equalising rights. By establishing mining rights as usufructuary property, the new Mineral Resources Law replaces administrative fiat with a property foundation for markets. Future dispute resolution will pivot on clear contracts, expert analysis and robust property rules. From government-led consolidation, through rights and professional duties in exploration contracts, to the property consideration in closure compensation, the rule of law strikes the balance, ensuring state resource security, market fairness and corporate rights.
Zhao Yue is a senior partner at Bairui Law Firm. He can be contacted by phone at +86 139 3490 8390 or by email at plww111@163.com
