A Practical Guide to Assessing the Acquisition of a Mining Asset

Introduction

Acquiring a mining asset can create exceptional value, but only when risks are identified early and managed strategically. In mining transactions, headline issues such as reserves, production potential, and commodity outlook often attract the most attention, yet many factors can affect deal success sit beneath the surface: jurisdictional instability, title defects, permitting uncertainty, community opposition, tax exposure, sanctions risk, and hidden legacy liabilities.

This practical guide highlights the legal considerations sophisticated buyers should take into account before structuring, pricing or signing an acquisition. From political risk and investment treaty protection to joint venture governance, environmental exposure, Indigenous rights, and transaction execution risk, early legal due diligence can be the difference between acquiring opportunity and inheriting problems.

Whether evaluating a producing mine, development‑stage project, or exploration asset, disciplined upfront analysis helps buyers preserve value and avoid costly surprises later in the process.

Jurisdictional/Political Risk

Before detailed due diligence begins on a mining asset, we recommend assessing the risks associated with the asset’s jurisdiction, examining questions such as:

• How politically stable is the jurisdiction? Is there a high risk of a significant political change that could affect the mining asset?
• Are there capital controls or currency restrictions that may make it difficult to operate in or realize the benefits of investments in the jurisdiction?
• How stable and well-tested is the mining law regime?
• Is there a recent history of expropriations or licence revocations?
• How pervasive is corruption in the jurisdiction?
• What is the effectiveness of local courts?
• Are there applicable sanctions?

We routinely help our clients to answer these questions in jurisdictions around the world.

Available Investment Protections

Before detailed due diligence begins, we also recommend an examination of the availability of jurisdictional-risk mitigants: At this stage, we look at:

• The terms of any bilateral or multilateral investment treaties between the host state and either the potential acquiror’s jurisdiction or any third countries through which an asset acquisition could be routed in order to benefit from treaty protections.
• The availability or not of foreign investment contracts with the host government, as well as whether these (or any government contracts needed for the development of the asset) would be enforceable through foreign-seated international arbitration, or only via the local courts.
• Whether local legislation in the host state specifically protects the assets and investments of foreign investors and whether it is enforceable through foreign-seated international arbitration.
• The host state’s track record in disputes with foreign investors (whether under contract or treaty) and its record of compliance with adverse arbitral awards.
• The relationship between the respective governments of the host jurisdiction and the potential acquiror’s jurisdiction, as well as broader geopolitical risks and trends, and how these may either exacerbate or mitigate jurisdictional risk.
• Sovereign immunity considerations locally or in a potential foreign enforcement jurisdiction that may affect the enforceability of the host state’s obligations or a court judgement or arbitral award in the potential acquiror’s favour.
• The availability of political risk insurance or other-risk mitigants.

Transaction Structuring

At an early stage, before doing detailed due diligence, we recommend a preliminary analysis of potential transaction structures (to be further informed by later due diligence). Questions include:

• Would it be best, for either tax or other reasons, to make the acquisition at the level of the physical asset, at the level of the local company that directly holds the asset, at the level of an offshore holding company or by other means?
• More generally, are there reasons to favour an asset-level acquisition, such as to acquire certain assets without acquiring liabilities or without acquiring other assets (as may occur in a share acquisition) or to obtain a stepped-up depreciable tax basis. Asset-level transactions often require regulatory approvals, consents to transfers or re-permitting, and are usually disfavoured by sellers for tax reasons. Share acquisitions are less likely to require consents and typically preserve licences and contracts, and are usually preferred for tax purposes; however, a share transaction may expose the acquiror to historical liabilities, including environmental, tax, labour, and community claims.
• What is the optimal tax structure for holding the asset, including for future equity and debt financing, and dividend and interest payments, as well as any future disposal transaction?
• Is there a tax treaty available with the host state, or a more favourable tax treaty between the host state and a third jurisdiction? Should the structure be designed so as to benefit from a particular tax treaty?
• If the acquisition would be a partial acquisition, would it be best to set up an offshore joint venture company, due to the better flexibility of the corporate law in an offshore jurisdiction, or for enforceability reasons?

Competition and Foreign Investment Laws

Prior to detailed due diligence, we recommend early review to try to determine preliminarily whether any required competition approvals or foreign investment approvals or restrictions (including national security considerations) are likely to take on relevance in the acquisition transaction, and, particularly, whether they may present an execution risk to the transaction or likely require a long period between signing and closing to obtain the necessary approvals.

If the transaction does not present overly burdensome antitrust or foreign investment risks on a first review, a more detailed review can be performed alongside transaction negotiations so that appropriate risk allocation can be defined in the transaction agreement.

Shareholder or Stock Exchange Approvals

If a proposed transaction is material for either the seller or the proposed acquiror, it may be necessary for either or both to obtain shareholder or stock exchange approvals. These may be required under corporate laws, securities laws or applicable stock exchange rules. Prior to beginning due diligence, it is recommendable to do a preliminary review for likely required approvals, which may make the transaction more difficult to execute. If there are any insiders who would be involved in the transaction, an evaluation should be done to see whether any separate approvals of disinterested shareholders may be required.

Joint Ventures

Mining assets are often subject to joint ownership. A poorly drafted joint venture agreement (whether a pre-existing agreement that an acquiror accedes to or a new agreement negotiated in connection with the acquisition) can often be the source of disputes. We frequently assist our clients in reviewing and drafting joint venture agreements. Even if a project is in all other respects excellent, a poor governance regime can make its development or operation difficult. Areas to examine with care include, among others:

• Deadlock mechanisms.
• Funding obligations and dilution mechanics.
• Operator discretion and control rights.
• Minority veto rights.
• Exit and transfer restrictions.
• Dispute resolution provisions.

Mineral and Surface Rights

Once detailed due diligence begins, the most fundamental legal question is often whether the seller actually holds valid, subsisting mineral and surface rights. Key issues include:

• Whether concessions or claims were properly granted and registered.
• Compliance with work, investment, or reporting obligations.
• Payment of annual fees, patents, or surface lease amounts.
• Any expiry, partial forfeiture, or reduction of areas.

In many jurisdictions, non-compliance with technical requirements for mineral rights can lead to the rights being void or voidable. A potential acquiror must confirm the absence of such risks, or take the measure of any existing risks, and evaluate any risk mitigants available.

Mineral and surface titles should also be reviewed to understand the chains of title and to confirm the absence of encumbrances that could complicate the acquisition transaction. This review typically includes an examination of:

• Historical transfers and corporate reorganizations.
• Royalties, streams, options, earn-ins, or back in rights.
• Security interests granted to lenders or off-take counterparties.

Undisclosed royalties or legacy options can materially impair an asset’s value and are frequently discovered late.

With respect to surface rights, it is important to note that mining rights most often do not include surface rights. Some projects can be frustrated by the lack of legal mechanisms to require surface access. Typical problems include:

• The lack of enforceable access agreements.
• Disputes with landowners, Indigenous groups, or agrarian communities.
• Restrictions in infrastructure corridors (roads, power, pipelines).

Without secure access, even a valid mining title may be undevelopable.

Water Rights and Water Stewardship

In some jurisdictions, issues relating to water rights and/or water stewardship are just as critical as mineral titles and surface rights. There are many projects around the world that remain undeveloped as a result of water scarcity, competing water uses, community concerns about water, or constraints in the allocation of water rights. Issues to consider include:

• The nature and adequacy of water rights held.
• The adequacy of water supply for proposed operations and the risk of curtailment in over-allocated basins.
• Whether water rights are transferable, and, if so, the regulatory process for transferring them.

Environmental, Permitting, and Closure Liabilities

Environmental permitting for mining projects is a complex and often lengthy process. In assessing any acquisition of a mine or mineral project, a potential acquiror should, with the assistance of counsel, perform a detailed analysis of:

• Required permits, authorizations and approvals.
• Whether the target holds the required permits and identification of any potential regulatory issues arising from permit applications.
• Whether any permits are subject to appeal, judicial review or third-party challenges.
• Compliance with permit conditions and reporting obligations.
• Whether permits are transferable or must be re-applied for in the case of an asset-level sale.

A common risk is the assumption that exploration-stage permits will eventually lead to mine development permits. Many projects are permitted, or are reasonably able to be permitted, for purposes of exploration but are highly unlikely to be permitted for eventual exploitation. In addition, even when a project is reasonably expected to be permittable, environmental impact assessments (EIAs) or environmental and social impact assessments (ESIAs) required for development-stage permitting are multi-year processes.

We regularly assist clients in evaluating the likelihood of permits being granted for projects around the world.

In addition to permitting risks, it is important to note that mining assets can carry potentially unlimited environmental liability, including with respect to the management of tailings and waste rock facilities, contamination of soil or water, and mine closure obligations. As a result, it is important for potential purchasers to assess known or suspected contamination from historical operations, the regulatory framework for remediation orders, and whether contamination could trigger liability to third parties.

Legal due diligence must assess:

• The applicable statutory framework, including reclamation obligations, closure standards and post-closure monitoring requirements.
• The nature and scope of mitigation measures required to manage project impacts.
• Potential joint and several liability exposures.
• Bonding or financial assurance requirements.
• Any risks of under-funded reclamation obligations.
• Whether the target has assumed any legacy environmental liabilities.
• Risks associated with acid rock drainage and long-term water treatment obligations, which can persist in perpetuity and are difficult to quantify.
• The scope of available indemnities or insurance.

Closure or reclamation-related obligations often represent hidden off-balance sheet contingencies. Buyers frequently renegotiate prices once closure costs are properly understood and quantified.

Indigenous, Community, and Social Licence Considerations

The United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) has become a foundational framework and guides the development of mining projects around the world. For projects impacting Indigenous lands and rights, UNDRIP calls for Indigenous communities to have a meaningful say in resource development.

Within the context of resource development, we assist clients in understanding the distinction between consultation (including procedural requirements) and consent as articulated under UNDRIP, since the standard varies significantly by country.

In many jurisdictions, mining projects are subject to:

• Indigenous consultation, community engagement or consent obligations.
• Land claims or treaty rights.
• The need for benefit-sharing or participation agreements.

Legal diligence must assess:

• Whether consultation obligations have been met.
• The risk of legal challenges to project permits and government decisions.
• The enforceability of community agreements.
• Whether community agreements are assignable to a buyer, or whether new agreements are needed.
• Any risks arising from internal divisions in local communities, where some community members or groups support a project, while others do not.
• Risks and potential impacts of Indigenous groups or community stakeholders withdrawing their support after a project has been permitted or is operational.

Failure to consider these issues may result in permit suspensions or cancellations, project delays, loss of access to project areas, and other potentially material consequences.

Corruption and Sanctions

Mining transactions frequently involve high-risk jurisdictions. A potential acquiror must assess any possible exposures under anti-corruption laws (e.g., for bribery, or facilitation payments). A close examination of a target’s relationships with state-owned entities is also advisable. Even in an asset-level sale, the historical conduct of the target may create successor liability.

Sanctions considerations add an additional layer of risk. These restrictions may prohibit or limit dealings with certain countries state‑owned entities or designated persons. These measures may affect not only the acquisition itself, but also the subsequent financing of the mine or the marketing of production.

Sanctions regimes can change rapidly based on geopolitical developments and international tensions, and can materially impair an asset’s value or operability and often influence transaction structuring and the negotiation of representations, covenants, conditions to closing, and termination rights.

Fiscal Regime, Royalties, and Taxation

In addition to tax considerations relating to transaction structuring, legal due diligence must examine:

• The stability of the host country’s fiscal regime.
• Any available tax stabilization agreements or laws.
• Royalty rates and bases.

In addition, a potential acquiror must look into:

• Historical tax and royalty compliance, and relationship with the local tax authorities.
• The availability or use of tax credits or other incentives.
• Any exposure to reassessment or penalties.

Tax risk is sometimes intertwined with mineral title risk, where non-payment can jeopardize tenure.

Other Risks

Important risks may lurk in material commercial contracts. All of these must be reviewed in detail as part of due diligence. Risks include take-or-pay terms or volume commitments, long or short terms (the risks of not being able to terminate or of not being able to renew), change-of-control provisions that would give lead to termination or give rise to counterparty rights upon an acquisition occurring, consent requirements, one-sided risk allocation provisions and others.

There may also be operational legal risks, such as labour issues, health and safety risks and others.

Finally, any complete legal due diligence must thoroughly examine existing litigations and claims.

Conclusion

Assessing whether to buy a mining asset is not a checklist exercise. It is a finely calibrated risk assessment and allocation exercise, which serves to identify and describe:

• Which risks are fatal.
• Which risks can be effectively assigned to the seller.
• Which risks can be mitigated by other means.
• Which risks can be priced.
• Which risks must be accepted and assumed if the potential acquiror proceeds with the transaction.

The most successful mining acquisitions are those in which legal analysis drives commercial decision- making, rather than the other way around. Of course, each project must also be evaluated for non-legal risks and opportunities, in terms of geology, engineering, construction and operational costs, infrastructure and logistics and other factors.

Mining acquisitions reward preparation. Buyers who assess legal risk early are better positioned to structure transactions efficiently, price assets accurately, and protect long-term value.

If you are considering the acquisition or sale of a mining asset, our Global Metals & Mining team advises clients worldwide on cross-border transactions, including structuring, due diligence, and risk allocation and mitigation. Contact us to discuss how we can support your next transaction.