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Editorial

From the Depths of the Earth…

…to the top of business, Nicaragua has witnessed the growth, development and progress of the mining industry in the recent years. According to information available on the Nicaraguan Mining Authority´s official website, there are more than 50 important mining-related projects representing more than 60 million dollars in investments, with worldwide investors including companies from China, Canada, United States, Peru, Mexico, Australia, Brazil, Japan, United Kingdom and others.

The predominant minerals in the industry are copper, gold and iron, followed by polymetallic minerals, phosphates, zinc, silver and others, which conform part of the natural resources that may be found in Nicaragua and make of the country and appealing place for doing business in this sector.

With such numbers, stakes and players involved, one could legitimately ask what are the rules governing the mining activity in Nicaragua, what are the laws and regulations allowing such a constant advancement of the industry alongside protecting the environment and ensuring a rational and sustainable exploitation of the country´s natural resources. To a legitimate question, a legitimate answer is mandatory; so we will briefly describe those aspects of Nicaraguan law relevant to a sector whose growth has become a key element for the Nicaraguan economy.

The main legal framework for the mining industry can be found in certain laws and regulations such as the Nicaraguan Political Constitution; Law No. 387 “Special Law on the Exploration and Exploitation of Mines” (“Law 387”), its regulations (Decree No. 119-2001, “Regulations to Law 387”); Law No. 316 “General Law on the Exploitation of Natural Riches” (“Law 316”); Law No. 217 “General Law on the Environment and Natural Resources” (“Law 217”), and its regulations (Decree No. 9-96, “Regulations to Law 217”), laws and regulations as amended from time to time; as well as some others laws, administrative or technical norms, regulations, etc., governing other specific aspects, activities and exploitation of other natural resources in connection with the mining activity.

The Nicaraguan Political Constitution establishes that natural resources and riches belong to the State of Nicaragua, enjoying special protection from the State which guarantees their rational and sustainable exploitation according to the applicable specific laws on the matter. Consequently, Law 387 and other related regulations, develop both the constitutional protection of natural resources, in this case related to mineral riches, as well as the legal bases upon which investments and mining projects may become feasible in the country.

Law 387 establishes that the mineral resources existing on the soil and subsoil of the national territory belong to the State, which exercises an absolute, inalienable and imprescriptible right of ownership. Accordingly, mining exploration and exploitation activities can only be conducted by means of a concession granted by the State of Nicaragua, according to the applicable mining and environmental laws. Once both the mining concession and the environmental permit are granted, then the concession holders are entitled to initiate their mining activities.

Mining concessions grant exclusive rights to conduct exploration and exploitation activities, as well as to establish concentration plants, all over the mineral deposits within the concession area. The exploration activities comprise all of the superficial and profound works carried out to establish the continuity of the evidence discovered through the reconnaissance phase, determining the effective existence of deposits assessing the possibilities and conditions for a future exploitation and industrial utility. The exploitation is the extraction of mineral substances, their exploitation for industrial or commercial purposes through the concentration plants. In order to conduct exploration or exploitation activities, a mining concession should have been previously granted. Mining concessions are granted for a period of 25 years, which may be prorogated once for an equal term, and may comprise a maximum area of 50,000 hectares.

An important aspect to consider when dealing with mining activities in the country, is the projects financing. According to Law 387, the mining concession is a real-property right different from that of the superficial land in which the concession is located. In light of such legal characteristic, mining concessions can be opposed and transferred to third parties, subject of mortgages and, in general, of any acts or contracts excepting those to constitute family patrimony.

The above is a very significant feature given that, in many cases, concession-holders need financing from either national or foreign entities to conduct their mining activities, and part of the security interests that may be offered to lenders is the mining concession itself, which can be mortgaged in favor of lenders. Certain procedures should be completed for such effects, and conduction of due diligence over the mining concession is always recommended before entering into loan or financing agreements.

The main governmental authorities and agencies involved in the mining sector are the Ministry for Energy and Mines (“MEM”), in charge of processing the requests filed to obtain concessions, granting mining concessions and exercising control and surveillance of the mining activities, verifying compliance of all of the mining obligations and duties concession-holders are subject to, imposing sanctions when applicable. The Ministry for the Environment and Natural Resources (“MARENA”), in charge of processing and granting the corresponding environmental permits, and to control the environmental-related matters of the activities developed within the concession area. The Municipal Authorities for each of the Municipalities comprising the concession area, assessing the social impact of the project and whether or not the concession should include the proposed area affecting a determined municipality or local communities. Depending on the location of the concession, then the Local Authorities of the Caribbean Autonomous Regions of Nicaragua (North or South) may also be involved in the approval process.

Once granted with a concession, concession-holders must comply with a number of administrative and financial obligations. Amongst such obligations, there is the payment of superficial fees, which are charged per hectare of the concession area and are paid on a biannual basis; such fees increase yearly, ranging from USD0.25 per hectare for the first year, to USD12.00 per hectare from the eleventh year onwards. Some other report duties and obligations should be complied with (e.g. filing of investments and activities reports, etc.), and a 3% royalty tax is established for all minerals.

Hence, being that mineral deposits are part of the most important natural riches of Nicaragua, with a modern legal framework regulating and enabling its rational exploitation; foreign investors may find in Nicaragua an enterprising opportunity for the development of mining projects.

For additional information please contact Favio Batres ,Senior Associate at Alvarado y Asociados at fbatres@alvaradoyasociados.com.ni