ASX resources stocks need an Exploration License: Here’s how they get this priceless Nest Egg

Nick Sundich Nick Sundich, June 23, 2023

All ASX resources stocks need an Exploration License, and potentially a Mining License too down the track. Without one, there can’t be a single drill or shovel put into the ground by that company.

But how do companies go about getting one and what is the risk that it might lose it?

 

 

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How do companies obtain an exploration license?

In most cases, companies must apply to the government of the respective country in order to obtain an exploration license. Depending on the jurisdiction, companies may also need to have certain qualifications such as experience in oil and gas exploration or financial capacities.

Typically, applicants will have to submit an application along with a proposed work plan and budget for the exploration activities. The granting of licenses is usually regulated by a licensing round where all interested companies can participate. In some cases, there may be requirements such as competitive bidding or an auction process.   

Once a company has been granted a license, it can conduct its exploration activities according to the approved work plan. Companies typically use advanced geological surveys and seismic technologies such as aerial and satellite imagery to look for evidence of oil or gas deposits.

Depending on the results of this exploratory phase, further drilling activities may be conducted in order to determine if commercial quantities of oil or gas are present.

If commercially exploitable resources are found, the company may be granted permission by the government to begin production operations in accordance with local regulations. 

 

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Why do countries run exploration license regimes?

Governments run regimes requiring mining exploration licenses in order to ensure that the resources located within their boundaries are used responsibly and efficiently.

A license ensures that mining companies have the necessary qualifications, experience, and financial capacity to do the job correctly. It also provides a system of checks and balances to ensure that exploration activities are carried out according to agreed upon standards.

Furthermore, it allows governments to regulate who gets access to these resources and helps them generate revenue through taxes, royalties, or other fees.   

By having an established licensing regime in place, governments can also effectively manage the environmental impacts of exploration activities. This includes monitoring air and water quality during drilling operations as well as ensuring any land disturbance is mitigated appropriately.

The requirements of a license may include a reclamation plan which outlines how the area should be restored once operations are completed. Finally, granting exploration licenses helps governments maintain control over their natural resources and can be used as a tool for economic development. 

 

Use it and you may lose it

A mining exploration license might be taken away if the company fails to adhere to the requirements outlined in the license agreement. This could include not following safety standards, operating without proper authorizations, failing to properly mitigate environmental impacts of its operations, or not providing required information as part of periodic reporting.

In addition, a company may have its license revoked if it does not meet expected monetary obligations such as paying taxes or other fees due to government. Finally, governments generally reserve the right to terminate licenses due to changes in local regulations or for any other reasons deemed necessary. 

If a junior explorer does not have another project, it may well be ‘all over Red Rover’ for that company.

 

What are some of the easiest countries to obtain an exploration license?

Countries with simpler bureaucratic processes (that are well-understood) and lower fees are generally considered some of the easiest places to obtain a mining exploration license. These countries typically have established regulations for mineral resource extraction which make it easier for applicants to understand what is required in order to obtain a license.  

For example, Canada has highly regulated processes in place that make it easy for companies to understand the requirements needed to receive a mining exploration license. The Canadian government requires companies to submit an application with detailed information about their proposed project and then approves or denies based on environmental considerations and whether the company has submitted all of the necessary paperwork. Furthermore, obtaining a license is relatively inexpensive, costing around $700 CAD (Canadian dollars) per year depending on the size of the claim area being explored.   

Australia is another country where obtaining a mining exploration license is comparatively straightforward. Companies can apply online through Australia’s Geoscience Information System (AGIS) by submitting an application outlining their proposed project, along with details about their financial capacity, safety protocols, and intended environmental management plans.

To add further ease-of-use, AGIS has created user friendly systems which make it easier for prospective miners to understand what criteria they need to meet in order to be successful in receiving a permit. Additionally, Australian permits are quite affordable with fees ranging from approximately AUD$1,600 – $6,000 per year depending on the amount of land covered by the permit area.  

With Australia and Canada among the most popular destinations for resources stocks, it is easy to see why.

 

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