The developing mining sector in the Republic of Macedonia

In recent period one of the most dynamic and attractive business sectors in the Republic of Macedonia is the mining sector. The mining sector, as the third largest export sector has significant contribution to the Macedonian economy as it represents around 15% of the industrial production and contributes around 1.5% of the Country’s GDP.

In regards to the increased business activities and investments in the mining sector, in 2012 new legislation was passed in order to develop this dynamic sector. The new legislation introduced shorter, simpler and faster procedure for granting mining permits and concessions. Also the new mining legislation incorporated positive legal practices for further development of the mining sector and dealing with the modern challenges of working in this sector. One of the new developments in the mining legislation, which is incorporated with the new legislation in order to provide more legal possibilities for the concessioners to develop their mining project in the Republic of Macedonia, is the option for merging concessions.

With this new stipulated possibility it is provided that, for the purpose of rational and effective exploration or exploitation of minerals, two neighbouring concessions can be merged or embedded. This merging or embedding of two neighbouring concessions is conducted upon a request from the concessionaire. With the placement of this option in the hands of the concessioners, the new legislation provides the investors-concessioners with the necessary tools to further develop their investments and mining projects in the Republic of Macedonia.

In accordance with Macedonian legislation, a concession also can be expanded. Expansion of a concession for detailed geological exploration can be granted to a holder of such concession for further exploration on an area that borders with the exploration area from the existing concession. A concession for exploitation can be expanded for the purpose of increase of ore reserves and expansion of the period of exploitation and increase of the infrastructural capacities that are in function of rational exploitation. These legal solutions provide more flexibility in the planning and developing, as well as running the mines in Republic of Macedonia.

This new legal framework resulted with increase in the submitted requests for mining concessions and also with increase in the granted mining concessions. In the past the investments in the mining sector were solely in acquisitions and expansions of the already existing mines in Republic of Macedonia. With the new legal framework in place the mining sector started to attract new investors ready to make green field investments in mining in Republic of Macedonia. Parallel with the process of developing a new mining legislation, the Government of the Republic of Macedonia had announced a public call for granting concessions for over 80 new locations for mine development.

Today, several projects for opening new mining sites for exploitation of mineral ores are under way or in their final stage of development, including the Ilovitza project, a green field investment of the company Euromax Resources. This project should result in opening one of the largest by production mines in South-eastern Europe.

Financing of mining projects, especially mining projects of such scale as the Ilovitza project, an investment estimated at more than $500 million for opening a new mine for exploitation of copper and gold, is not a simple task. All mining projects especially green field mines require significant investment. The required funds for such green field mining projects can be obtained partially by equity investments, but in the larger part it needs to be financed through loans from banks and other financial institutions and lenders. Naturally, the lenders and creditors will require their investment to be secured. Usually the security for the investment is done with the project company`s assets, but in the green field mining projects the value of the movable and immovable assets of the project company is not sufficient to cover the claims of all investors and creditors. In fact, the most valuable asset that a mining company has is its exploration or exploitation concession.

The current Law on mineral raw materials which regulates mining and concession issues, regulates the transfer of concession, however it does not provide clear provisions regarding the possibility of assigning the concession as a mean of security or establishing pledge over the concession. Currently, according to the positive Macedonian mining legislation, concession means obtaining rights and obligations, so the concession cannot be pledged. Having in mind that all investments in previous years were realized in the already existing mines through acquisitions of the mining companies, the question regarding security over the investment did not pose an issue.

However, with the new dynamic changes and development in the mining sector and the newly appeared high interest for opening new mining sites in the Republic of Macedonia, the question for security of the investment gained on significance. The lack of provisions regarding the use of concession as a mean of security in the Law on mineral raw materials posed an issue for the investors regarding the completion and development of their mining sites in Republic of Macedonia. If this important issue was not to be resolved, the sustainability and further development of the green field projects would have been threatened.

The answer to this newly appeared question and issue regarding green field mining investments can be found in the current Macedonian legislation. This issue about the security of the claims of the lenders and creditors can be resolved through the fact that to all the issues regarding concessions which are not regulated with the Law on Mineral Raw Materials (lex specialis) the Law on Concessions and Public Private Partnership shall apply as lex generalis. In accordance with this, the concession agreement which is concluded between the Government of Republic of Macedonia and the concessionaire may include a provision that allows transfer of the rights and obligations from the concession to the creditors – lenders as mean of security for their claims.

Furthermore, regarding the transfer of the concession agreement, it is important to emphasize that the exploitation concession agreement can be transferred and the transfer procedure is fully regulated. Namely, the Law on mineral raw materials stipulates that the concessionaire can transfer his concession by concluding an agreement for transfer of the exploitation concession with the transferee to which the concession is to be transferred and upon written consent by the Government of Republic of Macedonia. Obviously, certain conditions that are subject to Government`s evaluation should be met by the transferor and the transferee.

One more question regarding the mining legislation is pointed out by some of the investors and that is the legal provision determining the bankruptcy as a reason for termination of a concession. Namely, the Law on mineral raw materials stipulates that the concession is terminated in case of bankruptcy, but it does not prescribe exactly in which moment of the bankruptcy procedure. It is important to emphasise that according to the Macedonian legislation even if a bankruptcy procedure is opened, it doesn’t mean that the entire business shall be wound up, i.e. not every bankruptcy procedure ends up with liquidation of the company.

Having in mind that in the case of a company that is a holder of a concession its` entire operations depend on the concession, and the fact that opening a bankruptcy procedure does not mean that the company necessarily shall be wound up, some of the investors have pointed out this question as a potential problem for their business and they proposed this issue to be resolved by precisely determining the moment when the concession shall be terminated in case of a bankruptcy procedure. Furthermore, there are suggestions for amending the current legislation in order for the termination of the concession to be possible only after the company is given the possibility to get through the reorganization procedure and after the same was either not accepted by the creditors or was not successful at the end. The Ministry of Economy is also considering this issue and they are working on solving this issue in alignment to the above mentioned suggestions through implementation of EU directives and international standards.

Due to the above mentioned investment activities, and in order to further develop and harmonize the legislation regarding the mining sector, some amendments to the legal framework that regulate the area of mining and concessions are in sight in order to keep the pace with recent developments. Also, there is an active process for harmonizing and improving the by-laws with the contemporary methods of work and the applicable technological solutions. Having in mind that the mining sector in the Republic of Macedonia has been long time underdeveloped, this new changes are welcomed. The legal framework offers good opportunities and is a solid base for development of the mining sector, which tends to attract green field investments. Furthermore, the new investments in the mining industry are bringing international know-how and also the practice that is being established, as well as the Governmental support for this sector shall contribute for even more efficient regulation of this area and overcoming of all difficulties that occur in the course of work.

We, MENS LEGIS as a legal consulting firm, in synergy with our clients, are working together on identifying such and similar issues that derive from carrying on a business in the Country, as well as on proposing the best legal solutions for solving the issues that arise from the regular activities of the companies and the legal framework in which they operate.

Jane Jakimovski

Jane Jakimovski

Junior Partner at MENS LEGIS

Email: mlegis@t-home.mk
Tel: +389 2 3126 462

Jane Jakimovski is a Junior Partner with MENS LEGIS Law firm, the first Law firm in the Republic of Macedonia. As part of MENS LEGIS Jane Jakimovski specialized in corporate governance, contractual law, company law, merger & acquisitions, mining law, labor law, intellectual property and real estate matters.

He has a Master degree in Business Law received form the Law Faculty „Iustinianus Primus“, in Skopje, Republic of Macedonia.

Andrej Belchovski

Andrej Belchovski

Junior Legal Advisor at MENS LEGIS

Email: mlegis@t-home.mk
Tel: +389 2 3126 462

Andrej Belchovski is a Junior Legal Advisor at the law firm MENS LEGIS, the first Law firm in the Republic of Macedonia. Since his amployment at MENS LEGIS in 2014, he specialized in the areas of corporate governance, contractual law, company law, mergers & acquisitions, labor law, intellectual property, real estate matters and mining law.

In 2013 he obtained his Master degree in Business law form the Law Faculty „Iustinianus Primus“, in Skopje, Republic of Macedonia.

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About Jane Jakimovski

Email: mlegis@t-home.mk
Tel: +389 2 3126 462

Jane Jakimovski is a Junior Partner with MENS LEGIS Law firm, the first Law firm in the Republic of Macedonia. As part of MENS LEGIS Jane Jakimovski specialized in corporate governance, contractual law, company law, merger & acquisitions, mining law, labor law, intellectual property and real estate matters.

He has a Master degree in Business Law received form the Law Faculty „Iustinianus Primus“, in Skopje, Republic of Macedonia.