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Any revision of the Finnish Mining Act should be considered carefully

The end of the year saw widespread public debate on mining policy and near panic about the need to revise the Finnish Mining Act. The debate will likely continue as we head towards the Parliamentary Elections in April. Solutions related to the Mining Act are political decisions, and companies in the industry operate in accordance with the legislation in force from time to time. However, there are certain overlooked aspects related to the matter that should be recognized before any major policy decisions are made.


4. January 2019

Special features of the mining industry

Mining as an industry has certain special characteristics that affect the assessment of legislative solutions relating to mining. Firstly, mining projects are extremely long-term projects. It can easily take 10–15 years between finding a promising ore body and starting mining operations. The life span of the mines depends on the available ore resources, but we are typically talking about several decades of operations. For example, the known ore reserves of the Terrafame mine will last at least for 30 years, possibly up to 50–60 years of operations. The time horizon underlines the need for long-term, predictable legislative and political guidance.

Secondly, mining is highly cyclical due to the price fluctuation of metals in the global market. The profitability of mining is largely dependent on the prevailing prices of metals. For example, whether extracted ore is classified as economically exploitable minerals or “worthless” gangue depends on the applicable market prices. The cyclical nature of the industry means that mining operations and mine owners must be able to withstand also bad times.

The third key characteristic is high capital intensity, which means that establishing a mine requires very large financial investments and resources. This is due to the requirements to construct industrial infrastructure, the capital tied to ramping up operations, as well as the long project timescales and the cyclical nature described above.

Furthermore, mining operations are highly regulated and monitored, and companies in the industry must operate responsibly. Opening a mine requires dozens of permits from different authorities, and compliance with these permits is monitored by both sampling and inspections. From the industry’s point of view, permit procedures and monitoring are not problems as such, and the industry does not tolerate shortcuts in matters related to environmental safety or corporate responsibility. The permit process can, however, become challenging if the resources of the licensing and supervisory authorities do not match their workload. At least in northern Finland, the environmental permit authority is heavily overworked. This is not a good situation for business or nature values.

Mining operations thus involve significant financial risks. Project profitability assessment has to take into account all costs relating to operations, including various royalties, taxes and official fees. Known costs are easy to take into consideration, but uncertainty is more difficult to put a price on.

“Evil foreign mining giants”

Two statements about the mining industry are often brought up in the public debate. Firstly, some people think that “foreign mining giants” are reaping financial benefits from mining while the Finns are being naive by maintaining this generous system. A second recurring perception is that global mining companies will leave the country after having reaped the benefits and will leave cleaning up to the Finnish taxpayers. Neither of these claims withstands closer scrutiny.

In 2011, the Ministry of Economic Affairs and Employment of Finland appointed Tom Niemi, an experienced mining professional, to investigate how the development of the mining industry could be supported by improving the conditions for domestic financing and the role that government funding could play in this context. According to Niemi’s report, there is no major difference between Finnish and foreign ownership of mines in view of economic impact in the long run. This is because all economic activity in the mining industry is regional and takes place within national borders. The money invested in mining stays largely in the region and is diverted into contractors’ and subcontractors’ business, purchases and services. There is a wide range of technology and equipment manufacturing companies in Finland, so a large part of the investments can be subcontracted to Finnish companies. Various taxes are being paid at several points, both at company and employee level.

In relation to foreign ownership, the only significant outbound cash flow is the profit from the business operations. If we want to keep the profits in Finland, we also need to accept the risks and loss-making periods related to the business, and we need to find willing and capable owners from Finland. The establishment of Finnish Minerals Group is a concrete example of the state-owner’s determination to develop domestic and state ownership in the mining sector.

The current Finnish Mining Act dates to 2011 and as of yet, no new mines have been established since its enforcement. The Mining Act provides for compensation related to exploration and excavation of minerals and other similar charges. For example, in the case of metal ores, the annual compensation to landowners is EUR 50 per hectare and 0.15% of the calculated value of the excavated and exploited metallic mining minerals. In practice, this 0.15 percent is paid from the mine’s revenue. The mining company must pay these fees regardless of its financial profitability, even when the operation is unprofitable. Key western countries (Sweden, Canada, Australia) follow similar royalty policies, although for example in Australia, royalties are paid only on operating profit or sales profit. It is necessary and useful to compare the compensation and tax policies of different countries, but also dangerous, if only single fees or taxes are compared.

The Finnish Mining Act stipulates that the mining operator shall restore the mining area to a condition complying with public safety no later than within two years of the termination of mining activity. However, matters related to mine closures do not fall primarily under the Mining Act but are mainly based on the environmental permit issued under the Environmental Protection Act. The environmental permit defines the collateral requirements for the restoration of the mining area, which have increased significantly in Finland in recent years. The collateral is used in a situation where the mining company would be unable to perform the aftercare measures. The current legislation allows for effective and sufficiently large environmental collateral. Authorities need to define the right level of collateral and the level is adjusted annually. On the other hand, the collateral should not be oversized, as the provision of collateral generates considerable financing costs.

It is obvious that a well-functioning collateral system is needed, but perhaps it could be developed towards a model where, for example, the collateral could be deposited in a fund and used for the development of the industry and not paid as fees to international banks and insurance companies. Statutory environmental collateral is only used in exceptional circumstances when the mining company is unable to carry out the restoration measures. The starting point is that the mining companies should pay for the costs out of their own pocket and prepare for such costs well in advance during their operations.

Finland must make wise decisions

Europe’s raw material supply is almost entirely dependent on import. Finland is in an exceptionally good position in Europe as a mining country, especially at the dawn of the electric vehicle boom. Finland is the largest mine producer of nickel in the EU and the only EU country with mine production of cobalt. In addition, probably the first mining company producing lithium chemicals (Keliber Oy) will start operations in Finland. Finland can offer all key raw materials for lithium-ion battery production. However, in international comparison, Finnish mineral reserves are typically considered small or weak in concentration. As a result, the ability of the mining industry to shoulder new economic responsibilities may not be very high.

It is dangerous to think that we can freely impose new fees on mining activity because “a mine cannot be moved elsewhere.” A single mine cannot be moved, but Finnish mining projects are constantly competing for funding with large, high-concentration projects in Asia, the Americas and Australia. Carelessly enforced fees do not necessarily enable the implementation of domestic projects and may lead to a shorter than planned life span for existing mines. In a situation where Finland aims to build a significant role in the value chain for the manufacture of electric vehicle batteries and their components, this could be particularly harmful, because securing investments related to further processing of minerals in Finland relies heavily on responsibly produced Finnish raw materials. This competitive advantage should not be jeopardized unduly.

We need the patience to make wise decisions. It might be a good idea to gather more experience on the application of the current Mining Act before starting to rewrite it. At the same time, it should be noted that the Mining Act is only part of the regulation governing the industry, which means that any broader revisions to the Act also require reviewing, for example, the Environmental Protection Act. Regardless of whether the revisions are made sooner or later, they should be carried out with caution and their impacts should be considered carefully in cooperation with the industry and the different stakeholders involved.


Matti Hietanen


Finnish Minerals Group


4. January 2019