tl;dr – Hard to say, but given the fragmented nature of Spain’s Parliament and the fact the Government doesn’t actually have an absolute majority, this bill may have a strong chance of being knocked back. Otherwise, let’s hope they class us as a pre-existing project.
I don’t pretend to know that much about Spanish politics,but have done a little research on how this very issue may affect the asset in Spain.For more information on the Bill, I found this Freehills briefing useful: https://sites-herbertsmithfreehills.vuturevx.com/122/22705/landing-pages/20200603-ebulletin-bil-on-climate-change-and-the-energy-transition-(english)-hsf-spain.pdf
Unfortunately, new project approvals appear to be banned immediately after the Bill takes effect, and apparently any existing projectswill not be extended past 31 December 2042.
Particularly, this paragraph in the Freehills briefing was also of note: It [the bill]prohibits, from the date on which the Law enters into effect, awarding within the Spanish territory (including territorial seas, exclusive economic area andthe continental shelf) any new exploration permits, research permits orconcessions to exploit hydrocarbons. As an exception, exploitation concession applications may be awarded in connection with pre-existing research permits that were being processed when the Law ultimately enters into effect, although the concession will only be for an initial term of 30 years as established by article 24 LSH, without any possibility of subsequent extension.
All this is likely to be null and void obviously if they categorise our resource as a “pre-existing” project, we would be able to continue on with the possibility of having the exploitation concession extended until at most the 31st December 2042. What defines “pre-existing” is hard to say at this stage, we hold the Tesorillo and Ruedalabola Permits, and I would assume that an exploration permit is sufficient to class us as a pre-existing project, and that we don’t need a development/production Permit to achieve that categorisation.
However, I don’t know that the Bill even gets passed.Broadly speaking, the Spanish Congress of Deputies (Lower House) appears to be very fragmented, there are a number (19) of different parties at play in the lower house alone. There are 350 “deputies” currently in the lower house, and the Government appears to be made up of 9 separate parties totalling 155 deputies, whilst the opposition appears to be made up of 10 different parties totalling 182 deputies.
If you recall back to last year, there was quite a tumultuous path to a Government even being formed in Spain, currently the Government is 21 votes shy of an absolute majority. To form government, they did so on a minute margin, 2 votes. (167 in favour, 165 against, 18 abstentions). It’s further worth noting that this is the first left-wing coalition in Spain since the 1930’s.
Recent elections (Basque and Galician) have seen some heavy swings to left wing parties, what appears to be a 6.5% and 15.5% swing in each respective jurisdiction. (https://blogs.lse.ac.uk/europpblog/2020/08/10/what-the-basque-and-galician-elections-told-us-about-the-state-of-regional-and-national-politics-in-spain/). However, some of this could be down to the current macro factors such as COVID.
Some of left-wing sentiment may also be buoyed by the recent calls for a Parliamentary investigation into former King Juan Carlos, who seems to be embroiled in some form of corruption allegations at the moment. (https://www.reuters.com/article/us-spain-royals/pressure-mounts-on-spanish-king-to-act-on-scandal-allegations-idUSKCN24L27F).
All this being said, I suspect this will take considerable time to be debated, and with how fractured the lower house is, there’s every likelihood that this gets knocked back.
Spain’s Senado (Upper House/Senate) is equally as fragmented,but likely to be easier to get the Bill through here than the lower house, if it can pass the lower house.
Now, if the Bill does get passed and for some reason we don’t class as a pre-existing project, presumably the Government would need to provid esome compensation based off the good-faith process that has been entered into to this point (exploration permit costs, exploration costs etc).
For Spain’s sake, and as an investor who invests often in resource projects, I really hope that this Bill gets shot down in flames and doesn’t get revisited. Notwithstanding the sovereign risk issues that it presents, it’s just really bad policy, especially for a country with abundant mineral resources.
Obviously, this is all just my opinion, DYOR and all that.
