On 19 July 2023, Greenland Minerals (GM), a wholly-owned subsidiary of the Australian mining company Energy Transition Minerals (ETM) initiated arbitration proceedings against the Governments of Greenland and Denmark. The arbitration focuses on the right to mine. GM is seeking either confirmation of its right or USD 11.5 billion in compensation, a sum nearly four times Greenland’s annual GDP. The proceedings follow a ban on uranium extraction by Greenland’s newly elected government in 2021.
This blog provides a background to the dispute, examining the tensions arising between, on the one hand, rights safeguarded by commercial contracts and, on the other, governments’ regulatory prerogatives. It proposes that the dispute unveils parallels with investor-state treaty arbitration disputes and further suggests that the case may be indicative of future conflicts over transition minerals.
Transition Minerals and Greenland
Windmills, electric cars and other transition technologies require more minerals to build than their fossil fuel-based counterparts. The energy transition will therefore massively increase demand for so-called ‘transition minerals’. This includes lithium, nickel, cobalt, manganese, and graphite, which are crucial to battery performance, and rare earth elements, which are essential for permanent magnets that are vital to many related technologies.
The melting of the Arctic ice cap has intensified interest in Greenland’s natural resources. Kvanefjeld, an area in southern Greenland, has the potential to become one of the world’s largest producers of rare earth magnet metals, creating significant wealth for this impoverished and often forgotten area of the Nordic hemisphere. At the same time, extraction activities would pose significant environmental risks for an ecosystem that is not only fragile and unique, but also already under considerable threat due to climate change.
As a self-governing territory within the ‘Kingdom of Denmark’, Greenland has wide-ranging powers. Following a reserved power model, the Greenlandic Government (Naalakkersuisut) may exercise competence in all devolved areas save for those explicitly excluded from devolution in the 2009 Act on Greenland’s Self-Government. Competence over minerals has been devolved since 2010.
Greenland Minerals and the Dispute
GM commenced operating under an exploration licence in Greenland in 2007. Its aim was to explore the presence of rare earths in the Kvanefjeld area and evaluate the prospect for mining operations.
As uranium and rare earth metals coexist within the same mineral deposits in Kvanefjeld, the extraction of rare earth elements inevitably involves the simultaneous mining of radioactive materials, such as uranium and thorium. A key point of contention underlying the proposed mining project is whether GM is or should be permitted to mine uranium and the extent to which this is covered by its licence.
Uranium extraction has long been a contentious issue. In 2013, the Greenlandic Parliament (Inatsisartut) overturned a longstanding ban on the mining of radioactive materials, the so-called ‘zero tolerance policy’. GM’s plans to create an open pit on Kvanefjeld and dispose of toxic and radioactive wastewater in a reservoir were therefore highly controversial. This comes as no surprise, given that many such dams have collapsed, often with devastating consequences. The Greenlandic authorities accepted GM’s environmental impact assessment (EIA) in 2020. The next step was the issuance of the exploitation licence, but Greenland had a change of heart.
A Political and Social Movement Against Mining
In 2021, Greenland held a general election. Mining and environmental protection were a central issue in the electoral debate. Posters bearing the text ‘no to uranium’ (‘urani naamik’) hung side by side to election posters. A survey in southern Greenland revealed that 71 per cent of the population was opposed to the Kvanefjeld project.
The strong opposition to mining seemingly tipped the results of the election. A former minister of mineral resources and vocal critic of the Kvanefjeld project, Muté B Egede, became the new Prime Minister for Greenland. Shortly after the election, the Greenlandic Parliament passed the so-called ‘Uranium Act’. The Act creates a ban against the prospecting, exploration and exploitation of uranium, providing that the Government might issue rules to restrict or revoke prospecting, exploration or exploitation licences.
A Right to Mine?
In an interview, an ETM representative stated:
‘Our assessment is that we have the right to obtain an exploitation permit, and it is this right that we are trying to enforce. If it is proven that we are not entitled to it, our argument will be that we have been subjected to expropriation and therefore are entitled to compensation.’ (authors’ translation)
In the overview of its statement of claim, ETM asserts that before 2021 an exploration licence automatically gave the licence holder an exploitation licence if a commercially feasible deposit was found and the applicable terms, including on radioactive elements, complied with (Articles 7 and 1401).
Article 1404 of the 2013 Application Procedures for Mineral Exploration and Prospecting Licences states that an exploitation licence ‘will cover the same mineral resources as covered by the exploration licence.’ Similarly, Section C states that ‘An exploration licence will cover all mineral resources except… radioactive elements, unless otherwise stipulated in the licence.’
Much of the case turns on a 2011 addendum to GM’s exploration licence from 2007. According to the Respondent, the Addendum gives the Government unfettered discretion to refuse GM’s mining application. In contrast, ETM cites two law professors stating that the addendum is unenforceable under Danish law as it purports to change the 2009 Greenlandic Mineral Resources Act.
An explanatory note to the Uranium Bill mentions that, following the lift of the uranium ban back in 2013, licences ‘comprising radioactive elements, including uranium… have in all cases been granted on special terms, whether granted before or after the abandonment of the zero tolerance policy…’. The Uranium Act as such does not seem to terminate ETM’s alleged vested rights over the exploitation of rare earths, as opposed to uranium. But when GM submitted the amended exploitation licence application, it focused on rare earths, such as zinc and fluorspar, proposing to deal with uranium ‘as a residual impurity for tailings’ (sic, statement of claim). This amended application was rejected in September 2023.
The Arbitration under Domestic Law
ETM is requesting an arbitral tribunal, constituted under the Danish Arbitration Act, to confirm GM’ right to an exploitation licence. It has three claims:
A claim for an order that the Respondents shall acknowledge that Greenland Minerals had an ‘automatic right to transition from exploration to exploitation’ licence as at 1 December 2021;
A claim for an order that the Respondents shall acknowledge that the Uranium Act is not applicable to Greenland Minerals’s exploration licence or exploitation licence application;
A claim for an order that the Respondents shall acknowledge that they have jointly, or the Greenland Government has individually, breached Greenland Minerals rights and legitimate expectations.
The arbitral proceedings involve both the Danish and Greenlandic Governments as the 2007 mining licence was granted before competence over minerals was devolved. GM provisionally quantifies its claim for damages to USD 7.5 billion, plus USD 4 billion in pre-award interest at the rate prescribed under Danish law.
According to the procedural timetable, the Respondents had to file their statement of defence on 8 January 2024.
GM has invoked both Danish and public international law as the governing frameworks for resolving the dispute. Similarly, Greenland has referenced decisions from investor-state arbitration in their statement of claim (paras 956 et seq). This raises the question of whether the arbitrators will be amenable to draw upon relevant international law, alongside the contractual provisions, in the award. In this regard it should be noted that Denmark has only entered into a bilateral investment treaty with China, although this has not been invoked.
A Broader Perspective
Numerous countries have either halted or suspended the development of extractive projects deemed environmentally and socially hazardous. Measures include terminating contracts, revoking licences, or amending legislation making extraction more burdensome. A great deal of these cases has been triggered by rejected or terminated environmental licences, as well as the pressure of local communities who felt their livelihoods were threatened either through contamination or displacement. Like in Kvanefjeld, such measures have often resulted in litigation.
Relevant international arbitral awards are fact specific, occasionally appearing contradictory. In some cases, tribunals have recognised the right to regulate to protect the environment, health and safety, while in others, tribunals found a breach of the investment treaty or a contractual obligation. Notably, there are only a few instances where investors have been compensated for both actual losses and expected profits (See Report prepared by IISD). And so far, few high income States have ever been found in breach of its international investment agreements.
Critics of investor-state arbitration often argue that investment arbitration poses a threat to democracy, undermining the relationship between governments and local communities. Similar criticisms are raised of other international regimes, such as human rights. In addition, many would say that democracies cannot overlook the prospect of economic development.
Potential Future Conflicts Over Transition Minerals
Increasing demand for transition minerals will bring new challenges to energy security. For example, the European Union’s proposal for a Critical Raw Materials Act is designed to enhance self-sufficiency. It aims to increase EU production, a significant portion of which is expected to occur in pristine environments, with Sweden, Finland, Portugal being prime candidates for new mining sites. Greenland is not a member of the EU, but has recently signed a memorandum of understanding with the Union for a strategic partnership to develop sustainable raw materials value chains. In Greenland, as in the prime candidates for mining within the EU, there is considerable local resistance to the initiation of mining operations. Thus unless environmental and local interests are adequately protected, more litigation is likely afoot, and Greenland provides a cautionary tale of things to come.
Important lessons should therefore be learned. Many similar disputes have arisen from changes in policy and legislation originally designed to attract foreign investors, but with often inadequate environmental and social safeguards. Such flaws are often compounded by poor inter institutional coordination within countries and under-resourced governmental agencies. Ultimately, both high and low income countries alike, will face challenges addressing public concerns regarding the full realisation of their right to a clean, healthy, and sustainable environment. Ensuring that public administrations are sufficiently resourced to effectively monitor large-scale projects with significant impact is an expensive, long-term, and strategic undertaking. It is, however, an undertaking that is central to secure the sustainable futures of mining and avoid similar conflicts.
Source: EJIL Talk