Saudi Arabia: The New Mining Investment Law – An Overview

Saudi Arabia
  • The Saudi Mining Investment Law was approved by the Saudi Cabinet on 9 June 2020 (the Mining Investment Law) and will come into effect on 30 December 2020.
  • The key amendments to the 2004 Mining Investment Code (the Mining Code) are the following:
    • A permanent committee will be formed under the chairmanship of the Minister of the Ministry of Industry and Mineral Resources (MOIMR) and with the membership of representatives from other Ministries, including the Ministry of Energy. The committee has the power to decide on, among other things, objections filed by government agencies, the applications for allocation of the areas of mining complexes.
    • The Mining Investment Law provides for an “Exploitation Licence” and “General Purpose Licence”, abolishing the “Material Collection Licence”.
    • An exploitation licence enables its holder to obtain title to minerals extracted within the “licence area” for the duration of the licence.
    • Under the new law, the competent representative of the MOIMR has been given the capacity of judicial officers, and is authorised to enter the “licence site” to inspect, monitor the same, control violations and ensure the licencee’s compliance with the Mining Investment Law, the Implementing Regulations and terms and conditions of the licence.
    • Compared to the 2004 law, the violations and penalties regime under the Mining Investment Law is more comprehensive, with the maximum fine of up to SR 1 million for each violation of the law. Also, one or more committees will be established by a decision of the Minister of the MOIMR who will be tasked with determining violations and imposing the applicable penalties.
  • Saudi Cabinet Decision No. 17 dated 25 August 2020 (ratified by virtue of Saudi Royal Decree No. M/12 dated 27 August 2020) approved the implementation of clauses 4, 6-11, 14-16, 18, 19 and 35 and related provisions of the Mining Investment Law with effect from 2 October 2020, which is an exception from clause 63 of the Mining Investment Law.

The Landscape

The Mining Investment Law aims to attract foreign investors to the sector and boost the largely untapped mineral industry in Saudi Arabia as part of the Vision 2030 reform plan to “have a mining sector contributing to the national economy at full potential”. Currently, Ma’aden is the Kingdom’s largest mining company. Ma’aden was wholly owned by the Saudi Government until 2008 when half its shares were floated on the Saudi Stock Exchange (Tadawul). In June 2018, the government holding went up with the Public Investment Fund (PIF) increasing its shareholding to 65.44 per cent. Historically, Ma’aden has been active in producing gold and copper and has in recent years expanded into the production of aluminium and phosphates.

According to reports, the Saudi government is aiming to release more concessions for mining and quarrying to private firms in order to unlock the Kingdom’s estimated SR5 trillion in mineral deposits. The landscape, therefore, remains open for other mining companies to take advantage of the significant opportunities that exist in the Kingdom’s mining sector.

Saudi Arabia has significant and diverse metallic mineral resources spread across the Kingdom. To date, over 48 minerals have been identified in the Kingdom, with at least 15 minerals that are of commercially viable quantities. At present, the Kingdom’s demand for mineral products exceeds local supply leading to a large amount of imported resources. In addition, the country is going through economic and industrial growth, leading to significant increase in demand for such products to serve key growing sectors (for example, oil and gas, construction, equipment, automotive). This large demand, coupled with the abundance of resources in Saudi soil, creates and leads to significant investment opportunities and value chain integration.

Over the last two decades, the regulatory environment has taken real strides forward in an effort to encourage participation and investment in the mining industry. In 2004, Saudi took a major step towards liberalising its mining and mineral resources law by adopting the revised Mining Code and the Mineral Resources Executive Regulation. While the Mining Code reflected a significant attempt to open up the mining sector to private investment in the, many believed that more could be done to clarify and enhance mining sector regulations to provide foreign investors with greater access certainty.

The Saudi Mining Investment Law was introduced in June and is due to come into full effect by the end of the year. In this article, we provide an overview of the key provisions of the Law.

An Overview of the Key Provisions 

Scope

Under the Mining Investment Law any natural or legal person, whether Saudi or non-Saudi may apply for the licenses (although foreigners are also subject to the foreign investment licencing requirements administered by the Ministry of Investment (formerly, the Saudi Arabian General Investment Authority)).

The Mining Investment Law excludes certain minerals and materials from the ambit of the law, such as hydrocarbon substances and sediments (excluding coal), for example oil and natural gas, pearls, corals and similar marine materials. In addition, mining activities may only be carried out on state-owned lands or privately owned lands, or property held by the state and partly by individuals or marine areas, but not lands occupied by holy places or the military (unless permission is granted by a decision issued by the competent minister) and lands and marine areas to be determined by a Cabinet decision. The Mining Investment Law also sets out procedures that the licensee must follow where there are overlapping exploration or exploitation licenses for the same land (or a part thereof), or where the land (or part of it) is privately owned under a legal title deed.

Mineral Ownership

The Mining Investment Law provides that all natural deposits, in whatever form or composition, whether in the soil or subsoil, onshore or offshore, are considered the exclusive property of the Kingdom. Subject to the provisions of the Mining Investment Law, an exploitation licence enables its holder to obtain title to minerals extracted within the “licence area” for the duration of the licence.

Key Regulatory Body

The Mining Investment Law is administered by the MOIMR, which will be issuing the decisions and implementing regulations for the Mining Investment Law (the Implementing Regulations). The Implementing Regulations will further elaborate the provisions of the Mining Investment Law providing regulation at a granular level. No timeframe for issuing the Implementation Regulations has been set.

The MOIMR is assigned with a number of duties and responsibilities including:

  • establishing policies for the mining sector and supervising their implementation;
  • determining the necessary procedures and requirements for public bidding for exploration and mining licences and determining, and collecting fees for services provided by the MOIMR;
  • setting the conditions for the different types of licences and specifying the procedures for issuing, renewing, extending, transferring or giving away all or part of the licence site in accordance with the Mining Investment Law and the Implementing Regulations; acting as a judicial officer, in that they may enter any “licence site” under the Mining Investment Law, to inspect, monitor and control licence violations in order to ensure compliance with the law

The Mining Investment Law mandates the MOIMR to establish a permanent committee, to be formed under the chairmanship of the Minister of the MOIMR, which will include at least fifteen representatives from the Ministry of Energy, Ministry of Interior and other key government entities. The committee decides on objections filed by government agencies, including applications for the allocation of areas of mining complexes. This is a positive step in ensuring that the key government stakeholders are actively engaged and working in partnership with the MOIMR to support, promote and improve procedures under the Mining Investment Law. 

Under the Mining Investment Law, in addition to a “Register of Applications” and “Register of Licences”, the MOIMR is also required to establish a “Register of Mineral Zones” which includes details of the mineral formations and mining reserve areas. All registers will be made available to the public.

Licences

All applications for obtaining, renewing, extending, transferring or giving away all or part of the “licence site” must be submitted to the MOIMR via the forms and procedures which are expected to be specified in the Implementing Regulations. It is imperative that the applicant has the technical competence and financial ability according to the type of licence required, to enable them to perform their obligations effectively, to be determined by the Implementing Regulations.

During the licence period, the terms and conditions of the licence may not be amended except at the request of the licencee and approval from the MOIMR. In addition, licence applications may not be rejected by the MOIMR unless there are clear grounds for doing so, which must be evidenced in writing. An applicant whose request has been rejected may file a grievance against such a decision before the Saudi Administrative Court.

There are seven types of non-exploitation/exploration and exploitation related mining licences that exist under the Mining Investment Law, with licencees having the right to hold multiple licencees. With the exception of reconnaissance licences, all other licences under the Mining Investment Law may only be granted to a legal person. Subject to certain exceptions, it is not permissible for any natural/legal person (as the case may be) to carry out any reconnaissance, exploration or exploitation work before obtaining a licence from the MOIMR.

The MOIMR may grant an exploration or exploitation licence for lands for public utilities and areas designated (according to a specific law) as tourist, archaeological, historical or wildlife reserves only after obtaining the necessary approvals and permits from the relevant government entities.

Exploration

The exploration grouping includes licences for:

Licence Type

Description

Duration and Licence Area

Reconnaissance

Grants the licencee the non-exclusive right to among other things, examine the licence area for minerals and take samples before starting the exploration.

Initial period of two years which may be renewed or extended for one additional two-year period.

Exploration

Grants the licencee the right to engage in the search for licenced minerals and take sample from the licence area in addition to the exclusive right to explore for all minerals specified in the licence, using geological, geophysical or geochemical methods, excavation or any other appropriate method.

An area not exceeding 100 sq km and a period not exceeding five years (renewal possible for a period not exceeding five years subject to certain requirements) with regard to minerals of classes (A) and (B).

 

The licence area must not exceed 5 sq km with respect to class (C) minerals and for a period not exceeding one year (non-renewable).

 

Exploitation

The exploitation grouping includes licences for:

Licence Type

Description

Mining

Issued for an initial duration of up to 30 years (renewal possible for up to 30 years subject to certain requirements); licence area must not exceed 50 sq km; licence will be limited to minerals of classes (A) and (B). In the event the licencee wishes to exploit class (C) minerals, they must file an application with the MOIMR and pay a fee.

Small Mine

Issued for an initial duration of up to 20 years (renewal possible for up to 20 years subject to certain requirements); licence is limited to class (A) and (B) minerals.

Construction Materials Quarry

Issued for an initial duration of up to 10 years (renewal possible for a period or periods not exceeding 5 years each, subject to certain requirements); licence area shall not exceed 1 sq km; licence is limited to class (C) minerals.

General Purpose

If the holder of an exploitation licence wishes to establish facilities or use lands outside the licence area to achieve the objectives of the licence, the licencee must submit an application to the MOIMR to obtain a “General Purpose” licence.

Licences may only be granted on a competitive basis in accordance with the provisions of the Mining Investment Law and the Implementing Regulations.

Subject to the provisions of the Sharia and relevant laws and with the exception of the reconnaissance licence, the licencee may mortgage the rights conferred by the licence. The mortgage will be valid only after the licencee is notified by the MOIMR of its registration in the licence register. The mortgagee or their representative will have the right to implement any mortgaged right under the licence and transfer any such rights, provided that the requirements under clauses 16 and 20 of the Mining Investment Law are met.

Exploration and exploitation licences are transferrable to third-parties in accordance with the applicable provisions of the Mining Investment Law. An exploration licence may not be transferred whether directly or indirectly, during the first year from the beginning of its period. For such a transfer of licence to be effective, it must take place in the manner to be prescribed by the Implementing Regulations and the transfer will only be valid until a decision has been issued by the MOIMR to this effect.

Licensees are eligible to benefit from the incentives prescribed in other Saudi laws, in particular the Income Tax Law and the Foreign Investment Law.

Final remarks

The Mining Investment Law reflects a contemporary approach to the mining sector in the Kingdom and in our view will encourage more mining and exploration programs from outside or within the Kingdom. The new law’s licencing processes are investor friendly and more in line with industry standards.