Saudi Arabia: The Saudi Arabian Mining Code

Copyright 2011, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Gulf Practice/Mining, November 2011

It has been well publicized that it is the intent of the Government of the Kingdom of Saudi Arabia (KSA) to establish mining as the third pillar of the Saudi economy alongside hydrocarbons and petrochemicals. While a key champion in this effort is the Saudi Arabian Mining Company (Ma'aden), the landscape remains open for other mining companies to take advantage of the significant opportunities that exist in the KSA mining sector.

In addition to such drivers as the potential offered by the under-explored and under-exploited Arabian Nubian Shield, strong existing infrastructure and attractive energy costs, a further key stimulant is the existence of a progressive legal regime governing mining activities in the KSA. In an effort to encourage participation and investment in the mining industry, the KSA liberalized its mining and mineral resources laws in 2004 by adopting the revised Mining Investment Code (the Mining Code) and the Mineral Resources Executive Regulation (the Regulations).

The following is a discussion of certain noteworthy provisions of the Mining Code and Regulations, with emphasis on the licensing scheme, but is not intended to be a comprehensive summary thereof.

Overview

The reforms introduced by the Mining Code have, among other things, streamlined procedures, established a more competitive tender selection process and provided new incentives for investors.

Whereas in the past companies were required to first apply for a licence to explore, and then separately apply for a Royal Decree granting a lease to exploit, the Mining Code now authorizes the Ministry of Petroleum & Mineral Resources (including the Deputy Ministry for Mineral Resources) (the Ministry) to issue mining licences without need of a Royal Decree. While not conveying ownership of land, a mining licence permitting exploitation activities enables its holder to obtain title to minerals extracted within the "licence area" for the duration of the licence. Applications for licences under the Mining Code may be made by individuals and juristic persons, whether Saudi or non-Saudi (although foreigners are also subject to the foreign investment licensing requirements administered by the Saudi Arabian General Investment Authority).

Licence Categories: Exploration and Exploitation

Currently, seven types of mining licences exist that allow licensees (who may hold multiple licences) to undertake, broadly speaking, activities related to non-exploitation/exploration and exploitation. Of importance to foreign participants, all non-Saudi applicants for licences under the Mining Code, except those applying for reconnaissance licences, must establish domicile in the KSA. The establishment of domicile is demonstrated by, among other things, a permanent address in the KSA and the presence of a licensee's delegate or agent within the KSA.

Non-Exploitation

The "non-exploitation" grouping includes licences for:

  1. Reconnaissance – to survey and investigate a licence area for a period of two years (renewal possible for a single additional two-year period subject to certain requirements) and granting a non-exclusive right to examine the licence area for minerals and samples collection.
  2. Exploration – to engage in detailed scientific and technical activities with the aim of discovering natural deposits of metallic or non-metallic ores in addition to the exclusive right to explore for all minerals specified in the licence in an area not exceeding 100 sq km for a period not exceeding five years (renewal possible for a period not exceeding five years subject to certain requirements.
  3. Material Collection – to collect materials (limited to specimens, decorative work or materials for similar purposes) specified in the licence, without the use of power tools and equipment, on a non-exclusive basis.

With respect to the "exploration licence" category specifically, it should be noted that if such a licence holder proves the presence of exploitable minerals, and assuming all other obligations under the Mining Code are met, an automatic right exists to obtain an "exploitation" licence within the effective period of the exploration licence and within the exploration licence area. Obligations of exploration licences include, among others, minimum exploration activity expenditure (varying between Saudi Riyals (SR) 750 and SR 7,500 per sq km a year), notifying the Ministry of the location of field teams, submitting half-yearly reports on the progress of work and a comprehensive report on the expiry of the licence, and delivery to the Ministry of technical records, samples and any drill cores obtained from the licence area upon the termination or expiry of the licence.

Exploitation

The "exploitation" category of licences includes four kinds of licences that are differentiated by (i) type of mineral permitted to be extracted (as classified in Article 3 of the Regulations), (ii) duration of licence, and (iii) size of licence area:

  1. Exploitation Mining – specified class 3 minerals; initial duration of up to 30 years (renewal possible for up to 30 years subject to certain requirements); licence area not to exceed 50 sq km.
  2. Raw Materials Quarry – specified class 1 and 2 minerals; initial duration of up to 30 years (renewal possible for up to 30 years subject to certain requirements); licence area not to exceed 50 sq km.
  3. Small Mine – specified class 1 and 2 minerals; initial duration of up to 20 years (renewal possible for up to 30 years subject to certain requirements); licence area not to exceed one sq km.
  4. Building Materials Quarry – specified class 1 minerals; initial duration of up to five years; licence area not to exceed 0.25 sq km.

Critically, the various exploitation licences confer upon holders an exclusive right to extract minerals, as per the licence terms. If a licensee discovers any minerals not covered by the terms of a licence, the licensee may apply to the Ministry in writing within 90 days from the date of such discovery for an exploitation licence for these additional minerals.

An exploitation licensee, however, is not permitted to commence any development or mining activities in the licensed area unless a feasibility study has been submitted in acceptable form to the Ministry. Such study must include information regarding capital and operating costs of the project, expected rate of return on investment and proposed mining methods to be used. In addition to the feasibility study, an exploitation licence holder (with the exception of building materials quarry licences) must, during the term of the licence, furnish the Ministry with an environmental study prepared by a specialist. Such study must include a rehabilitation plan specifying how the licensee, at the end of the licence term and at the licensee's expense, will rehabilitate the exploited area.

Furthermore, the proverbial "use it or lose it" obligation applies, such that if an exploitation licence relates to more than one mineral, a licensee must exploit all minerals stipulated in the licence. Failure to do so may result in notification from the Ministry requiring exploitation thereof. If the circumstances relating to such notification are not cured within 90 days, the Ministry may then terminate the licence with respect to the subject mineral and grant an exploitation licence for that particular mineral to another applicant in a manner that will not substantially interfere with the operations of the original licensee.

Although the scope of the following provision and its application retroactively is as yet untested, the Mining Code does stipulate that the KSA shall have priority in purchasing from any licensee the quantity of mineral production it requires, on the conditions and at the prevailing prices for such minerals, unless a licensee has prior commitments to sell such production to a third party. Therefore, to mitigate potential risks associated with the application of this right, off-take arrangements should be considered by exploitation licensees well in advance. In addition, the Ministry has the ability, and has in practice exercised such prerogative in certain instances, to specifically mandate within the terms of an exploitation licence that the extracted minerals be sold to specified domestic buyers applying set pricing formulas.

Competitive Bidding and Transfer of Licences

In certain limited circumstances, licences are granted on a competitive basis: (i) where the Ministry delineates a licence area as one requiring competitive bidding for the award of an exploitation licence in the form of a public tender process, and (ii) where more than one applicant applies for a licence over the same area. In such cases, the winning applicant is determined on the basis of evaluating factors such as the respective technical and financial competence of the applicants, the proposed technical work program and commitment to the training and employment of Saudi nationals, with each of the respective criteria being given a weighting as set out in the Regulations.

After having been granted an exploration or exploitation licence, a licence holder may transfer such licence to another party who possesses the technical and financial capability and adequate experience to fulfil the obligations of the licence and who would also be qualified to obtain a similar licence under the terms of the Mining Code. For such a transfer of licence to be effective, a written request in the prescribed form, along with the payment of a transfer fee, must be made to the Ministry. It should be noted that although the process is clear, the test of being qualified to "obtain a similar licence" can be applied stringently by the Ministry, and the ability to transfer the licence should not be treated as a foregone conclusion.

Fees and Taxes

The mineral resources licensing process in the KSA entails paying certain fees relating to matters such as licence application submission, licence issuance, renewal and extension, and licence transfer, and such fees vary in amount between the different types of licences. In addition, unless relating to privately owned land that is exempt, exploitation licences are charged a yearly surface rental fee of SR 10,000 per sq km.

Licensees are subject to (i) KSA income tax, or (ii) if income tax is not applicable, a severance fee representing 25% of annual net income or the equivalent of the income tax, whichever is lower, with any applicable Zakat being deducted from this amount. The current applicable income tax rate for mining activities in the KSA is 20% and an additional withholding tax of 5% is applied against distributions to shareholders outside of the KSA.

Conclusion

It is important to consider that much of the foregoing discussion of mining licences is a description of the black letter of the Mining Code and Regulations. However, in practice, the Ministry retains a significant amount of discretionary power over the scope of licences and the process of licensing, and particularly so in its ability to incorporate specific terms and obligations into a mining licence. Therefore, to have a definitive understanding of the nature of the obligations to which a licensee may be subject, particular attention must be paid to the detailed terms of each individually issued licence, as many are bespoke. With respect to exploitation licences for example, it is not uncommon to see terms such as requiring the licensee to preserve local water sources and the environment and to protect wildlife, to execute specific agreed upon work plans within a specified time period, and to give local service providers preferences in contracting. These caveats are not unique to the KSA and simply highlight the importance of being actively engaged with the Ministry, and specifically the Deputy Ministry for Mineral Resources, to proactively negotiate and work collaboratively to agree to licences on commercially reasonable terms.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Carlos Cerqueira
Similar Articles
Relevancy Powered by MondaqAI
Charles Russell Speechlys LLP
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Charles Russell Speechlys LLP
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions