Unpacking Saudi Arabia's comprehensive new mineral regulatory regime: Part 1 of 3

Authors: Peter Leon, Partner and Chair of Africa Practice Group, Johannesburg; Ernst Muller, Associate, Johannesburg; Matthew Purves, Associate Designate, Johannesburg

The mining and metals processing sector is one of the key pillars of the Kingdom of Saudi Arabia's (the Kingdom’s) Vision 2030.

As part of Vision 2030, championed by Crown Prince Mohammed bin Salman, the Kingdom aims, by 2030, to more than triple mining’s contribution to GDP, and in this process, create more than 200,000 direct and indirect jobs. The government values the Kingdom’s untapped mineral wealth – which includes substantial reserves of bauxite, phosphate, gold, copper and uranium – at a minimum of 5 trillion Riyals (US$ 1.33 trillion); an astonishing figure by any standards.

To achieve its objectives,  the Kingdom is implementing a number of sectoral structural reforms, which seek to stimulate private sector investment by intensifying exploration, building a comprehensive database of the Kingdom’s resources, reviewing the licensing procedures for extraction, investing in infrastructure, developing funding methods and establishing Saudi centres of excellence.

Key among these reforms is the Kingdom's new Mining Investment Law, issued under Royal Decree No. (M/140), dated (19/10/1441 AH) (the Law), which came into effect on 1 January 2021. The Law sits at the apex of a detailed pyramid of mineral law reforms, supported by the Implementation Regulation of the Mining Investment Law (Regulation) (a comprehensive set of executive Regulations) and Guidelines, which, likewise, came into force on 1 January 2021. Collectively, the Law, Regulation and Guidelines aim to support Vision 2030's objective of diversifying the Saudi economy (historically reliant on hydrocarbons) by encouraging and facilitating investment in the mining sector.¹

This is the first in a three part series of legal briefings aimed at explaining the new mineral regulatory regime to prospective investors in the Kingdom:

• Part 1 looks at administration and licensing;
• Part 2 deals with sustainability and includes matters related to the environment, mine community management, occupational health and safety, environmental financial guarantees, and rehabilitation and mine closure; and
• Part 3 unpacks the financial provisions, as well as the enforcement and dispute resolution regime.

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Administration of the mining regime

Minerals, mining reserves and mining blocks

Licensing

Miscellaneous

Administration of the mining regime

The executive Regulation aims mainly to:²

• promote good public governance;
• enhance accountability, transparency, efficiency, effectiveness, responsiveness and the rule of law; and
• establish a predictable and fair licensing regime to build trust and provide stability.

In an effort to enhance regulatory transparency and predictability, the Ministry of Industry and Mineral Resources (Ministry) is required to publish any proposed amendments to the Regulation for a period of public consultation.³

While the Law makes the Ministry responsible for the Kingdom’s mining regime⁴, the Regulation empowers the Minister to delegate any responsibilities to the Saudi Geological Survey (SGS) or any other company incorporated by the Ministry.⁵ The Ministry may also outsource to private companies the monitoring of mining activities and compliance with the Law and Regulation.

Among other things, the Ministry will work with the SGS to:⁶

• identify mining reserve areas (land or maritime areas designated by the Ministry for reconnaissance or exploration);
• establish and maintain a National Geological Database; and
• provide geological information to prospective investors.

The Ministry has also established an online portal where:⁷

• licence applications may be submitted;
• licences are issued and may be renewed;
• applications to amend, transfer or abandon licences may be submitted;
• application processes may be tracked;
• periodic reports prescribed under the Law and the Regulation may be submitted; and
• notices may be received and responded to.

To ensure that the public has adequate access to information relating to the mining sector, the Ministry must maintain separate registers that must provide information on:⁸

• applications for licences (or for the amendment or abandonment of licences);
• licences that have been issued;
• mining reserve areas which the Minister designated; and
• mining blocks which the Minister has designated for public tender processes.

Minerals, mining reserves and mining blocks

Like in much of the world, all minerals located in the Kingdom’s land and maritime territory are the exclusive property of the state.⁹ Ownership of minerals transfers to a licence holder once they are lawfully extracted.¹⁰

Minerals are classified into four categories:¹¹

• Class A: metallic minerals, precious and semi-precious stones and ores requiring advanced processing and focused operations (including high-grade bauxite, high-grade iron ore, copper, nickel, gold, phosphates and uranium);
• Class B: non-metallic compounds, industrial minerals and raw materials (including low-grade bauxite, low-grade iron ore, dolomite, gypsum, and red clay);
• Class C: materials used for construction purposes (including gravel, crushed marble, dimension stones, sand and clay); and
• Minerals subject to special regulation: phosphates, tantalum, niobium, rare earth elements, thorium, quartz, high-percentage iron, high-percentage bauxite, and all radioactive minerals.

A mining reserve area is one that has been designated by the Ministry for reconnaissance or exploration activities, after considering whether any existing licences fall within that area.¹²

A mining block is an area that has been designated by the Ministry for mining activities, after consultation with other affected government authorities.¹³

Licensing

There are three broad categories of licences under the Law:¹⁴

• reconnaissance licence;
• exploration licence;
• exploitation licence, of which there are eight types:¹⁵
  • mining licence;
  • small mine licence;
  • building materials quarry licence;
  • general purpose licence;
  • a licence for surplus mineral ores at project sites or owned lands;
  • ores and minerals extraction licence for artisanal miners;
  • seabed licences; and
  • licences for specific layers of the earth.¹⁶

Licences may only be granted to companies incorporated in the Kingdom, which can demonstrate that they have the technical expertise and financial capacity¹⁷ to conduct the proposed operations efficiently and proficiently. In addition, the applicant must not have declared bankruptcy or be the subject of insolvency proceedings, and its executive officer must not have been convicted of a criminal offence within the preceding three years.¹⁸

Applications for new licences will be processed on a first-in, first-assessed basis; and where two or more compliant applications are received on the same day, the licence must be awarded to the applicant who will conduct the proposed operations in the most efficient and environmentally friendly manner.¹⁹

The Ministry may also reserve certain land or maritime areas for application by public tender (open bidding).²⁰ These processes are comprehensively regulated under a set of public tender guidelines which stipulate the substantive and procedural requirements with which the Ministry and bidders must comply in these exceptional circumstances.

Reconnaissance licence²¹

An applicant for a reconnaissance licence must:

• if a natural person, be a qualified geoscientist or scientist in an equivalent field, and have experience in mining;²²
• if a juristic person, employ or appoint such a natural person to perform the reconnaissance work;²³
• not have had a licence cancelled in the preceding three years;²⁴
• be able to fund 100 per cent of the costs of the proposed activities in the first year;²⁵
• have paid all sums owed to the Ministry in respect of any other licence, fines or other related costs in a timely manner.²⁶

The Ministry will decide to accept, reject, or require revision of an application within fifteen days. A rejection must be accompanied by written reasons.²⁷

A reconnaissance licence is granted for up to two years, and may, on application, be renewed once for up to two years.²⁸

Exploration licence²⁹

An applicant for an exploration licence must, among other things:

• be a company registered in the Kingdom specifically for the purpose of exploration and mining, with a share capital of at least 100,000 Riyals;³⁰
• not have had a licence cancelled in the preceding three years;³¹
• provide proof of the necessary technical expertise and financial capacity;³²
• submit an exploration work plan, expenditure plan, environmental impact management plan, and social impact management plan;³³
• if applying to explore for Class A or B minerals, employ or appoint an experienced specialised technical consultant;³⁴
• have access to 100 per cent of the funds required for the first two years of exploration, and submit a financing plan for the remaining term of the licence;³⁵
• have paid all sums owed to the Ministry in respect of any other licence, fines or any other related costs in a timely manner.³⁶

The Ministry will decide to accept, reject, or require revision of an application within ninety days, which may be extended with reasons.³⁷ A rejection must be accompanied by written reasons.³⁸

An exploration licence for Class A and B minerals is granted for up to five years, and renewable for further periods of five years, up to a maximum of fifteen years in total.³⁹ An exploration licence for Class C minerals is granted for up to one year and is non-renewable.⁴⁰

An exploration licence holder:⁴¹

• has the exclusive right to apply for an exploitation licence over the same site, upon establishing that it is economically feasible to exploit the minerals explored;
• may, after notifying the Ministry, have up to half a tonne of mineral samples analysed abroad, or more with the Ministry’s approval;
• must meet prescribed minimum annual expenditure requirements;
• must report to the Ministry twice a year on its exploration work, and provide its samples and studies to the Ministry at the end of the licence term.

Mining and small mine licence

A mining licence pertains to Class A and B minerals and may cover a contiguous area of up to fifty square kilometres. It is granted for up to thirty years, renewable for up to a further thirty years.⁴²

A small mine licence also pertains to Class A and B minerals, except phosphate, tantalum, niobium, rare earth elements, thorium, quartz, high-grade iron ore, high-grade bauxite, and all radioactive minerals. It is granted for up to twenty years, renewable for up to a further twenty years.⁴³

An applicant for a mining or small mine licence must:

• be a company registered in the Kingdom specifically for the purpose of mining;⁴⁴
• hold a valid exploration licence over the same site, and have complied with all its obligations under that licence;⁴⁵
• demonstrate that it is economically feasible to exploit the minerals in that site;⁴⁶
• have the financial capacity, technical expertise and professional expertise to carry out the mining activities efficiently;
• submit a business feasibility study, an environmental and social impact study, an environmental management plan, a rehabilitation and closure plan, a work plan and implementation plan, and a financial guarantee for rehabilitation and closure.⁴⁷

The Ministry will decide to accept, reject, or require revision of an application within sixty days of the environmental and social impact study being approved by the Ministry and the competent environmental authority, which may be extended with reasons. A rejection must be accompanied by written reasons.⁴⁸

A mining or small mine licence holder, among other things, has the right to:⁴⁹

• excavate, polish, concentrate, smelt and process the minerals covered by the licence;
• transport and sell the minerals, and export them for commercial purposes;
• build and operate all of the requisite facilities needed for mining;
• construct water, electricity, telephone networks, sewage and drainage systems, pipelines, power plants, railways and private roads, with Ministry approval;
• apply to exploit other minerals (not covered by the licence) found on the site during exploitation.

General purpose licence⁵⁰

The holder of a mining or small mine licence may also apply for a general purpose licence, to:⁵¹

• establish facilities or use lands outside the licence site, in order to achieve the purpose of the licence; or
• continue using facilities in the licence site after the licence expires.

An applicant for a general purpose licence must, among other things, submit an environmental and social impact study, a rehabilitation and closure plan, and a financial guarantee for rehabilitation and closure.⁵²

Building materials quarry licence⁵³

A building materials quarry licence pertains to Class C minerals. It is granted for up to ten years, which is renewable for up to five years.

An applicant for a building materials quarry licence must:

• be a company registered in the Kingdom specifically for purposes that include mining, with capital resources of at least 100,000 Riyals;⁵⁴
• not have had a licence cancelled in the preceding three years;⁵⁵
• employ a Saudi national to be responsible for its operations;⁵⁶
• prove that it has the necessary technical experience and financial resources;
• submit a work plan, environmental management plan, social impact management plan, rehabilitation programme, and a financial guarantee for rehabilitation;⁵⁷
• have access to forty per cent of the funds required to implement the work plan, and submit a financing plan that covers 100 per cent of the costs of the first years of the licence;⁵⁸
• not have been declared bankrupt or the subject of any insolvency proceedings;⁵⁹
• have paid all sums owed to the Ministry in respect of any other licence, fines or other related costs in a timely manner.⁶⁰

The Ministry will decide to accept, reject, or require revision of an application within thirty days, which may be extended with reasons. A rejection must be accompanied by written reasons.⁶¹

A licence for surplus mineral ores at project sites or owned lands

A licence for surplus mineral ores may only be issued for Class C Minerals. Both natural and juristic persons may apply for a licence for surplus mineral ores where the ores are located within a licence site or on privately owned land.⁶² The licence is valid for a period of one year and may be extended at the Ministry’s discretion.⁶³

An applicant for a licence for surplus mineral ores must, among other things;

• complete the prescribed application form;
• submit any additional licences or permits which authorise the proposed work;
• submit supporting documents showing that he is the owner of the land or project;
• specify the type and quantity of ores to be removed from the licence site; and
• apply for the necessary environmental approvals.

The Ministry must accept or reject the application, or instruct the applicant to revise the application within thirty days. The time period may be extended with reasons. If the Ministry rejects the application, it must provide written reasons.⁶⁴

Ores and minerals extraction licence for artisanal miners

An ore and mineral extraction licence may be granted to natural persons who are Saudi national artisanal miners and who collect mineral deposits through manual methods for artisanal, traditional and or artistic works.⁶⁵

An applicant for an extraction licence must:⁶⁶

• apply for an area for the proposed licence site which may not exceed ten thousand square meters;
• provide an undertaking that it will not establish facilities on the licence site or use energy-powered equipment or machinery during the extraction process;
• not have had a licence that was cancelled in the preceding three years; and
• have paid all sums owed to the Ministry in respect of any other licence, fines or other dues in a timely manner.

The Ministry will decide to accept, reject, or require revision of an application within thirty days, which may be extended with reasons. A rejection must be accompanied by written reasons.⁶⁷

Seabed licences⁶⁸

Although not specifically regulated under the Regulation, the Ministry may prescribe requirements to be imposed on applications for seabed licences. These requirements must accord with the provisions of the United Nations Convention on the Law of the Sea, 1982.⁶⁹

Licences for specific layers of the earth⁷⁰

An application for a specific layer of the earth licence must comply with the requirements in respect of the Licence which the applicant intends to apply for.⁷¹

The application shall:

• provide reasons supporting the request for a specific layer of the earth; and
• include studies and a description of the mining methodology that show which Mining Activities will not damage the adjacent layers of the earth.

In the event that an applicant for a specific layer of the earth licence wishes to apply for the licence over a site to which a licence already exists, the Ministry may cancel the existing licence if the current holder of the right does not wish to exploit the specific layer of the earth.⁷² Alternatively, the Ministry can request that the applicant and existing licence holder enter into an agreement to conduct mining activities on the licence site contemporaneously.

Miscellaneous

A licence may only be transferred with the prior approval of the Ministry, upon proof that the transferee qualifies to be a licence holder.⁷³

A change of control over a licence holder does not require Ministry approval, but must be reported to the Ministry.⁷⁴

A licence may be encumbered by a mortgage without Ministry approval, but the Ministry must be notified.⁷⁵

The Ministry may agree to extend the term of a licence upon application owing to a force majeure event.⁷⁶

References

1. Herbert Smith Freehills advised the Saudi Ministry of Industry and Mineral Resources on the Regulation and Guidelines (see here).

2. Article 2 of the Regulation.

3. Article 5 of the Regulation.

4. Article 3 of the Law.

5. Article 4 of the Regulation.

6. Article 6 of the Regulation.

7. Article 4 of the Law and Article 7 of the Regulation.

8. Article 8 of the Regulation.

9. Article 2(1) of the Law and article 10(1) of the Regulation.

10. Article 2(2) of the Law and article 10(3) of the Regulation.

11. Article 9 of the Regulation read with Annex 1 to the Regulation.

12. Article 11(1) and 11(2) of the Regulation.

13. Article 10 of the Law and article 12 of the Regulation.

14. Article 14(1) of the Law.

15. Article 14(2) of the Law.

16. Article 15 of the Law.

17. Article 16 of the Law.

18. Article 14 of the Regulation.

19. Article 18 of the Law and article 16 of the Regulation.

20. Article 19 of the Law and Chapter Four of the Regulation.

21. Article 18 of the Regulation.

22. Article 19(1)(1) of the Regulation.

23. Article 19(1)(2) of the Regulation.

24. Article 19(1)(3) of the Regulation.

25. Article 20(1)(1) of the Regulation.

26. Article 20(1)(2) of the Regulation.

27. Article 21 of the Regulation.

28. Article 38 of the Law.

29. Article 24 of the Regulation.

30. Article 25(1)(1) of the Regulation.

31. Article 25(1)(2) of the Regulation.

32. Article 24(2)(7) and 24(2)(8) of the Regulation.

33. Article 24(2)(9) – 24(2)(11) of the Regulation.

34. Article 25(1)(4)(1) of the Regulation.

35. Article 26(1)(1) of the Regulation.

36. Article 26(1)(4) of the Regulation.

37. Article 27(1) of the Regulation.

38. Article 27(2) of the Regulation.

39. Article 40(1) of the Law and article 30(2) – 30(4) of the Regulation.

40. Article 40(2) of the Law and article 30(1) of the Regulation.

41. Article 41 of the Law.

42. Article 42 of the Law.

43. Article 43 of the Law and article 32(5) of the Regulation.

44. Article 14 of the Regulation and article 32(1)(4) of the Regulation.

45. Article 32(1)(1) of the Regulation.

46. Article 32(1)(3) of the Regulation.

47. Article 32(3) of the Regulation.

48. Article 33 of the Regulation.

49. Article 45(4) of the Law.

50. Article 37 of the Regulation.

51. Article 37(1)(1) and 37(1)(2) of the Regulation.

52. Article 37(5)(2) of the Regulation.

53. Article 41 of the Regulation.

54. Article 43(1) and article 44(1) of the Regulation.

55. Article 43(1)(4) of the Regulation.

56. Article 43(1)(3) of the Regulation.

57. Article 41(2)(2) – 41(2)(5) of the Regulation.

58. Article 44(2) and 44(3) of the Regulation.

59. Article 44(4) of the Regulation.

60. Article 44(5) of the Regulation.

61. Article 45 of the Regulation.

62. Article 50(1) of the Regulation.

63. Article 50(1)(8) of the Regulation.

64. Article 50(1)(13) of the Regulation.

65. Article 51(1) of the Regulation.

66. Article 50(1) of the Regulation.

67. Article 50(1)(23) of the Regulation.

68. Article 19 of the Law.

69. Article 53 of the Regulation.

70. Article 15 of the Law.

71. Article 52(2) of the Regulation.

72. Article 52(4) of the Regulation.

73. Article 20 of the Law and article 63 of the Regulation.

74. Article 21 of the Law and article 64 of the Regulation.

75. Article 22 of the Law and article 65 of the Regulation.

76. Article 30 of the Law and article 69 of the Regulation.

For more information, please contact Peter Leon, Ernst Muller or Matthew Purves.