As part of Saudi Vision 2030, a strategic framework aimed at reducing Saudi Arabia’s dependence on oil and diversifying its economy, the Ministry of Industry and Mineral Resources developed the New Mining Investment Law (the New Law).
One of the main goals of the New Law is to attract more local and international investors to the mining sector, and it lays the foundation for a number of interesting initiatives, including:
(i) the establishment of a national geological database
(ii) the establishment of a “Mining Fund” to support the mining sector
(iii) potentially streamlining the procedure for obtaining mining licenses, and
(iv) introducing certain financial incentives for investors.
In this article, we discuss the New Law, the notable differences between the New Law and the previous Mining Investment Law, and the potential opportunities for investors presented by the New Law and the wider sector reforms already underway.
Key highlights include information on the following:
New Mining Investment Law
The New Law was approved by the Council of Ministers on 9 June 2020 and will come into force on 29 December 2020 (180 days after it was published in the Official Gazette), largely superseding the old law, which has been in force since 2005.
Establishment of a National Geological Database
The Ministry is mandated to coordinate with the Saudi Geological Survey to develop an online National Geological Database as a central repository of the Kingdom’s geological, geochemical, geophysical, topographic and geographic information.
Establishment of a Mining Fund
The Ministry is to establish a “Mining Fund”. It appears this ‘fund’ will simply be a bank account (rather than an investment vehicle as the term might imply), into which will be deposited the various financial considerations paid for Licenses or services provided by the Ministry, fines imposed and site rentals levied under the New Law, financial returns from tenders, and any gifts, donations and endowments. The funds will be earmarked to develop and support the mining sector, and the Ministry will issue regulations detailing how the funds are to be allocated.
Licenses and Licensing procedure
The New Law retains the three-tier classification of minerals from the old law, albeit with slightly different terminology.
Holders of Exploitation/Utilization Licenses for Class A Minerals which are not subject to income tax in the Kingdom will be required to pay a financial consideration on their net annual income equivalent to what they would pay were they subject to income tax.
Financing & mortgaging
As previously discussed, obtaining finance for exploration in the Kingdom has traditionally been challenging, particularly for Saudi companies. Exploration is a capital-intensive exercise, for which there is no readily available capital market in-Kingdom.
Site rehabilitation and closure — Environmental and social impact assessments
Utilization/Exploitation License holders now need to provide a financial guarantee for Rehabilitation and Closure of the License Site. The detailed requirements for these guarantees will be set out in the regulations.
Other notable amendments
Certain other provisions of the old law have been amended or deleted to appeal to potential private sector investors.