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

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

As explained in part one of this series, the Kingdom of Saudi Arabia (the Kingdom) is implementing a number of structural reforms to the mining sector, which seek to stimulate private sector investment by intensifying exploration, building a comprehensive database of the Kingdom’s mineral 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. As mentioned in our previous briefs, the Regulation 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.

In our series of legal briefings on these developments:

  • Part 1 examined administration and licensing;
  • Part 2 dealt with sustainability (including environment, local communities, occupational health and safety, and mine closure); and
  • This Part 3 deals with financial provisions, as well as the enforcement and dispute resolution regime.

Financial provisions

Monitoring and inspection

Violations and penalties

Dispute resolution

Conclusion


Financial provisions

Minimum exploration expenditure

Exploration licence holders must meet a minimum annual expenditure requirement.1 The minimum annual expenditure ranges from 750 Riyals per square kilometre (in the first year of operation) to 7,500 Riyals per square kilometre (in the ninth to fifteenth years of the exploration operations).2

Exploration expenditure includes the costs arising from:

  • reconnaissance, geological, geochemical and geophysical activities, and aerial surveys;
  • all exploration, drilling and testing activities, as well as geological, hydrological, topographical, environmental and social studies;
  • administrative costs related to preparing studies and evaluating results;
  • costs for accessing the licence site;
  • operating expenses required to conduct exploration activities;
  • rehabilitation costs resulting from exploration activities;
  • costs incurred to evaluate the opportunities of future exploitation, including feasibility studies, closure studies, and environmental impact studies;
  • the annual surface rent; and
  • labour costs.3

Exploration expenditure does not include fines, penalties, or any expenses incurred:

  • before obtaining the licence;
  • in relation to the transfer or acquisition of the licence; or
  • in relation to the financing of the exploration activities.4

Exploration expenditure may be distributed among multiple contiguous licence sites.5 Any amount exceeding the minimum annual expenditure may be carried forward to the next year.6 Any shortfall will be carried forward, and if it is not met within two years, the Ministry of Industry and Mineral Resources (Ministry) may refuse to renew the licence or cancel the licensee’s exclusive right to obtain an exploitation licence.7

A licence holder may apply for an exemption from the minimum annual expenditure requirements, if:

  • additional time is required to evaluate the work performed and plan future work; or
  • work cannot be carried out for reasons beyond the licensee’s control (e.g. security, health or environmental reasons).8

Surface rental

An exploration or exploitation licence holder must pay surface rental annually, calculated in accordance with a formula provided in the Regulation:

  • for an exploration licence, the rental ranges from 10 to 900 Riyals per square kilometre (depending on the number of years since the licence was granted);
  • for a building materials quarry licence, the rental ranges from 10,000 to 25,000 Riyals per square kilometre (depending on the total size of the licence site); and
  • for any other exploitation licence (including a mining or small mine licence), the rental is 10,000 Riyals per square kilometre.9

Severance fees

The holder of an exploitation licence for Class A minerals (explained in part one) must pay a severance fee ranging from 1 per cent to 4.5 per cent (depending on the mineral) of the net value of the mineral upon extraction.10 The latter value is determined according to an extremely detailed formula set out in the Regulation.11

The holder of an exploitation licence for Class B minerals must pay:

  • for certain minerals (such as low-grade bauxite, dolomite and marble), a fee ranging between 2.5 to 38 Riyals per ton;
  • for others (e.g. barite, graphite and talc), 5 per cent of the net revenues derived from disposing of the ore or minerals produced.12

The holder of an exploitation licence for Class C minerals must pay a severance fee ranging from 0.53 to 38 Riyals per ton of ore produced (depending on the mineral).13

Export duty

An exploitation licence holder may export minerals and ores for commercial purposes after the won minerals and ores are processed by increasing their concentration and remove any impurities. Once the minerals and ore are processed they may only be exported in accordance with the requirements imposed under the exploitation licence in question.

Class B minerals (explained in part one) may be exported for commercial purposes in unprocessed form, if the licensee:

  • pays an export duty of 10 per cent of the net sales; and
  • does not export more than 30 per cent of the average annual minerals or ores it produces, prior to processing.14

Class C minerals may be exported for commercial purposes in their natural form (as processed by primary physical methods), subject to an export duty of 10 per cent of the net sales.15

Monitoring and inspection

An authorised inspector may enter any licence site at any time, with or without the licensee’s permission, and has wide powers to:

  • ensure that the Law, the Regulation, the licence terms and conditions, and Ministry decisions, are being complied with;
  • examine and copy books, records, documents, data, or any other document related to the implementation of the Law, Regulation, and the licence terms and conditions;
  • assess the general conditions of the licence site, and the licensee’s compliance with the work plan;
  • discuss with the licensee, or its representative or workers at the site, any matters related to the implementation of the Law and the Regulation;
  • obtain samples of the materials used at or extracted from the site, to ensure the proper implementation of activities in accordance with the work plan;
  • measure exploited quantities at the site where mining activities are conducted and review technical documents relating to measurements, and financial and accounting documents to ensure the accuracy of information provided to the Ministry;
  • ensure that the activities performed at the site have no adverse impact on safety, security, health, environment or properties, and instruct the licensee to remedy those impacts urgently;
  • detect violations and impose penalties of up to 200,000 Riyals per violation;
  • detect violations for which the penalty exceeds 200,000 Riyals, and refer them to the committee responsible for violations and penalties;
  • seize the machinery, equipment, minerals and ores used at or extracted from the site where violations are detected; and
  • seek assistance from security forces, if needed.16

If requested, the inspector must explain the reasons for the inspection.17 A licensee may request a re-inspection from the Ministry if it was not afforded a reasonable opportunity to provide sufficient information, data or reports.18

Violations and penalties

The following are punishable violations:

  • engaging in any mining activity without a licence;
  • failure to comply with the Law, the Regulation, or the licence terms and conditions within 60 days of notice to do so;
  • failure to remedy a violation of which the licensee was notified, within the period specified, or recurrence of the violation;
  • providing misleading or incorrect information to the Ministry;
  • delay or failure to provide information or reports requested by the Ministry;
  • delay in paying any amounts due under the Law and Regulation;
  • delay of more than 180 days from the date of the Ministry’s relevant notice, to take actions to preserve the environment, wildlife, archaeological sites or tourist areas;
  • conducting any activity or using any equipment that:
    • has adverse impacts on the safety, security or health of employees or any other persons;
    • causes damage to the environment or property, an unusual disturbance, or substantial damage to any site.19

In the event of the latter type of violation, the Ministry may request the licensee to suspend all or part of its activities, take steps to remedy the violation, and prepare and implement a corrective action plan within 30 days (to be approved or rejected by the Ministry within 60 days).20

A violation may be punished with one or more of the following penalties:

  • a fine of up to 1,000,000 Riyals;
  • suspension of works;
  • termination of the licence;
  • confiscation of equipment used in the violation.21

A fine of up to 200,000 Riyals may be imposed by the Ministry without referral to an expert committee (the committee). If the Ministry believes a violation may warrant a larger fine, it must refer the violation to a committee for investigation.22 The committee may impose any penalty except:

  • licence termination, which only the Ministry may impose upon a recommendation from the committee; and
  • confiscation, which must be referred to a court.23

If the Ministry intends to suspend works or terminate a licence, it must give the licensee 60 days’ notice to remedy the violation. Failing this, the Ministry will refer the violation to the committee, which will investigate the matter and either suspend the works or recommend that the Ministry terminate the licence.24

A licensee will receive a notice of a penalty, with reasons, and be given an opportunity to object to it within 30 days. Dismissal of the objection may be challenged in the administrative courts within 60 days.25

A licensee whose licence is terminated may not apply for a new licence for three years.26

The Ministry may recover any minerals, ores, derivatives and funds (as well as severance fees) associated with violations.27

Dispute resolution

If efforts to settle a dispute with the Ministry are unsuccessful after 60 days, the licensee may either approach the administrative courts, or request the Minister to agree to refer the matter to domestic arbitration.28

Conclusion

Empirical experience will determine whether the new mineral regulatory regime fosters the envisaged investor confidence in the Kingdom’s mining sector. As the Regulation in many respects follow international best practice, the law reform process is a significant as much as important step towards realising Vision 2030’s objectives.


References

  1. Article 108 of the Regulation.
  2. Annex 6 to the Regulation.
  3. Article 108.3 of the Regulation.
  4. Article 108.4 of the Regulation.
  5. Article 108.6 of the Regulation.
  6. Article 108.8 of the Regulation.
  7. Article 108.10 of the Regulation.
  8. Article 109 of the Regulation.
  9. Annex 5 to the Regulation.
  10. Article 111 and Annex 2 of the Regulation.
  11. Articles 115 to 134 of the Regulation.
  12. Article 112 and Annexes 3A and 3B of the Regulation.
  13. Article 113 and Annex 4 of the Regulation.
  14. Article 135.3 of the Regulation.
  15. Article 135.4 of the Regulation.
  16. Article 138 of the Regulation.
  17. Article 142 of the Regulation.
  18. Article 143 of the Regulation.
  19. Article 155 of the Regulation.
  20. Articles 151 and 152 of the Regulation.
  21. Article 56(2) of the Law.
  22. Article 57(1) of the Law.
  23. Article 57(2) of the Law.
  24. Articles 153, 157 and 158 of the Regulation.
  25. Article 160 of the Regulation.
  26. Article 25 of the Law.
  27. Article 56(3) of the Law and article 159 of the Regulation.
  28. Article 161 of the Regulation.

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

Peter Leon
Peter Leon
Partner and Chair of Africa Practice Group, Johannesburg
+27 10 500 2620
Ernst Muller
Ernst Muller
Senior Associate, Johannesburg
+27 64 753 3376
Matthew Purves
Matthew Purves
Associate Designate, Johannesburg
+27 10 500 2647

Unpacking Saudi Arabia’s comprehensive new mineral regulatory regime: Part 2 of 3

Authors: Peter Leon, Partner and Chair of Africa Practice Group; Justine Sweet, Consultant; Amanda Hattingh, Associate; Ernst Muller, Senior Associate

As explained in part one of this series, the Kingdom of Saudi Arabia (the Kingdom) is implementing a number of structural reforms to the mining sector. Among other things, the measures seek to stimulate private sector investment by intensifying exploration, building a comprehensive database of the Kingdom’s resources, reviewing the licensing procedures for mineral 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. As mentioned in our previous brief, 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.

In our three part series of legal briefings on these developments, this part two deals with sustainability, which includes matters related to environmental protection, occupational health and safety, and mine community management.

You can subscribe to our blog to automatically receive notifications about future legal briefings.

Environmental protection

Occupational Health and Safety (OHS)

Community Management

Conclusion


Environmental protection

All licence applicants and holders are bound by the Kingdom’s General Environmental Law, in addition to the specific requirements imposed by the Law and the Regulation.1

An applicant for a mining licence, small mine licence or general purpose licence (explained in part one) must:

  • submit an environmental impact study (EIS), which includes an environmental management plan (EMP);2
  • provide an undertaking by the applicant’s executive officer that, amongst others, the information submitted is accurate and that the applicant will abide by the EMP;3
  • submit a rehabilitation and closure programme, including a comprehensive risk assessment and a cost estimate;4 and
  • provide a financial guarantee for rehabilitation and closure.5

A holder of a mining licence, small mine licence or general purpose licence must:

  • review its EIS and EMP at least every three years or whenever: the licence is renewed or amended; an environmental accident occurs; or the Ministry  of Industry and Mineral Resources (Ministry) or environmental authority requests it;6
  • report any environmental accidents to the Ministry, and take all necessary measures to prevent their recurrence;7
  • report annually on its compliance with the EMP;8
  • review its rehabilitation and closure programme every five years (and eighteen months prior to the scheduled date of closure), or whenever: the licence is renewed, extended, modified or transferred; the work plan undergoes a major change; there is a sudden closure or licence termination; the licence site is placed under care and maintenance; or the Ministry requires it;9
  • review the financial guarantee upon the same events, as well as if there is a material impact on the financial capacity of any guarantor company;10
  • report annually on the status of implementation of the rehabilitation and closure programme;11 and
  • submit annual financial statements showing provisions allocated to rehabilitation and closure.

An applicant for an exploration licence or building materials quarry licence must submit an environmental impact management plan (EIMP), with an undertaking by its executive officer to abide by the plan.12

A holder of an exploration licence or building materials quarry licence must:

  • review its EIMP whenever: the licence is renewed, amended or transferred; an environmental accident occurs; or the Ministry or environmental authority requests it;13
  • report any environmental accidents to the Ministry, and take all necessary measures to prevent their recurrence;14
  • report annually on its compliance with the EIMP;15 and
  • in the case of a building materials quarry licence, provide a financial guarantee for rehabilitation and closure.16

The holder of a mining licence, small mine licence or general purpose licence may request the Ministry’s approval to place the licence site under care and maintenance for a period of up to two years. The request must include a comprehensive care and maintenance plan, compliance with which must be independently audited.17

Rehabilitation and closure works must be carried out in accordance with strict technical and operational standards.18 After a final performance assessment, the licensee may apply for a certificate of rehabilitation and closure.19

Occupational Health and Safety (OHS)

All licence holders are bound by the Kingdom’s general laws on OHS and fire protection, in addition to the specific requirements imposed by the Law and the Regulation.20

All licence holders must, among other obligations:

  • ensure that OHS management standards are met, OHS plans are implemented, work hazards are effectively identified, and the identified risks are appropriately monitored;21
  • appoint a responsible person to oversee and manage OHS compliance;22
  • before engaging in any activity that may put someone at risk, conduct a risk assessment and keep records of the results;23
  • ensure that all workers are appropriately experienced, trained, qualified and equipped to perform the tasks assigned to them;24
  • ensure that workers are not exposed to hazards beyond the occupational exposure limits published by the American Conference of Governmental Industrial Hygienists;25
  • conduct medical examinations on workers at least annually;26
  • ensure that all visitors undergo safety induction training and wear personal protective equipment;27 and
  • investigate and report all work injuries and occupational accidents to the Ministry.28

Community management

An applicant for a mining licence, small mine licence or general purpose licence must submit a social impact study (identifying the main needs of local communities residing within 100 kilometres of the licence site, as well as the potential direct social impacts of the proposed project), which must include a social impact management plan.29

An applicant for an exploration licence or a building materials quarry licence only need submit a social impact management plan.30

A social impact management plan must include:31

  • information on the communities’ expectations of the project, and how the applicant intends to manage those expectations, as well as to enhance the positive impacts of the project;
  • a description of how the applicant will address the communities’ needs, and avoid, mitigate or reduce the project’s negative impacts;
  • a community engagement plan and grievance management plan;
  • a plan for the employment and skills development of community members; and
  • a plan for the procurement of goods and services from community members.

A prospective applicant for an exploration or exploitation licence must first engage in a comprehensive community engagement process, including public meetings.32

The measures that an applicant proposes to implement to address the negative impacts or enhance the positive impacts of a project should be sustainable and aim to:

  • have long term benefits, lasting from generation to generation;
  • be based on the actual needs of community members;
  • be affordable for the applicant;
  • be well planned, monitored and evaluated;
  • prepare communities for the closure of the mine;
  • complement but not replace the government’s plans and services; and
  • recognise and incorporate traditional knowledge.33

A licence applicant must identify landowners or land users whose use or enjoyment of land will be adversely affected by the proposed project, with a view to agreeing upon fair compensation (which may be determined by the Ministry in the absence of agreement).34

In respect of employment, the holder of a mining licence or small mine licence must:

  • give preference in recruitment to members of local communities;35 and
  • employ sufficient community members of appropriate seniority that account for at least a certain percentage of both the number of total employees and the total amount spent by the licensee on employees’ remuneration and benefits by the end of each year (or contribute any shortfall to a skills development fund).36

In respect of procurement, the holder of any licence must spend at least a certain percentage of its total annual expenditure on goods and services, on those supplied by community members (or contribute any shortfall to a local business development fund).37

The holder of an exploration or exploitation licence must also contribute one per cent of its gross annual profits each year to a social development fund.38

Conclusion

The Kingdom’s new legal regime for environmental, occupational and social sustainability draws deeply from international best practice, and represents an important step forward for the country and indeed the region. Implementation of this sustainability regime should foster investor confidence in the Kingdom’s developing mining sector, as it sets clear and predictable performance standards for mining companies, while laying a foundation for a strong social licence to operate.


References

  1. Article 70 of the Regulation.
  2. Article 71 of the Regulation.
  3. Article 72 of the Regulation.
  4. Articles 80 and 81 of the Regulation.
  5. Article 85 of the Regulation.
  6. Article 73 of the Regulation.
  7. Article 76 of the Regulation.
  8. Article 77.1 of the Regulation.
  9. Article 82 of the Regulation.
  10. Article 90 of the Regulation.
  11. Article 83 of the Regulation.
  12. Article 74 of the Regulation.
  13. Article 75 of the Regulation.
  14. Article 76 of the Regulation.
  15. Article 77.2 of the Regulation.
  16. Article 86 of the Regulation.
  17. Article 94 of the Regulation.
  18. Article 79 of the Regulation.
  19. Article 95 of the Regulation.
  20. Article 98 of the Regulation.
  21. Article 99 of the Regulation.
  22. Guideline 3 of the OHS Guidelines.
  23. Article 100 of the Regulation; Guideline 7 of the OHS Guidelines.
  24. Guideline 4 of the OHS Guidelines.
  25. Guideline 10 of the OHS Guidelines.
  26. Guideline 8 of the OHS Guidelines.
  27. Guideline 5 of the OHS Guidelines.
  28. Article 101 of the Regulation; Guideline 9 of the OHS Guidelines.
  29. Articles 102.2 and 102.3 of the Regulation.
  30. Article 102.1 of the Regulation.
  31. Article 102.4 of the Regulation.
  32. Guideline 3 of the Community Management Guidelines.
  33. Guideline 7(4) of the Community Management Guidelines.
  34. Article 32 of the Law; Article 15 of the Regulation; Part 3 of the Community Management Guidelines.
  35. Guideline 13 of the Community Management Guidelines.
  36. Article 104 of the Regulation; Guideline 14 of the Community Management Guidelines.
  37. Article 105 of the Regulation; Guideline 16 of the Community Management Guidelines.
  38. Guideline 17 of the Community Management Guidelines.

For more information, please contact Peter Leon, Justine Sweet, Amanda Hattingh or Ernst Muller.

Peter Leon
Peter Leon
Partner and Chair of Africa Practice Group, Johannesburg
+27 10 500 2620
Justine Sweet
Justine Sweet
Consultant, Johannesburg
+27 83 399 2618
Amanda Hattingh
Amanda Hattingh
Associate, Johannesburg
+27 79 425 4502
Ernst Muller
Ernst Muller
Senior Associate, Johannesburg
+27 64 753 3376

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.

You can subscribe to our blog to automatically receive notifications about future legal briefings.

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.

Peter Leon
Peter Leon
Partner and Chair of Africa Practice Group, Johannesburg
+27 10 500 2620
Ernst Muller
Ernst Muller
Associate, Johannesburg
+27 10 500 2628
Matthew Purves
Matthew Purves
Associate Designate, Johannesburg
+27 10 500 2647

Miners lead on occupational health and safety. But what about digital health and safety?

With cyber attacks all over the news – and cyber security firm, Secolve, warning that miners and contractors could be increasingly in the cross-hairs – we look at where your operations could most be at risk, and what you can do to reduce the risk of being the next victim.

In 2019, International Mining reported that Swiss mining and metals processer Nystar was hit by a cyber attack which necessitated key IT systems, including email, being shut down at both corporate and operational sites.  It would be easy to dismiss such an event as an isolated situation (especially as mining operations were not directly impacted) – however, the same publication had earlier reported that 54% of mining companies had experienced a significant cyber incident in the previous 12 months.

Increasing international interconnectivity has resulted not only in significant knowledge, productivity and efficiency gains but, on the flip side, also an expanding and evolving cyber threat environment which is increasingly capable of posing existential threats.  The Australian media has recently reported on the impact of high profile cyber events (think Nine Network and Toll), and for all Australian organisations, accepting and adapting to this changing environment, where state, quasi-state and criminal actors operate with seeming impunity, is critical. The ‘new normal’ is not limited to COVID considerations. The need to adapt is even more so in the mining sector, where the threat vectors are likely to be broader than those confronting many other enterprises operating in Australia.

Where your operations could be at risk

Much of the recent media reporting has focused on the rise in two types of cyber attacks:

  • ransomware attacks, where large volumes of data are encrypted (and increasingly also exfiltrated) and a ransom being demanded for the decrypt key to regain access to data, with the added threat that if a ransom is not paid, sensitive data that has been exfiltrated will be made available; and
  • distributed denial of service (or DDoS) attacks, such as that which recently impacted the NZX, and where a targeted service or network is overwhelmed with a flood of internet traffic.

Such attacks focus on compromising sensitive data, and while the mining sector does not hold the volume of personal information as a supermarket chain, for example, highly sensitive mining data (like pricing data, inventory/scheduling information, and employee data including salaries and benefits) remains a high value target for not only organised criminal enterprises, but also nation states.

However, mining companies utilise operational technology (OT) in an increasingly sophisticated way in the extraction and operations processes.  A well-planned cyber attack focusing on a mining company’s autonomous vehicle fleet or IoT systems, for example, could severely disrupt business and adversely impact production. In a worst case scenario, health and safety can be compromised: in 2017, malware which is commonly referred to as “Triton”, and which targets industrial control systems, was deployed against a Saudi Arabian petrochemical plant with the intention of interfering with emergency safety controls. Such cyber sabotage or cyber espionage are threats which are more pronounced in the mining sector.

How you can stay ahead of the game

Effective technology tools and processes can greatly enhance cyber resilience – for example, maintaining version control on applications and deploying emergency patches/updates without delay, and implementing security tools and processes such as virus detection systems and penetration testing.

However, a key plank (perhaps the key plank) in any organisation’s cyber resilience strategy is the culture of the workforce. In assessing cyber-readiness, there must be a clear focus on the internal information environment, including:

  • staff on-boarding processes;
  • initial and ongoing education and training; and
  • staff at all levels embracing the importance of data.

Each employee has a critical role to play in managing cyber risk – email phishing remains an effective means of launching malware, and disclosure of sensitive information is still often caused by ‘fat finger’ errors.  In this respect, mining companies, which have an historically strong and market-leading focus on occupational health and safety, can leverage from this physical safety culture to drive improvements in digital safety culture. Accepting the critical importance of a safe and resilient work environment is already a given.

How we can help – Seven areas to consider

Our multi-practice cyber team helps clients on all manner of digital health and safety matters – from proactively reducing the threat of successful cyber attacks through to advising and assisting on breach response. We would be happy to discuss with you how we can:

  • undertake an information risk ‘health check’ across your integrated organisation;
  • advise the board on its obligations with respect to cyber resilience;
  • provide targeted training to different teams and disciplines;
  • conduct cyber attack simulation exercises;
  • advise on cyber attack response requirements, including advising on notification requirements or expectations with respect to regulators, law enforcement, other government agencies, continuous disclosure obligations and insurance;
  • assist with ransom payment demands; and
  • advise in connection with post-attack remediation requirements.
Peter Jones
Peter Jones
Partner
+61 2 9225 5588
Julian Lincoln
Julian Lincoln
Partner
+61 3 9288 1694

Force majeure and China import restrictions

The Chinese Government has reportedly issued verbal advice to state-owned enterprises and private coal customers to not buy certain categories of Australian exports, including coal and copper ore, ‘until further notice’.

Reports indicate that the decision has resulted in the cancellation of several cargoes of exports over the last few weeks. It is anticipated that the ban may substantially impact the price of coal and impact coal royalties, regardless of destination.

Continue reading

Greenwoods+HSF: Junior Mineral Exploration Incentive (JMEI) Impact Assessment for 2017-18

In summary

The Department of Industry, Science, Energy and Resources has in July 2020 released its first annual impact assessment of the Junior Minerals Exploration Incentive (JMEI) which commenced in the 2017-18 income year. The impact assessment provides insight to the number of successful applicants, their identity and credits received.

Continue reading

NSW Government clarifies the strategic future of coal exploration and mining in New South Wales

On 24 June 2020 the NSW Government released its ‘Strategic Statement on Coal Exploration and Mining in NSW’ (the Statement), which outlines the Government’s policy position on future coal mining and exploration in New South Wales and aims to provide increased certainty to industry and community stakeholders.

The new policy position recognises the ‘finite lifespan’ of coal as a source of energy. The Statement therefore seeks to balance the decline of the thermal coal industry over the longer term (as a result of the transition to lower carbon sources of energy pursuant to the Paris Agreement) and the near-term opportunity for the NSW coal export industry to meet continuing international demand for thermal coal, generate jobs and royalties, and support regional communities. Continue reading

Western Australia’s new lithium royalty regime

On 11 October 2019 the Western Australian government announced that it will introduce a new royalty regime for lithium producers in the form of a 5% feedstock royalty rate for lithium hydroxide and lithium carbonate where those are the first products sold and the feedstock is spodumene concentrate.

The announcement comes after a recent review into lithium royalties as part of the government’s Future Battery Industry Strategy and aims to encourage downstream processing of lithium concentrate in WA.

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Briefing note – NROLA Act introduces amendments to the MRA and PAGA

Overview

On 15 May 2019, the Queensland Parliament passed the Natural Resources and Other Legislation Amendment Act 2019 (NROLA Act). The Act implements a large number of changes across 34 pieces of land, water and mining legislation.1 Relevantly, the NROLA Act includes reforms to the administration of coal and petroleum exploration tenements in Queensland.

This note provides a summary of the key amendments to the Mineral Resources Act 1989 (MRA) and the Petroleum and Gas (Production and Safety) Act 2004 (PAGA) and the effects on holders of exploration permits (EP) and authorities to prospect (ATP). The relevant amendments discussed below are set to commence next year, upon proclamation.

Tenure reforms

Minister’s power to unilaterally vary conditions

EPs and ATPs

The NROLA Act inserts new provisions in the MRA and PAGA that allow the Minister to unilaterally vary the conditions of an existing EP or ATP, without notifying or consulting the tenement holder.2

The new power may only be exercised if the Minister considers it necessary because of an ‘exceptional event’, and will apply retrospectively to EPs and ATPs granted before and after the commencement of the NROLA Act.

‘Exceptional event’ is defined as an event that:

  • affects the carrying out of authorized activities under the authority/permit; and
  • is beyond the control of the holder of the authority/permit; and
  • could not reasonably have been prevented by the holder of the authority/permit.3

The explanatory notes clarify that ‘exceptional event’ is expected to capture industry-wide events such as natural disasters or economic crises.

The QRC and QLS have both raised concerns to the State Development, Natural Resources and Agricultural Industry Development Committee,4 submitting that the power is too wide because:

  • the Minister’s decision to vary conditions would not be subject to internal review, meaning that tenement holders will only be able to challenge the decision by way of judicial review; and
  • ‘exceptional event’ is defined relatively broadly under the NROLA Act.

Despite these objections, the provisions passed without further amendment. The explanatory notes state that the Minister’s power is intended to assist tenement holders by reducing or delaying work program requirements or relinquishment requirements, in light of ‘exceptional events’.5 Nevertheless, how the Minister will apply and exercise the power is uncertain and not fettered by any requirement to consult with permit holders or subject to any internal review or objection process.

ATPs granted via tender

Where there is a call for tenders for an ATP, the NROLA Act allows the Minister to impose additional conditions they consider appropriate, when deciding whether or not to grant tenure.6

The discretion is significantly wide, but has received relatively little public (and parliamentary) scrutiny. Prospective ATP holders should be particularly wary when applying for an ATP through tender processes, as additional conditions may be imposed without prior notice to the applicant.

Limit on applications to vary conditions

The NROLA Act introduces limitations to the grounds under which the holder of an EP or ATP can apply to have the conditions of a tenement varied. The Act limits variations to:

  • the occurrence of an ‘exceptional event’; or
  • circumstances arising from the permit forming part of an exploration project.7

The amendment is a significant shift in the legislative position with respect to varying conditions of a tenement. Prior to the NROLA Act, there was no limit to the grounds on which a tenement holder could apply to have the conditions of their tenements varied.

The explanatory notes state that this change is intended to improve turnover of exploration land. For EP and ATP holders who struggle to meet work program or relinquishment requirements, the amendment would incentivise holders to apply for higher tenure or surrender the tenement, instead of applying for a variation.

Capped term for mineral and coal EPs

To accelerate land turnover, the NROLA Act imposes a 15-year cap on the total life of a mineral or coal EP, which applies to the entirety of:

  • the initial term of an EP;
  • all renewed term/s of an EP;8 and
  • if the holder has surrendered an EP on the condition that a new EP be granted over the same area – the life of the surrendered EP.9

Permit holders may apply for a one-off extension of up to 3 years on top of the 15-year limit if an ‘exceptional event’:

  • prevented the holder from complying with the approved work program; and
  • occurred in the last renewed term of the EP.10

Introduction of ‘outcomes-based’ work programs

In an Australian first, the NROLA Act allows EP and ATP holders to submit ‘outcomes-based’ work programs alongside tenement applications.

Currently in all other Australian jurisdictions, EP and ATP holders are required to submit ‘activities-based’ work programs that outline specific exploration activities to be undertaken during the term of the tenement.

Under the NROLA Act, the ‘outcomes-based’ work program will serve as an alternative for Queensland tenement holders and ‘over the counter’ applications, and must outline:

  • the outcomes proposed to be pursued during the term of the tenement;
  • the strategy for pursuing the outcomes;
  • the information and data to be collected; and
  • the estimated human, technical and financial resources proposed to be committed.11

The benefit of an outcomes-based work program, as envisioned by the explanatory notes, is that explorers can adjust their activities in response to exploration results without the need to seek approval from the Minister to vary the work program.

Prospective explorers should note that activities-based work programs will still be the default requirement for EPs and ATPs awarded through competitive processes (subject to the Minister’s directions otherwise). The Minister may also request an activities-based work program from applicants when considering the priority of EP applications.12 Outcomes-based work programs will generally be accepted in non-competitive, non-tender applications.

Less onerous relinquishment requirements

EPs

Under the NROLA Act, permit holders will be required to relinquish 50% of the permit area at the end of year 5, and 50% of the remaining area at the end of year 10.13

Further, the Minister has the discretion to change the relinquishment requirements of EPs due to:

  • an ‘exceptional event’ (as discussed above); or
  • circumstances arising from the permit forming part of an exploration project.14

In this instance, an exploration project is a ‘project involving 2 or more exploration permits that have a unifying exploration purpose’.15 According to the explanatory notes, the exploration project exception is intended to allow permit holders to adjust the relinquishment percentages of individual permits within the same project, so long as 50% of the area for the project (as a whole) is relinquished by the due date.16

Compared to current relinquishment obligations, the NROLA Act reduces the total area to be relinquished before the expiry of the permit, and extends the time between relinquishment intervals. Early explorers will be given an extra two years before the first relinquishment due date.

If the area to be relinquished is covered by an application for higher tenure (ie a mining development licence or mining lease), permit holders can defer its relinquishment until:

  • if the application is successful – the day the tenure is granted; or
  • if the application is withdrawn or refused – 20 business days after the day of the withdrawal/refusal.17

ATPs

Under the NROLA Act, authority holders will be required to relinquish 50% of the area at the end of year 6.18 Compared to current relinquishment obligations, the NROLA Act reduces the total area to be relinquished before the expiry of the authority and will give early explorers an extra two years before the relinquishment due date.

Implications on existing EPs, ATPs and related applications

EPs

Existing EPs will be limited to further renewals of up to 10 years from the first renewal after commencement of the NROLA Act. For example, an EP granted in 2006 and due for renewal in 2021 may be renewed multiple times for up to 10 years, and will expire in 2031.

The NROLA Act will also affect existing applications to renew. Applications will be restricted by the 15-year life cap and applicants can update their proposed work programs within 3 months after the commencement of the NROLA Act (if they so choose).

With respect to relinquishment requirements, existing EP holders will only be required to relinquish 50% of the area if the EP is renewed after commencement, 5 years after the date of renewal.19 If no exploration activities was undertaken because the EP is locked-out/overlapping with a petroleum lease, the permit holder will be exempt from any relinquishment requirements.20

On the other hand, existing tenders, approved programs of work and applications to vary the conditions of an EP will not be affected by the NROLA Act and will be dealt with under the MRA as if the provisions have not been amended.

ATPs

Existing ATPs will not be affected by the new relinquishment requirements under the NROLA Act.

However, the NROLA Act will affect existing applications to renew. Applicants can update their proposed work program within 3 months after the commencement of the NROLA Act (if they so choose).21

Other amendments

Area of  petroleum leases (PL) and potential commercial areas (PCL)

The NROLA Act removes the 75 sub-block area limit for PLs and PCLs, and will allow existing PLs and PCLs to be amalgamated. Tenement holders will no longer be required to apply for multiple PLs and PCLs over the same area at the same time.22

Access to public and private land for rehabilitation purposes

The NROLA Act amends the Mineral and Energy Resources (Common Provisions) Act 2014 to allow tenement holders to access land for the purposes of rehabilitation and environmental management. This right applies to both private and public land.23

Next steps

As at the date of this summary, the amending provisions discussed have not come into effect as they will commence on proclamation. The Minister for Natural Resources, Mines and Energy has released a statement advising that proclamation is expected to occur sometime next year.24

In the meantime, exploration tenement holders and prospective explorers should be mindful of the changes to the tenure management system, and plan to make adjustments to their activities as necessary.

Annexure 1

Legislation amended

  • Aboriginal and Torres Strait Islander Land Holding Act 2013
  • Aboriginal Land Act 1991
  • Aboriginal Land Regulation 2011
  • Electricity Act 1994
  • Foreign Ownership of Land Register Act 1988
  • Geothermal Energy Act 2010
  • Greenhouse Gas Storage Act 2009
  • Land Access Ombudsman Act 2017
  • Land Act 1994
  • Land and Other Legislation Amendment Act 2017
  • Land Holding Act 2013
  • Land Regulation 2009
  • Land Title Act 1994
  • Land Title Regulation 2015
  • Land Valuation Act 2010
  • Mineral and Energy Resources (Financial Provisioning) Act 2018
  • Mineral and Energy Resources(Common Provisions) Act 2014
  • Mineral Resources Act 1989
  • Nature Conservation Act 1992
  • Petroleum Act 1923
  • Petroleum and Gas (Production and Safety) Act 2004
  • Planning Act 2016
  • Planning Regulation 2017
  • Right to Information Act 2009
  • South-East Queensland Water (Distribution and Retail Restructuring) Act 2009
  • South-East Queensland Water (Restructuring) Act 2007
  • Surveyors Act 2003
  • Surveyors Regulation 2014
  • Torres Strait Islander Land Act 1991
  • Torres Strait Islander Land Regulation 2011
  • Valuers Registration Act 1992
  • Water Act 2000
  • Water Supply (Safety and Reliability) Act 2008
  • Vegetation Management Act 1999

Endnotes

  1. For a full list of legislation amended by the NROLA Act, see Annexure 1.
  2. NROLA Act, ss 260 and 279.
  3. NROLA Act, ss 274 and 313.
  4. Submission of the QRC (https://www.parliament.qld.gov.au/documents/committees/SDNRAIDC/2019/NROLAB2019/submissions/003.pdf); Submission of the QLS (https://www.parliament.qld.gov.au/documents/committees/SDNRAIDC/2019/NROLAB2019/submissions/011.pdf)
  5. See the Department’s operational policies for further guidance. https://www.dnrme.qld.gov.au/?a=109113:policy_registry/operational-policy-exceptional-circumstance.pdf&ver=1.01
  6. NROLA Act, s 277.
  7. NROLA Act, ss 261 and 304.
  8. NROLA Act, s 265.
  9. NROLA Act, ss 254 and 271.
  10. NROLA Act, s 267.
  11. NROLA Act, ss 247 and 280.
  12. NROLA Act, s 249.
  13. NROLA Act, s 258.
  14. NROLA Act, s 258.
  15. NROLA Act, ss 274 and 313.
  16. See Annexure 2 for an example provided by the NROLA Bill’s explanatory notes.
  17. NROLA Act, s 258A.
  18. NROLA Act, ss 294 and 295.
  19. NROLA Act, s 273.
  20. NROLA Act, s 857. See also section 232 of the Mineral and Energy Resources (Common Provisions) Act 2014.
  21. NROLA Act, s 311.
  22. NROLA Act, ss 303 and 307.
  23. NROLA Act, s 209.
  24. http://statements.qld.gov.au/Statement/2019/5/15/parliament-cuts-resources-red-tape

Annexure 2: Example – adjustment of relinquishment percentages for multiple EPs within an exploration project

EP1 EP2 EP3 EP4 Total
Sub-blocks held 100 100 100 100 400
Number of sub-blocks relinquished for mandatory relinquishment of 50% for individual EP 50 50 50 50 200
Minister’s discretion to apply more or less than mandatory relinquishment of 50% for EPs within a project Less by 50%

Total percentage required = 0%

More by 25%

Total percentage required = 75%

More by 15%

Total percentage required = 65%

More by 10%

Total percentage required = 60%

N/A
Number of sub-blocks relinquished for after relinquishment for project EP 0 75 65 60 200

 

Whilst the example provided in the explanatory notes is not as clear as it could be, the intention is that if EP1 is the most prospective EP within the ‘exploration project’ a permit holder will not be required to relinquish any sub-blocks within that EP but will instead be required to relinquish additional sub-blocks of other EPs within the ‘exploration project’.

A methodology for the calculation of native title compensation

 On 13 March 2019, the High Court handed down its first decision on native title compensation in ‘Timber Creek’ [2019] HCA 7 (Timber Creek).

The High Court’s decision is a measured reflection of the need for Australian law to evolve in a manner that acknowledges, recognises and accommodates the diversity and individuality of native title in Australia. The majority judgment sensibly navigates the difficult task of applying common law legal concepts, such as compensation, freehold value, economic loss and solatium, in the context of traditional rights and interests, and connection to country.

Resisting the temptation to apply a blanket approach, a 5:2 majority of the High Court instead affirmed a methodology to determine the appropriate, just and fair compensation to be awarded to native title holders for the impact of compensable acts on their distinct native title rights and interests.

Applying the methodology, the High Court determined that compensation should be paid for the extinguishment of the claim group’s non-exclusive native title rights and interests as follows:

https://www.herbertsmithfreehills.com/latest-thinking/a-methodology-for-the-calculation-of-native-title-compensation