Strategic Development: Concession Agreements in the Mining Sector

This guest blog post is contributed by Amira Taqi – Group Legal Counsel at Minerals Development Oman.

The mining industry in the Sultanate of Oman is diversifying and developing at an appreciable pace. The Ministry of Energy and Minerals (MEM) has deployed a new strategy to expand the mining sector by recently granting Minerals Development Oman (MDO), a strategic government-owned investor, concessionary exploration-to-mining rights over areas covering 21,500²km. This blog post aims to explain to readers the importance of the said concession agreements, their purpose, comparative advantage to the conventional licensing mechanism, and strategic importance to investors and to Oman. 

Exploration for minerals entails undertaking several activities to determine whether there are minerals under the ground. Investors use exploration to identify whether minerals in a specified area can be extracted at a commercial level. Mining may only then be possible. Exploration may include mapping, surveying the ground from the surface or air, testing water and soil samples, and drilling. All our consumable items began life as a mineral. This includes our power supplies, mobile phones, computers, and cars. Therefore, successful exploration and mining leads to high profit for a mining company. For a nation, it leads to well paid jobs, new infrastructure leading to regional economic development, and increased government profits that pave the way to social priorities such as education, healthcare, and poverty alleviation.

Generally, explorers of minerals need to apply for an exploration licence which gives them sole rights to search a specific mineral within the specified area. This type of exploration and prospecting licence is available in Oman for an initial period of one year, and it may be renewed for similar periods up to three years. However, there are no guarantees since licence holders may not be able to hold on to their licences if MEM believes that they have not met their obligations. A drawback for the licence holders is that an exploration licence does not permit drilling, nor guarantees that an exploitation licence will be granted. Essentially, licensing for exploration is required under the Mineral Resources Law before gaining the licence for drilling. Similarly, a licence for drilling is required prior to obtaining the licence for exploitation. The Mineral Resources Law does however provide preferential treatment towards licence holders of exploration and drilling to receive subsequent licences subject to applying within three months. Yet again, there are no guarantees of receiving the drilling or exploitation licences for the same explored area since MEM may reject the quarterly and final reports submitted by the exploring company per article 37 of the Mineral Resources Law. 

The Mineral Resources Law also offers exploration, drilling, and exploitation rights by way of concession agreements. One of the comparative benefits of concession agreements is that they provide exploration rights for larger areas exceeding five square kilometres. Whereas licence holders cannot generally exploit minerals in areas larger than this range subject to the MEM’s discretion. Additionally, the period of concession agreements vastly differs from the standard licences. The latter only offers one year exploration with further renewals up to three years. Exploitation is offered for a maximum of five years. In comparison, concession agreements for larger areas may be granted for periods between 20 and 30 years.  Importantly, and in line with the longer periods, a concession may be granted for both, the exploration and exploitation concurrently. This requires risk management and the confidence of domestic and international investors and other stakeholders. The MEM meets these criteria by requiring higher level of financial and technical competency from investors.

Concession agreements are of great strategic importance to Oman because they will stimulate local value addition to the Sultanate through exploitation of mineral resources and establishment of downstream processing facilities for catering to local and global markets. Unlike the upstream sector where the objective is to extract the minerals economically to be used as raw materials, the downstream sector transforms this raw material to value added products for delivery to the end consumer. To that end, MDO is progressing in the downstream sector with a variety of projects including titanium dioxide, ferro-alloys, silicon, and magnesium metal projects. Given that each stage further down the chain adds value to the product, it requires adoption of established mining and processing technologies to achieve a competitive advantage. The granting of the 12 concession agreements to MDO by the royal decrees published on 4^th December 2022 has allowed MDO to meet these challenges by launching Airborne Geophysical Surveys followed by Geo-Chemical studies over large areas. These studies have the potential of identifying several minerals in areas where MDO has been granted the 12 concession areas. Importantly, the studies will allow the collection, analysis, and interpretation of historical and present information through a structured and stage wise exploration programme. This process is crucial because it improves the stakes of converting a prospect to a profitable mine. 

Many companies suffer the dilemma of spending a bulk of their resources either on exploration or exploitation. The lack of balance between the two becomes obvious in the form of long-term loss over time. Concession holders in Oman benefit by receiving exploration and exploitation rights simultaneously. This advantage allows them to focus and equally distribute their resources between the two. The large areas and longer periods allow companies to set long term goals while periodically targeting smaller sites and collecting geological data for the benefit of all stakeholders. The companies and the government benefit by profiting, and in the long run, the nation benefits from opportunities that would eventually open such as employment, better infrastructure, and regional development.

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