a brief for the prospective investormining investment in saudi arrabia . . a brief for the...

Min

ing

Inv

estm

en

t in S

au

di A

rrab

ia . . A

Brie

f for th

e P

rosp

ec

tive

Inv

esto

r2

01

6

For further information, please contact: Deputy Ministry for Mineral Resources

P.O.Box 345 Jeddah 21411 Kingdom of Saudi ArabiaTel. : +966 2 667-4800 - Fax : +966 2 667-2265

www.dmmr.gov.sae-mail: [email protected]

[email protected]

Ministry of Energy, Industry and Mineral ResourcesDeputy Ministry for Mineral Resources

Jeddah, Kingdom of Saudi Arabiawww.dmmr.gov.sa

Mining Investment in Saudi Arabia

A Brief for

The Prospective Investor

2016

King Salman Bin Abdul Aziz Al SaudThe Custodian of the Two Holy Mosques

Prince Mohammad Bin Naif Bin Abdul Aziz Al SaudCrown Prince, Deputy Prime Minister, Minister of the Interior

Prince Mohammad Bin Salman Bin Abdul Aziz Al SaudDeputy Crown Prince, Second Deputy Prime Minister, Minister of Defense

A BRIEF FORTHE PROSPECTIVE INVESTOR

Eng. Khalid bin Abdulaziz AlFalihMinister of Energy, Industry and Mineral Resources

Sultan J. ShawliDeputy Minister For Mineral Resources

8

Mining Investment in Saudi Arabia .. A Brief for the Prospective Investor

THE KINGDOM OF SAUDI ARABIA

Profile ........................................................................................................................................................ 11

Ancient Traditions and Modern Development ....................................................................... 12

Economic Environment ..................................................................................................................... 22

GEOLOGY OF SAUDI ARABIA

Arabian Plate ......................................................................................................................................... 25

Precambrian Basement ................................................................................................................... 26

Phanerozoic Cover .............................................................................................................................. 26

Tertiary Spreading, Uplift, and Volcanism ................................................................................ 29

EXPLORATION AND MINING

Historical background ....................................................................................................................... 31

Directorate General for Mineral Resources (DGMR)

and Deputy Ministry for Mineral Resources (DMMR) ....................................................... 32

Objectives of DMMR .......................................................................................................................... 33

Contents

9

Mining Investment in Saudi Arabia .. A Brief for the Prospective Investor Mining Investment in Saudi Arabia .. A Brief for the Prospective Investor

MINING LEGISLATION

Mining Investment Law .................................................................................................................... 34

Mining Investment Regulations .................................................................................................... 35

License Provisions .............................................................................................................................. 36

MINING INVESTMENT PROCEDURES AND INCENTIVES

Procedures ............................................................................................................................................ 38

Incentives ................................................................................................................................................ 39

Contents

10


11


THE KINGDOM OFSAUDI ARABIA

Profile

Official name : Kingdom of Saudi Arabia

The Custodian of

the Two Holy Mosques : King Salman Bin Abdul Aziz Al Saud.

National government : Council of Ministers headed by the King, who holds the post of Prime Minister. The Council of Ministers exercises both legislative and executive powers.

Legal system : Based on the Sharia and the Basic Governing Law (1992).

National legislature : The present Consultative Council held its first inaugural session in December 1993. It makes recommendations to the Council of Ministers.

Location : Saudi Arabia lies in SW Asia occupying most of the Arabian Peninsula between the Red Sea and the Arabian Gulf. It is bordered by Kuwait, Iraq, and Jordan in the north, Yemen in the south, Oman, the United Arab Emirates, Qatar and the Arabian Gulf to the east and the Red Sea coast to the west.

Coastline : 1,899 km on the Red Sea, 549 km on the Arabian Gulf.

Elevation : Highest point 3,170 m (10,279 ft.) above sea level, in the Asir Region near Abha.

Chief Products : Agriculture: wheat, dates, chicken, egg, melon, milk, tomato and barley. Manufacturing: cement, fertilizers, food products, petrochemicals and steel. Petroleum and gold.

Land area : About 2 million sq. km.

Population : 30.8 million.

Main cities : Riyadh (capital); Makkah; Al Madina; Jeddah; Dammam; Taif.

Climate : Hot and dry, humid in coastal areas; cooler in winter.

Languages : Arabic. English is widely spoken.

Measures : Metric system.

12


Currency : The Saudi Riyal (SR) = 100 hallalas. The riyal is effectively pegged to the US dollar at a rate of SR3.745:US$1.00.

Time zone : 3 hours ahead of GMT.

Calendar : Saudi Arabia uses the Islamic Hijri calendar, based on the lunar year, which is about eleven days shorter than the Gregorian year

Ancient Traditions and Modern Development

Introduction

The Arabian Peninsula acquired special importance in world trade thousands of years ago. Arab merchants played an important role in trade exchange between Asia and Europe and many Arab cities flourished as trade centers.

This position was enhanced by the coming of Islam in the seventh century and its expansion to India in the east and Spain in the west within a short period. The Arabian Peninsula became the center of world civilization, wealth and knowledge, and the site of the Muslim Holy Cities of Makkah, where the Ka’aba is located, and Al Madina, the site of The Prophet’s Mosque.

The Kingdom of Saudi Arabia was founded by the late King Abdul Aziz in 1932. Today it is one of the world’s leading producers of petroleum and the largest oil exporter. Due to its unique geographical location, great importance to the Muslim world and oil wealth, the Kingdom enjoys considerable international weight and strategic importance in world politics. It is a founder member of the UN and the Arab League, a member of the Gulf Cooperation Council (GCC), the Organization of Islamic States (OIS) and several Islamic regional and international organizations.

Modern Saudi Arabia is an advocate of stability, peace and progress in the world, and an advocate of Arab and Muslim unity.

Commitment to non-oil related mineral development

The land area of the Kingdom of Saudi Arabia is roughly one quarter the size of the USA. Its western area, the “Shield”, consists of Precambrian rocks, mainly very old volcano-sedimentary, metamorphic and igneous formations. The eastern area, the “Platform”, consists of younger sedimentary formations. The history of mining in Arabia goes back more than ten centuries. It was a site of small-scale mining in the second century of Islam. There was at least one major gold mine in operation, and over 350 gold, silver, and other ancient mine workings remain scattered around the Arabian Shield. Today, many mineral occurrences have been identified in the main metalliferous mineral belts of the

13


Arabian Shield. Saudi Arabia therefore offers various opportunities for investment in the mineral industry.

Local Government

Saudi Arabia is divided into 13 provinces. A Governor appointed by the King heads each province. Provincial Councils assist the Governors. Municipal councils handle city government affairs. Smaller towns and villages are governed by local leaders. The provinces are as follows:

Ar Riyadh : Capital Ar Riyadh; includes the smaller Governorates of Wadi Al Dawasir, Hawtat Bani Tamim, Al Aflaj, Al Kharj (the location of the largest dairy farm in the world), Al Ghat and Al Hariq. Situated in the center of the Kingdom, Ar Riyadh is a large, highly populated and modern city.

Makkah : Capital Makkah; includes Taif, Jeddah, and Rabigh. Situated in the western part of the Kingdom and distinguished by Makkah and Al Madinah, considered the holiest places on earth to Muslims. Jeddah is an important commercial center and with Taif, a recreational center.

Al Madinah : Capital Al Madinah; includes Yanbu, Al Ula and Badr. Situated in the northwest of the Kingdom, the city gained fame for being the prophet’s city. The province includes the important historical site of Ma’dain Salih.

Al Qasim : Capital Buraydah; includes Unayzah, Ar Rass and Midhnab. Situated to the north of the central region, it is important for its fertile soil and wheat production.

Eastern Region : Capital Dammam; includes Qatif, Mubraz, Jubail, Khubar, Dhahran, Rass Tannurah and Abuqayq. The province is the center of the Kingdom’s oil industry and a coastal recreational area.

Asir : Capital Abha; includes Khamis Mushait and Bishah. Situated to the south of the Kingdom, it is 5,000 ft above sea level and distinguished by its beautiful resorts.

Tabuk : Capital Tabuk; includes Tayma and the coastal towns of Al Wajh and Duba. It links the Kingdom to Jordan and is reputed for its rich soil. It includes nurseries which export flowers to the Netherlands.

Hail : Capital Hail; includes Al Rawda and Al Ghazalah. Situated to the north of the central region, it is a major agricultural area.

14


Northern Region : Capital Arar; includes Rafha and Turayf.

Jizan : Capital Jizan. Affiliated with Sabya, Abu Arish and the Farasan Islands.

Jizan is famous for the production of salt.

Najran : Capital Najran. Affiliated with 35 villages, it includes the western part of the

Empty Quarter and was an active commercial center in the past.

Al Baha : Capital Baha; includes Baljarshi and Al Aqiq. Situated in the southwest of

the Kingdom, it is an area of natural beauty.

Al Jawf : Capital Sakakah. It includes the districts of Dawmat Al Jandal and the

northern frontier with Iraq. An important agricultural region with water

and fertile soil, it grows date palms, wheat, barley, fruits and vegetables

and is famous for its leather and hand-woven wool products.

Judicial authority and court system

A system of religious courts handle all civil and criminal cases based on the Islamic Sharia of conduct. A qadi (judge) presides over each court.

The Ministry of Justice, established in 1970, administers the Sharia legal system throughout the country. Under the direction of the Ministry of Justice a major attempt has been made to expand the system and standardize procedures. The Supreme Judicial Council supervises the court system, and may be appealed to in serious cases.

People

Saudi Arabia has a population of about 30.8 million. Other people who live in Saudi Arabia have moved there temporarily because of the large number of jobs created by the country’s oil wealth. About three quarters of the people live in urban areas.

Riyadh (in Arabic transliteration Ar Riyadh) ranks as Saudi Arabia’s largest city, followed by Jeddah. The number of urban dwellers in Saudi Arabia has increased rapidly since the mid 1970s, and several new urban areas have developed near the oil fields in eastern Saudi Arabia.

Language

The people of Saudi Arabia use Arabic, which is the official language of the country. English is taught in intermediate and secondary schools and is widely used among educated Saudis in business dealings and international affairs.

15


Religion

Islam is the religion of all citizens of Saudi Arabia. It influences family relationships, education, and many other aspects of life. Five daily prayers are performed. Other religious rituals include fasting during Ramadan, the ninth month in the Muslim calendar. Each year, about two million Muslims from Saudi Arabia and other countries go to Makkah on the religious pilgrimage called the Hajj, which is performed in the twelfth month of the Hijri year.

Way of life

Many of Saudi Arabia’s rural people live in farm villages or oasis settlements. Since the 1970’s, many nomads have become settled farmers or have moved to urban areas in order to work in the oil and other industries.

The development of the oil industry has caused many advances in the Saudi way of life, especially in the cities. Since the 1970’s, the country has used much of its oil income to build modern schools, transportation systems and communication networks. The government has also taken steps to improve housing and extend electricity and other modern conveniences to Saudi Arabia’s remote rural areas.

Cultural heritage

Saudi Arabia’s culture derives from the Holy Quran. The richness of its language is the fountainhead of Arabia’s culture and faith. A manifestation of this heritage is the art of calligraphy. Another is craftsmanship of a high order evident in the beautiful workmanship seen in precious metals. The ancient Arab tradition of hospitality continues unchanged to the present day.

16


Economy

Saudi Arabia has a rapidly developing economy based largely on the oil industry and agriculture. The Kingdom’s economic policy is based on sound investment of government revenues, a free-market economy, diversification of the production base by encouragement of industrial and agricultural sectors, realization of economic cooperation at all levels, and development of local manpower. Since the 1970’s the government has pursued the development of new industries. These industries have allowed the economy to maintain its growth. The government has formulated development programs with the help of business and technical experts from the US, Europe and Japan. A shortage of skilled Saudi laborers has led to the recruitment of a large number of expatriate workers, mainly from Asian countries. Educated Saudis are taking up positions at high levels in the private sector.

Natural resources

Petroleum and natural gas, by far, are Saudi Arabia’s most important natural resources. The country’s oil fields contain about 261.5 billion barrels of oil - about a fourth of the world’s known oil reserves. The oil fields lie in the eastern and central parts of the country and offshore in the Arabian Gulf. Saudi Arabia has deposits of copper, gold, iron ore, phosphate, bauxite and other industrial minerals.

The oil industry

The oil industry is Saudi Arabia’s chief source of wealth. The country is the largest single oil producer in the world. Saudi Arabia exports more petroleum than any other country. It is a leading member of the Organization of Petroleum Exporting Countries (OPEC).

Exploitation of Pozzolan for the Cement Industry, Ras Qara Mountain, Tabuk Province

17


Other industries

A program of accelerating the growth of the industrial and agricultural sectors, and building supporting infrastructure, is directed by policies of expansion of crude oil refining in accordance with world and domestic demand, support of industrial development by a range of government activities including feasibility studies, the creation of industrial areas and a special fund for industrial development, and acceleration of training of Saudi manpower to replace expatriate manpower.

The manufacturing sector is now contributing a steadily growing share to GDP, with a number of industrial establishments manufacturing products such as foods, textiles, cement, chemicals, petrochemicals, textiles and garments, plastics and building materials. Saudi workers are joining the industrial sector in increasing numbers and soft loans and other facilities are continuously being extended to the private sector to start new industrial projects.

The Saudi petrochemical industry is proving competitive in world markets following the building of the two industrial cities of Al Jubail on the Arabian Gulf and Yanbu on the Red Sea. Saudi Basic Industries Corporation (SABIC) is a Saudi joint-stock company established in 1976 to produce and market petrochemicals, fertilizers and metallurgical products worldwide. Today SABIC comprises fifteen major energy intensive manufacturing subsidiaries supported by two marketing subsidiary companies. SABIC manufactures products such as ethylene, Butane-1, caustic soda, styrene, polyvinyl chloride (PVC), vinyl chloride monomer (VCM), and polystyrene using natural gas as a raw material.

The Saudi Arabian Mining Company (Ma’aden) was established to exploit the kingdom’s mineral deposits.

Agriculture

Despite unfavorable geographical factors such as a hot and dry climate and scarcity of water, the Kingdom has managed to reach self-sufficiency in basic products such as wheat and poultry, and has become a net exporter of these products.

The success of the Kingdom’s agricultural policy has been due to proper utilization of fertile areas, provision of new water resources, the building of several dams on seasonal water courses, introduction of modern agricultural and irrigation techniques, and government financial support to farmers through agencies such as the Saudi Agricultural Bank.

The Kingdom is a leading exporter of its traditional date production, and more recently of flowers. It has also developed a fishing industry both on the Arabian Gulf and the Red Sea and exports shrimp and fish.

18


Transportation and communication

Since the mid 1970’s Saudi Arabia has expanded its transportation and communication networks. The Saudi Public Transport Company (Saptco) a public-private joint venture operates the Kingdom’s inter-city and urban bus services. Privately owned buses and taxis provide services to commuters in all cities and towns in the Kingdom.

A railway links the capital Riyadh to the port city of Dammam on the Arabian Gulf. The Saudi Railways Organization operates passenger and freight trains on this double-track line.

The national airline (Saudia) has over 100 aircraft flying to over 80 countries worldwide in addition to all major cities in the Kingdom. The country has three international airports at Riyadh, Jeddah and Dhahran, in addition to a number of airports located elsewhere for domestic air transport. Two discount domestic airlines commenced operations in 2007.

The Saudi Ports Authority operates Jeddah’s Islamic Port and Yanbu Port on the Red Sea, and King Abdul Aziz Port of Dammam. The Rass Tannurah oil terminal handles most of the Kingdom’s oil exports on the Arabian Gulf.

Saudi Arabia’s telecommunications network includes radio and TV transmission, a national microwave network, and participation in international telecommunications projects such as the King Fahd City for Science and Technology, the Arab Telecommunications Satellite Program (Arabsat) and the continental Singapore-Marseilles Sea-Cable Project.

Broadband Internet, Web 2.0 and e-mail services are widely used. Traffic is transported on an ultra-modern communications network. Ordinary, express, domestic and international mail services are provided. The use of regular and G-3 mobile phones is now commonplace.

Electricity

The Kingdom’s electricity development program aims to provide adequate electrical services to all regions and remote areas, development of electric power at minimum cost, rationalization of electric power consumption, and improvement of efficiency and productivity of electricity production and distribution facilities.

Water

The Kingdom’s sources of potable water include:

Ground water: The natural ground water storage system includes aquifers within both the oldest and recent geological strata. The most prolific aquifers occur within the sedimentary strata that underlie two-thirds of the country’s surface area. This water is obtained by drilling shallow or artesian wells.

19


Surface water: The increase in agricultural activity and the rapid development of cities and urban areas have led to the construction of dams to make use of stored water for agricultural purposes and drinking. There are more than 200 dams, which include the large Wadi Jizan Dam.

Springs: The eastern and western parts of Saudi Arabia have significant contact springs. Several springs are found in Wadi Fatima, Wadi Naaman, and Al Ula.

Thermal springs occur at Al Lith, along the Red Sea coastal plain area of Jizan and at Al Hassa in the Eastern Region.

Desalination plants

The Saline Water Conversion Corporation (SWCC) is an independent establishment responsible for the Kingdom’s 22 desalination plants at 17 locations. The total design capacity of these plants is 550 million US gallons per day. Desalinated water production in the Kingdom represents approximately 27 percent of total world production, making Saudi Arabia the world’s leading producer of desalinated water. Pipelines totaling 3,000 km in length carry desalinated water from both coasts to many inland cities.

Foreign trade and banking

The Arabian Peninsula has participated in international trade for thousands of years, but largely as a transit route for goods from elsewhere. Until the oil fields were developed, the area that is present day Saudi Arabia was largely self-sufficient, engaging only in localized cross-border trading.

The development of the oil and other industries has led to an increase in the country’s exports, particularly after 1973 when oil prices soared to unprecedented levels. As a result, Saudi Arabia has developed into a leading power in international trade, a position enhanced by the economic development and free-market policy of subsequent years which left foreign trade and most other businesses to the private sector without restrictions.

Petroleum accounted for about 76 percent of Saudi Arabia’s exports in 2015. Agricultural products, petrochemicals and other manufactured goods constitute the remaining percentage though this share is progressively increasing due to the government policy of diversifying the national economy. Most oil is exported to the US, Japan, Europe and China.

Saudi Arabia’s imports include food products, machinery, building materials, transport equipment, military hardware, garments and textiles, electric and electronic equipment, and various luxury goods. The US, Japan, western countries and China provide most imported goods.

20


The Saudi Arabian Monetary Agency (SAMA), the central bank, regulates the activities of Saudi and joint venture banks which include the Arab National, National Commercial, Riyadh, Al Rajhi Bank, Saudi American, Saudi British, Saudi Al-Fransi, Al-Jazira, Saudi Investment, and the Saudi Al-Hollandi Bank.

Mass media

Saudi Arabia has thirteen daily newspapers. Two of the dailies are published in English, the others are in Arabic. The country has a number of weekly magazines and periodicals.

The government operates a radio network which transmits daily in English and French in addition to its main Arabic programs. The Kingdom has a number of TV channels, one of which broadcasts programs in English and news bulletins in French. More than 500 channels of satellite television are available.

Wildlife

Wildlife in the Kingdom includes baboons and monkeys, the rare Arabian oryx and gazelles. Birds typical of the country include the sand grouse, hoopoe and lark, while flamingoes, wagtails, swallows and many other bird species fly across Saudi Arabia on their annual migrations. Marine life is very rich in the country’s territorial waters and the coral reefs of the Red Sea and the Arabian Gulf area are a real paradise for divers and photographers. Common reptiles include various kinds of poisonous and non-poisonous snakes in addition to lizards and geckoes. There is also a wide variety of butterflies, moths and insects, and a wide range of flora.

The National Commission for the Protection of Wild Life (NCPWL) has achieved tangible success by establishing a number of reserves and parks in the country, rehabilitating some species in their natural environment after breeding them in captivity or importing them from abroad, and by the issue of laws restricting hunting to certain areas and at specified time periods.

Saudi Arabia’s foreign policy

The principles of Saudi Arabia’s foreign policy are promotion of Arab unity and defending just Arab causes; strengthening Islamic solidarity and serving Islam and Muslims the world over; maintaining world peace and stability; non-intervention in the internal affairs of other countries and not allowing others to intervene in its own internal affairs.

The Kingdom’s oil policy has followed oil production and pricing capable of guaranteeing the interests of both producers and consumers, and of minimizing the economic burdens on developing countries. It has utilized its oil wealth to help poorer countries in general,

21


and Arab and Muslim countries in particular, through grants, generous aid programs and cooperation agreements. Saudi Arabia today is the residence of several Islamic and Arab organizations such as the Organization of the Islamic Conference (OIC) and the Gulf Cooperation Council (GCC) and the meeting place for regional, Islamic and international conferences.

Education

The real impetus of education in Saudi Arabia dates from the accession of King Faisal and the adoption of the first Five Year Development Plan. At the end of that plan in 1975 there were 3,438 schools, and subsequently the building program has been trying to keep pace with the massive increase in enrolment. There are eight universities in the Kingdom, and post-graduate programs have been established allowing many Saudis to pursue studies at all levels and specializations within the country.

Outside the formal educational system, the Institute of Public Administration (IPA) is extensively expanding its in-service training program for government employees while the Ministry of Labor and Social Affairs has created hundreds of new vocational training centers, which are under the supervision of the General Organization for Technical Education and Vocational Training, established in 1980.

The aim of these vocational centers is to train young Saudi men in a variety of manual skills for jobs in either the private or public sectors. All government ministries have on-the-job training for employees, mainly in administration and technical skills.

Health care

The Ministry of Health is responsible for the implementation of health care programs. The Ministry has established many health institutes and organized various medical training programs. The private sector makes a significant contribution to the provision of health care services for citizens. In 1984 the first kidney transplant center, open-heart surgery center and one of the leading eye hospitals in the world, were established in Riyadh. The Saudi Red Crescent Association plays an important role in the provision of first aid and emergency services in the Kingdom.

Health policies adopted by the Ministry of Health have the objectives of free provision of primary health care services; completion of the infrastructure for health services; improvement of service levels; expansion of government health facilities; coordination between the Ministry of Health and other government departments which provide health services; expansion of the private health sector, and development of Saudi health manpower.

22


Economic Environment

Gross Domestic Product

GDP in 2015 amounted to SR 2.4 billion ($646 billion), equivalent to SR81,400 ($21,700) per head. Inflation has been kept under control. In 2015 “real” economic growth rate (excluding inflation) amounted to 1.2 percent over 2014.

Crude oil reserves and production

Most of Saudi Arabia’s oil reserves are located in the Eastern Province and in offshore areas where Saudi Aramco operates. Saudi Arabia accounts for about a third of Opec’s output. The Kingdom plans to sustain this share for the immediate future. On the basis of current oil output, Saudi Arabia’s reserves are sufficient.

World Trade Organization

On 11 December 2005, the kingdom became the 149th member of WTO after over 12 years of negotiations. In the process of preparing for membership, Saudi Arabia enacted 42 trade related laws, created nine new regulatory bodies and signed 38 bilateral trade agreements.

Foreign trade

Saudi Arabia’s trade balance has been favorable and this trend is expected to continue in the future. Non-oil exports are expected to play an increasingly important role in the

Quarry to Exploit Gypsum, Mecca Province

23


Kingdom’s international trade. By the end of 2006, thousands of joint-venture industrial schemes had been established between Saudi businesses and foreign companies.

Saudi Arabia’s international trade is primarily with the US, Europe, Japan, South Korea and China. Saudi Arabia is the biggest importer of US goods in Africa and the Middle East. Trade between Saudi Arabia and members of the Association of South East Asian Nations (ASEAN) has been increasing steadily.

External debt

Saudi Arabia’s external debt has been maintained at low proportions compared to GDP (5.9% in 2015.) The majority of the Kingdom’s overseas debt is short-term.

Tenders

Saudi government tender regulations require bid bonds of 1-2 percent of the contract value and 5-10 percent performance guarantee.

The Saudi Arabian government provides a variety of incentives to encourage private investment in the country and has established two major development funds that make low-cost loans to foreign companies which have joint ventures with local business. These are the Saudi Industrial Development Fund (SIDF), and the Public Investment Fund (PIF).

SIDF grants medium and long-term loans to industrial concerns at 2 percent annual service charge. It is the key institution in the government’s drive towards industrialization. A loan from the SIDF opens the way to further commercial funding. The SIDF will finance up to 50 percent of the project’s costs, defined as fixed assets, pre-operating expenses and working capital equal to the first three months of operating expenses.

PIF provides funding for government mixed investments (government/private) granting long-term loans on soft conditions, at 3-6 percent per annum. Most loans are to projects such as the SABIC joint-ventures, foreign export refineries and infrastructure projects.

Corporate income tax rates

The Kingdom has revised the tax code for the benefit of foreign investors. Corporate income tax rates are among the lowest in the world. They are:

20% of taxable income on non-oil and gas activities

30% on natural gas activities

85% on oil production and hydrocarbons

24


Recent economic development and prospects

Policies aimed at the privatization of public sector companies and greater participation

of the private sector in the economy are gaining momentum. The Saudi authorities

have recently formulated privatization plans concerning both timing and the enterprises

involved.

Privatization of the telecommunications sector has been completed. Privatization plans

are now being considered under an overall national framework and significant results

are expected, including the privatization of the Jubail-Yanbu Electricity Company and the

unbundling of the electric power industry. Saudi Basic Industries Corporation (SABIC),

Saudi Arabian Airlines (Saudia) and Ma’aden, are on the government’s privatization list.

In August 1997 the Council of Ministers established the basic rules for the transfer of

public assets to the private sector in order to increase the share of the private sector

in GDP; expand the scope of public participation in projects; encourage local and foreign

investment; increase job opportunities and employment for the national workforce; provide

services to citizens and investors on demand and at low cost; raise the competitiveness

of the economy; rationalize public spending and ease the burden on the State’s budget by

giving the private sector a chance to provide some services, and increase state revenues

from partnership projects.

Gold, Al Amar, Riyadh Province

25


GEOLOGY OFSAUDI ARABIA

Arabian Plate

Saudi Arabia is part of the Arabian plate, one of over ten that make up the surface of the earth. The Arabian plate came into existence 25-30 million years ago (25-30 Ma), when the rocks that comprise what is now the Arabian Peninsula, Syria, Jordan, Iraq, and westernmost Iran began to separate from the African continent because of rifting along the margin of northeast Africa and the opening up of the Red Sea and Gulf of Aden.

Although relatively young as a tectonic unit, the plate incorporates rocks that have evolved over a considerable span of geologic history. These rocks range in age from the Archean to the most recent and make up a layer of continental crust as much as 45 km thick. The Precambrian rocks are extensively exposed in the southwest of the plate, and locally in the southeast, because of Mesozoic and Cenozoic uplift. Elsewhere the Precambrian rocks are concealed by a low-dipping sequence of Phanerozoic deposits that, in the Arabian Gulf, for example, reach a thickness of more than 10 km.

The Precambrian rocks contain most of Saudi Arabia’s known metal deposits, such as gold, silver, copper, zinc, iron, and magnesium. The Phanerozoic rocks contain the oil resources and deposits of bauxite (the source of aluminum), phosphate, clay, limestone, silica sand, light weight aggregate, and other mineral commodities that are of increasing importance to the industrial development of the Kingdom.

26


Since its creation, the Arabian plate has moved northeast away from Egypt and Sudan, north away from Somalia, and rotated counterclockwise about a point in the vicinity of the Gulf of Suez. At the present time, the northern part of the Arabian plate moves northwest, with respect to the Eurasian plate, at a rate of 20±3 mm/yr. Because they are regions of extension, the southern, south-western, and southeastern margins of the Arabian plate have weak to moderate earthquake activity; the compressive northerly and northeasterly margins, conversely, are regions of strong earthquake activity. Overall, the plate has moved as much as 350 km away from Africa, depending on where the margins of the initial rift are placed with respect to present-day exposure of Precambrian basement, depending on how much stretched continental crust is believed to remain in the Red Sea basin, and depending on how much hybrid continental-oceanic and true oceanic crust is inferred beneath the Red Sea shelves and axial trough. Displacement along the Dead Sea transform separating the northeastern-most part of the African plate from the Arabian plate is believed to be about 110 km.

Precambrian Basement

The southwestern outcropping Precambrian rocks constitute a region of exposed basement called the Arabian shield (the term shield meaning an exposed area of crystalline, stable to moderately stable basement). Most of the rocks are between 870 and 550 million years old, although some contain material as much as 2000 million years old. The 870-550 Ma rocks of the shield represent one of the best exposed and largest assemblages of Neoproterozoic rocks in the world. Following current ideas about the evolution of orogenic belts worldwide, these rocks are divided into separate crustal units, or suspect terranes, believed to have distinct, unique geologic histories. Many of the Neoproterozoic rocks accumulated in oceanic environments as island arcs, ocean plateaux, and mid-ocean ridges. Sutures between the constituent terranes of the Arabian shield and its counterpart in northeast Africa are marked by serpentinite-decorated faults, thrusts, and brittle-ductile shear zones. These faults have a range of ages and histories, but together represent a period of failed rifting or dismemberment of the newly formed Arabian crust.

Phanerozoic Cover

The crystalline basement of Saudi Arabia has not been completely stable since the end of crust-forming events in the Precambrian. It has been affected by strike-slip faulting and rifting, forming grabens, and by uplift and subsidence, forming domes, basins, arches, and troughs. The effects of such deformation are considerable. The crest of the Ha’il arch is about 4 km above the trough of the An Nafud basin; crystalline rocks in the easternmost

27


part of the Arabian plate are depressed beneath more than 10 km of sedimentary rocks; crystalline rocks in the western part of the plate are elevated by as much as 3 km along the Red Sea escarpment; basement rocks are vertically displaced as much as 3 km on buried faults beneath central Arabia; and the southeastern margin of the plate has been overthust by slices of ocean floor. The present-day Arabian shield is exposed because of uplift along the Ha’il arch and Red Sea arch, and the shield is partly concealed, between the arches, by Lower Paleozoic and Upper Cretaceous-Paleogene sedimentary rocks and Cenozoic volcanic rocks preserved in a north-south structural low.

The Infracambrian-Phanerozoic sedimentary history of Arabia began with the deposition, in grabens or pullapart basins formed by the end Proterozoic faulting mentioned above, of clastic rocks and later evaporites (Huqf and Haima groups) in Oman and eastern Arabia and of clastic rocks, limestone, basalt, and rhyolite (Jibalah group) on the exposed shield, and the formation of the Dokhan Volcanics and associated dike swarms in the Egyptian Eastern Desert. The resulting large Infracambrian-Cambrian salt basins are a conspicuous feature of the eastern part of the Arabian plate and structures formed by later halokinesis, locally in conjunction with basement horst blocks, make extremely valuable oil traps.

During the Early Paleozoic, central Arabia was a stable subsiding passive margin flanking Gondwana. Shallowmarine, littoral, and fluvial sandstone, siltstone, and shale were deposited on the low-relief erosion surface formed on the Precambrian basement at the end of the Neoproterozoic, a depositional cycle interrupted during the Late Ordovician-Early Silurian by polar glaciation (Arabia at this time was within 30° of the South Pole). Sea-level rise and fall caused regression and transgression of the ocean flanking Gondwana and a corresponding migration of sedimentary facies on the stable shelf.

Because of “Hercynian” orogenic activity that originated beyond the confines of Gondwana, the passive margin of Gondwana in Arabia during the Devonian became active and central Arabia underwent uplift and tilting. A regional structural high that lacks Devonian sedimentary rocks marks the early development of the Central Arabian arch. Earlier deposits were depressed in fault basins or eroded across generally north-trending horst blocks resulting in an irregular topography and resulting in the initiation of structures that eventually controlled the location of Paleozoic-hosted oil fields in central Arabia. Unayzah Formation clastic rocks, which constitute major oil reservoirs where they overlie appropriate Hercynian structures, mark a resumption of sedimentation in the Late Carboniferous. Deposition of the Khuff Formation, representing the earliest major carbonate unit in Arabia, followed, concurrent with rifting and Gondwana breakup in the Zagros region. During this period, a second episode of glaciation deposited Permo-Carboniferous glaciogenic clastic rocks in southwestern Ar Rub al Khali and in interior Oman.

28


The Mesozoic geologic history of the Arabian plate is marked by the formation of structural highs and lows. Reactivated basement structures, shown in Saudi Arabia as N-S Mesozoic anticlinal highs, affected younger sedimentation, particularly during the Late Cretaceous, causing anticlinal drape folds and helping to create the Mesozoic oil fields of Saudi Arabia. The reservoir rocks are Jurassic and Cretaceous, into which Jurassic hydrocarbons migrated during the Tertiary. The axial region of the Central Arabian arch underwent Middle Jurassic and Early Cretaceous inversion and became a basin, followed by reformation of the arch during the Late Cretaceous as a consequence of uplift in southern Arabia and continued subsidence to the north.

ARABIAN

SHIELD

MAIN

DEPOSITS

Gold

Silver

Copper

Lead

Zinc

Iron

Other

Base

Metals

COVER

ROCKS

MAIN

DEPOSITS

Phosphate

Bauxite

Limestone

Silica sand

Clay

Gypsum

Other

Industrial

Minerals

29


Tertiary Spreading, Uplift, and Volcanism

The present-day boundary between the Arabian and African plates is a series of troughs 2,000-4,500 m deep along the Red Sea, Gulf of Aden, and Gulf of Aqaba reflecting spreading along the Red Sea and Gulf of Aden and pull-apart basins along the Dead Sea transform fault. Seafloor spreading in the Red Sea began 5-6 m.y. ago, although an earlier episode of spreading may have occurred 15-25 m.y. ago. Intrusion of magma along the spreading axes created the oceanic crust of the southern Red Sea and formed pools of metal-laden brine and hot springs in particular deeps. The floor of the northern Red Sea may be a mixture of rifted continental crust and newly formed oceanic crust. Syn- and post-rift sedimentary rocks, including evaporites, flank the spreading axis in the Red Sea and underlie the Red Sea coastal plain (Tihama). In most localities, the contact between Precambrian rocks of the shield and Cenozoic rocks of the Red Sea basin is faulted.

Processes related to spreading caused uplift of the southwestern and southeastern margin of the Arabian plate forming mountains in western Saudi Arabia and Hadramaut that crest at the erosional escarpment (2500-3300 m above sea level) inland from the Red Sea and Gulf of Aden. According to fission-track data, the Red Sea margin of southern Saudi Arabia has undergone 2.5-4 km uplift in the last 13.8 million years. East of the Red Sea escarpment and north of the Hadramaut escarpment the land surface slopes to a broad plateau 900-1,000 m above sea level, and farther east slopes gently to the Gulf.

Flood basalt erupted in western Arabia as a result of the spreading process forming large fields of subaerial volcanic rock (harrats) that cover parts of the shield and some Phanerozoic sedimentary rocks. The volcanic rocks are mainly alkali-olivine basalt and form lava fields that were extruded from numerous vents and volcanic cones. The northerly alignment of cones and faults in the volcanic fields possibly reflects a northerly alignment of fractures in the underlying crystalline basement along which magma rose from great depth. The oldest flood basalts are in Yemen and southern Saudi Arabia (30 Ma); the youngest are in parts of Harrat Rahat and Khaybar (erupted as recently as 700 years ago).

Quarry to Exploit Silica Sand, Riyadh Province

30


Main Occurrences of Ornamental Stones1 - Granite 2 - Marble 3 - Basalt

31


EXPLORATION

AND MININGHistorical background

The Arabian Shield, which forms a geologic and metallogenic province, has been the site of ancient cultural and mining activities that predate Islam. Evidence of ancient mining traditions includes old inscriptions, and numerous scattered ruins of mining sites and their associated villages along ancient caravan routes. By the time of the early Islamic period (AD 750-1258), mining in Arabia was flourishing, and the archaeological evidence includes gold coins dating from this period.

Modern mineral exploration in the Kingdom began in 1931 when the late King Abdul Aziz commissioned the American geologist K.S.Twitchell to investigate the occurrence of oil and minerals in the Kingdom. Twitchell’s work confirmed the existence of oil in the Eastern Province and of gold in the Hijaz Region.

In 1933 the Bureau of Mines and Public Works was established under the Ministry of Finance to oversee mining operations in the Kingdom. On February 12, 1935 an agreement was signed between the government and a British-American consortium - the Saudi Arabian Mining Syndicate (SAMS) to operate the ancient gold mine of Mahd ad Dhahab. In an effort to streamline the operations of foreign companies in the Kingdom, late that year the government established the Bureau of Mines as a liaison office between the Ministry of Finance, SAMS and other international companies holding mining concessions in the Kingdom.

In 1952 the Directorate General for Oil and MInerals was established under the Ministry of Finance to monitor oil and mineral production and to safeguard the government’s interest in the sector.

In 1960, the Directorate General for Oil and Minerals was transferred to the Ministry of Petroleum and Mineral Resources. An independent directorate, the Directorate General of Mineral Resources (DGMR), under the Ministry of Petroleum and Mineral Resources, was established in 1962 to administer a systematic geologic mapping and mineral exploration program. This led to the discovery of several commodities, including copper, zinc, gold, silver, iron, bauxite and phosphate deposits, and sources of ornamental stone and industrial minerals.

The DGMR became the present day Deputy Ministry for Mineral Resources (DMMR) in 1994. For more information please visit www.dmmr.gov.sa.

32


Directorate General for Mineral Resources (DGMR) and Deputy Ministry for Mineral Resources (DMMR)

A new organizational structure was adopted for the DMMR. This was necessary due to the rapid growth and increasing diversity of the administrative and technical entities of the DGMR, and the need to provide a modern and solid base of government support for the Kingdom’s mineral resource sector. The principal divisions of today’s DMMR (the successor of DGMR) are as follows:

Office of the Deputy Minister for Mineral Resources

Office of the Assistant Deputy Minister for Finance and Administration

Office of the Assistant Deputy Minister for Mining Investment

Mining Investment Control Department

Mining Concessions Department

Economic Department

Technical Projects Unit

A prime objective of DMMR has been to provide a broad range of Saudi personnel who can manage and integrate its administrative and technical activities and make decisions concerning mineral sector policy.

DMMR employs about 500 staff including those with undergraduate and graduate degrees in geology and mining engineering. It is charged by the Government with the collection, interpretation, and dissemination of information on all mineral resources other than gas and petroleum. DMMR activities are primarily concerned with the implementation of the Mining Code and include promotion and licensing of mining development, mining investment, supervision, fee collection, safety and protection of the environment specifically in the mining sector.

From 1987 until its reorganization in 1999, when the Saudi Geological Survey (SGS) was established, DMMR designed and produced a number of new thematic maps on a geologic base, that can be of particular use to other government agencies, to universities, oil companies, development authorities and private companies. Some of these specialized maps include a geotechnical map of Ar Riyadh, Az Zabirah bauxite map, and the industrial mineral resources maps of the major urban centers of the Kingdom.

33


Exploration for mineral commodities was the principal activity of the DMMR until 1999.

Many of DMMR’s previous exploration programs were long-term and therefore provide

a range and depth of data about prospective areas of great value to potential investors

and developers.

Gold occurrences and prospects are widely distributed throughout the Saudi Arabian

Shield. In 1987, DGMR utilized modern exploration techniques to launch a gold

exploration program that resulted in the discovery of significant gold mineralization at Al

Hajar, Hamdah, Ad Duwayah and Zalim.

DMMR undertook a systematic inventory of all known or newly discovered base-metal

occurrences followed by detailed studies of promising localities. Significant deposits of

phosphate, iron ore and bauxite have been evaluated. Copper has been discovered at

Jabal Sayid, in the west-central Shield; of zinc at Khnaiguiyah, in the eastern Shield; and

of copper and zinc at Al Masane, in the southern Shield. These have been the subject of

comprehensive economic evaluation studies.

DMMR exploration for industrial minerals included the completion of a systematic

inventory of all known or newly discovered occurrences.

Objectives of DMMR

A major objective of the DMMR is to stimulate the development of a sound mineral

industry. The intention is to provide, in association with Saudi Geological Survey (SGS),

reliable geologic and economic data to prospective investors. Another objective of DMMR

is to stimulate and encourage investment in mineral resources by the private and public

sectors.

DMMR has compiled a comprehensive database on the geology and mineral resources

of the Kingdom, which is readily available for examination or purchase, by investors and

other interested parties. This includes maps, databases, archives and reports.

34


MINING LEGISLATIONMining Investment Law

Overview

The Mining Investment Law in use today is the version introduced on October 4, 2004. It is the basic framework for controlling exploration and mining activities in the Kingdom. The Law consists of seven chapters.

Chapter 1 : Preliminary provisions

Chapter 2 : General provisions for licenses

Chapter 3 : Provisions for reconnaissance and exploration licenses

Chapter 4 : Provisions for exploitation licenses

Chapter 5 : Provisions for material collection licenses

Chapter 6 : Financial provisions

Chapter 7 : Miscellaneous provisions

Chapter One includes definitions of the state ownership of minerals; types of licenses; the minerals and land excluded from the scope of the Law; the supervising agency for the application of the Law; and the powers that agency may exercise.

Chapter Two outlines the conditions to be satisfied by the applicant; transfer of licenses; amendments; protection of third parties’ rights and management of operations. Chapter Three summarizes issuance of licenses; rights conferred and obligations of license holders. Chapter Four delineates rights and obligations of license holders; renewal and issuance of exploitation licenses. Chapter Five outlines the rights and obligation of Material Collection License Holders. Chapter Six summarizes severance fees and surface rental. Chapter Seven outlines penalties and arbitration. The main types of licenses are: reconnaissance, exploration and mining licenses.

• Reconnaissance license

Allows its holder to examine the area covered by the license for all minerals not excluded by the Law. It is issued for a period of two years and may be renewed or extended for a single two-year period.

• Exploration license

Exploration licenses convey two important rights -- the exclusive right to explore within the

35


license area, and the exclusive right to obtain a mining lease. It is issued for a period of five years which may be renewed or extended for a period or periods not exceeding five years in total.

• Mining license

Mining licenses confer the exclusive right to produce and exploit specified minerals in the license area. The area is restricted to a maximum of 50 sq.km. and is issued initially for a period of up to 30 years. A maximum surface rental of SR10,000 (approximately US$2,667) per square kilometer per year is payable.

Mining Investment Regulations

The Mining Investment Regulations set forth the requirements, procedures and fees for the range of concession documents available. Document holders may also wish to apply for other services such as aerial photography, or access to Ministry data. The Regulations provide the forms and procedures for all the options available.

Specific conditions are applicable to Mining Licenses, Small Mine Licenses, Building Materials Quarry Licenses and Raw Materials Quarry Licenses such as the licensee’s exclusive rights to production and exploitation. Finally, the Regulations prescribe those conditions specific to individual documents, for example, the duration and area of the lease, and the licensee’s reporting commitments.

Exploration of Phosphate in Hazm Al Jalamid, Northern Province

36


License Provisions

Technical provisions

The Regulations provide for various technical aspects of exploration and mining activities. A document holder may exercise control and management of his work, and he may also select any suppliers and contractors, although preference should be given to locals if equivalent services can be provided.

Safety and environmental regulations specific to the mining industry have been drafted by DMMR and the Presidency of Meteorology and Environmental Protection (PMEP). All document holders are charged with safeguarding both the health and safety of their employees, and the environment from damage.

Document holders may request that all information supplied to the Ministry be treated as confidential, whether in the form of prescribed reports or as additional information. The library of reports, maps and aerial photographs held by the Ministry is available for inspection by document holders upon payment of a small administrative fee.

Financial provisions

Foreign companies are subject to income tax of 20 percent of taxable income, payable to the Department of Zakat and Income Tax (DZIT). Income tax is assessed on profits arising or deemed to arise in Saudi Arabia of foreign professionals, foreign partnerships,

Reconnaissance License

Non-exclusive

Any size

Granted by Minister

Maximum

2 years (renewable)

Exploration License

Exclusive

Maximum 100 km2

Granted byMinister

Maximum

5 years (renewable)

Mining License Exclusive

Maximum 50 km2

Granted by Minister

Maximum 30 years

(renewable)

37


and foreign corporate entities and on the share of the foreign shareholder in the profits of a Saudi corporate entity. For the purpose of the income tax levy, citizens of the Gulf Cooperation Council (GCC) who have established a domicile in the kingdom are not subject to income tax. Other GCC member countries are Bahrain, Kuwait, Oman, Qatar and United Arab Emirates. Income is deemed to arise in Saudi Arabia when one or both of the following are located within the Kingdom: place of performance of work or service; place of delivery of work done.

In order to treat Saudis and non-Saudis equally, holders of a mining license have to pay severance fee of 25 percent of annual net income or the equivalent of income tax whichever is lower.

Unless extensions are requested and approved, companies with foreign participation must file final tax returns and pay the corporate tax due within 120 days from the end of the accounting period. If the payments are not made by that date, fines are payable on the total amount of corporate tax due.

Zakat

Zakat is a religious mandatory charity for Saudi or GCC citizens and companies that are wholly owned by Saudi or GCC citizens. Zakat rates are 2.5 percent of the capital employed defined as equity capital less fixed assets, adjusted by the net results of operations for the year.

Exploitation of gold using open pit Bulga Mine - Madineh Province

38


MINING INVESTMENTPROCEDURES AND INCENTIVES

Procedures

Role of the Deputy Ministry for Mineral Resources

DMMR is the sole agency responsible for implementing the provisions of the Mining Code

and Regulations. All enquiries and applications should be addressed to DMMR.

DMMR will execute the documents within its power and be responsible for ensuring that

the terms of the agreement are complied with.

Obtaining reconnaissance, exploration and mining rights

Applicants should inform DMMR of the nature of their requirements and objectives. Such

enquiries should be addressed to:

Deputy Minister for Mineral Resources

Deputy Ministry for Mineral Resources

P.O. Box 345, Jeddah 21411 Kingdom of Saudi Arabia

Tel: (966-2) 667- 4800 - Fax: (966-2) 667- 2265

www.dmmr.gov.sa

Normally the first rights to be granted are in the form of a Reconnaissance License.

This is a simple document with minimal procedural requirements. The holder may have

access to the libraries of reports, maps and data. He may visit locations of interest and

take samples. If areas of interest are subsequently delineated, the holder may wish to

obtain exclusive rights by applying for an exploration license.

An application for an Exploration License shall include particulars of the applicant, minerals

to be explored for, area to be explored, duration of the license, and minimum exploration

expenditures in accordance with the Regulations.

Applications for a Mining License must be accompanied by an “obligation” to submit a

feasibility study and an environmental study prior to commencing mining operations.

39


Incentives

There is no surface rental for exploration, and the rental rate for mining is limited by the Mining Investment Law to a maximum of SR10,000 About (US$ 2,667) per square kilometer per year. Profits and capital may be repatriated without any restriction.

The Mining Investment Law permits all document holders to use water resources within their concession area, subject to any existing arrangements that may have been made for the supply of towns or villages.

All equipment required for the implementation of a concession is exempt from import and export duties.

Attractive terms are available for financing mining projects, from government institutions such as the Saudi Industrial Development Fund (SIDF), and the Public Investment Fund (PIF). Details of these funds’ requirements are available from the respective institution.

There are large tracts of geologically favorable land available. Many prospects are available for further exploration and evaluation, and major projects await development. Comprehensive reviews of both metallic and non-metallic mineral resources have been published.

Silica Sand - Ghonan - Eastern Province

40


Min

ing

Inv

estm

en

t in S

au

di A

rrab

ia . . A

Brie

f for th

e P

rosp

ec

tive

Inv

esto

r2

01

6

For further information, please contact: Deputy Ministry for Mineral Resources

P.O.Box 345 Jeddah 21411 Kingdom of Saudi ArabiaTel. : +966 2 667-4800 - Fax : +966 2 667-2265

www.dmmr.gov.sae-mail: [email protected]

[email protected]

Ministry of Energy, Industry and Mineral ResourcesDeputy Ministry for Mineral Resources

Jeddah, Kingdom of Saudi Arabiawww.dmmr.gov.sa

Mining Investment in Saudi Arabia

A Brief for

The Prospective Investor

2016

a brief for the prospective investormining investment in saudi arrabia . . a brief for the...

Documents