Oman's regulatory changes reflect investment growth in mining sector

Mining in Oman is poised for growth in line with economic diversification plans, and the sector has distinct advantages over other developing markets. The country has some of the richest and most diverse mineral deposits in the world, ranging from gold and copper to potash, gypsum, chromite and limestone. Despite this, Oman’s mineral wealth remains largely uncovered.

The sultanate holds a strategic location along global trade routes, and operates three ports in the north, centre and south of its territory. With planned infrastructure upgrades such as cross-country rail links and ongoing government reforms to facilitate investment, it is becoming clear that Oman is on the cusp of unlocking its mineral export potential.

Economic Contribution

The importance of mining and quarrying to Oman’s economy has increased significantly since 2000. According to the “2018 Statistical Year Book” published by the National Centre for Statistics and Information (NCSI), in 2017 such activities contributed OR147.4m ($382.8m), or 0.54%, to GDP at current prices. This is up on the OR128.1m ($332.6m, 0.51%) and OR122.2m ($317.6m, 0.46%) seen in 2016 and 2015, respectively. The contribution of mining and quarrying to GDP is now over 10 times more than it was in 2003, when it stood at OR14.2m ($36.9m).

Although its share of GDP remains small, the government is optimistic about growth prospects in the coming years. Officials predict that development initiatives will boost the sector’s contribution to GDP to OR378m ($981.6m) by 2023, with production of all minerals forecast to increase from 100m tonnes in 2016 to 147m tonnes by that year. Private sector players from related industries are also eager to see mining grow.

Exports of mineral products – a category that includes a wider range of goods and therefore stands higher than mining GDP – has also grown in recent times. Data from NCSI shows that the value of such exports rose from OR482.3m ($1.3bn) in 2016 to OR858.9m ($2.2bn) in 2017, and shipments totalled OR553m ($1.4bn) in the first six months of 2018 – on track to outpace the previous year.

Sector Structure

Regulation of the sector is primarily undertaken by the Public Authority for Mining (PAM), an organisation created by royal decree in 2014 and housed under the Ministry of Commerce and Industry (MoCI). PAM is an independent body that tasked with ensuring that the sultanate effectively exploits its mineral wealth in a manner that best serves the country’s development goals. The group comprises both highly qualified technical as well as key governmental advisors, including Hilal bin Mohammed Al Busaidi, CEO of PAM, and Ahmed bin Hassan Al Dheeb, chairman of PAM and undersecretary of the MoCI.

A time of fundamental change in Oman’s mining sector came in 2016. That year, four state-owned investment bodies – the State General Reserve Fund, Oman Investment Fund, Oman Oil Company and Oman National Investments Development Company – collaborated to launch Minerals Development Oman (MDO) to stimulate investment in upstream and downstream activities. Three-fifths of MDO’s $260m share capital is owned by the state entities, while the remaining 40% has been set aside for an initial public offering (IPO). Although an IPO on the Muscat Securities Market was originally slated for the end of 2016, delays have seen this timeline pushed back. As of October 2018, the MDO was still reportedly planning to execute an IPO – potentially listing a special purpose vehicle – although no specific date had been announced.

Since its establishment, MDO has played a vital role in facilitating investment in the mining sector through joint ventures (JVs) with private firms. There are currently six key mining companies operating in Oman: local Gulf Mining Group, Zawawi Minerals, Mawarid Mining and Kunooz Oman Holding; Australian firm Alara Resources; and state-owned Oman Mining Company. Mawarid Mining is focused on exploration, development and operation of mining projects both in the country and abroad. The firm has been Oman’s dominant player in the copper and gold segments for several years, and in February 2018 announced plans for a JV of up to $100m with MDO to explore two copper blocks in North Al Batinah Governorate. Beyond this handful of large companies, there are 60-70 other smaller mining firms operating in the sector.

Policy

The creation of MDO is just one positive outcome of the government’s mining strategy, as outlined in Oman’s ninth five-year development plan for 2016-20. Stimulating growth in the sector is a key part of ongoing diversification plans aimed at easing dependence on oil revenue. To this end, officials are working to facilitate private sector involvement in major projects, as evidenced by JVs between private mining firms and MDO.

Other state initiatives to encourage the development of the mining sector include major infrastructure upgrades and moves to establish companies that promote mineral-based industrial activities. An example of the latter came in 2017, when the government created Duqm Quarries Company, a firm that manages, regulates and develops all mining and quarrying activities in the Duqm Special Economic Zone. Duqm Quarries also operates sand and gravel mines, in addition to supervising activities related to the exploitation of quarries for construction and filling materials that are required to support infrastructure projects under way in the zone.

Expanding infrastructure capacity, meanwhile, is evidenced by a new container terminal at Duqm Port, which will have the capacity to handle 2m twenty-foot equivalent units annually and is set to be operational by the end of 2019, according to local port authorities. Officials are also considering laying a 375-km railway to connect the mineral-rich Dhofar Governorate with Duqm Port, a move which would significantly lower transport costs for mining companies.

Employment

Mining and quarrying employed 46,977 private sector workers in 2017, 18,302 of which were expatriates, while Omanis numbered 28,675. The government is working to encourage further domestic involvement in the sector through its Omanisation programme, a labour reform policy in place across all economic activities since 1988. At 61%, the rate of Omanisation in mining is already well above the standard state target of 35% for all sectors.

However, wages and working hours have been highlighted as hindrances to further Omanisation. “Low wages are the main barrier to achieving higher Omanisation in the mining and quarrying sector, as many locals are unwilling to work long hours for minimum wage,” Nasser Al Maqbali, deputy CEO of MDO, told OBG. “A skills gap in the current employee pool is another challenge that needs to be addressed, although this is not currently the primary concern.” The local skills gap in various industries is being addressed through education initiatives. This, coupled with growth in the mining sector, is expected to create new openings for skilled technical jobs in geology and engineering, which may prove more appealing to the domestic labour market.

Sector Trends

Growth in the sector has indeed accelerated in recent times, underpinned by favourable legislative changes and rising mineral demand globally: the sector expanded by 15% year-on-year in the first quarter of 2018, from OR38.7m ($100.5m) to OR44.5m ($115.6m), according to the June 2018 quarterly statistical bulletin by the Central Bank of Oman. While production of limestone, gypsum and marble has supported the industry in the past few years, a resurgence in copper production presents one of the most promising sector developments going forward.

Copper mining ceased in 2016 and 2017 following a significant drop in international demand, particularly from China. Now, a global deficit in copper and increasing electrification efforts in countries such as India have revived the segment in Oman. In June 2018 the government granted its first copper licence since 2004 to a JV between Omani firm Al Hadeetha Investment and Alara Resources of Australia. The firms are undertaking a project expected to produce around 1m tonnes of copper concentrate per annum at Washihi, the largest copper resource in Oman. According to local media reports, copper production at Washihi will contribute an estimated $400m to GDP over 10 years, create dozens of jobs for Omanis and support further downstream development of the mineral.

The revival of investor interest is a hard-fought win for the government and underlines the success of ongoing reforms. Investor roadshows have also been pivotal in steering the future of the industry. In cooperation with the Implementation Support and Follow-up Unit (ISFU), a government body created to ensure diversification targets are met, PAM organised several investment labs in March and April 2018 to engage private sector businesses in identifying challenges facing the sector and devising solutions. The meetings proved very productive, with local and foreign participants putting forth 43 initiatives and projects with an estimated total value of OR813m ($2.1bn).

“There has been growing momentum in the sector with the mining labs,” Justin Richard, CEO of Alara Resources Oman, told OBG. “It has become evident that all relevant ministries have started working together towards industry development.”

Surveys & Deposits

Maturation of the mining industry is also supported by government efforts to expand geological data on Oman’s resources, with ongoing mapping programmes and regular reviews of the country’s metallic and industrial mineral deposits. For example, PAM has begun to create a large geological database that complies and builds on over three decades of survey work conducted by local and foreign companies. The body is also encouraging geologists and mining engineering firms to conduct independent surveys. The Geological Society of Oman and private firms like local consultancy National Earth Secrets are actively engaged in surveying works, employing both local and expatriate experts.

Such efforts have proven that the sultanate possesses vast mineral resources, which are largely concentrated in the country’s mountain ranges. Copper, chromite, manganese, zinc and gold are distributed in an ophiolite sequence that is 1-6 km thick. Oman’s total gypsum ore reserves are estimated at 170m tonnes, while there is approximately 40m tonnes of copper ore and 30m tonnes of chromite, according to a 2017 white paper on the industry. Duqm, in central Oman, holds reserves of industrial minerals and salt, while fertilisers such as potash are found some 500km north. Thamrait in the south is known for gypsum and Salalah for limestone. Shuwaymiyah in Dhofar Governorate has large deposits of limestone, gypsum and dolomite, while Sohar in the far north of the country is rich in copper, gold, gabbro and limestone.

“There is high potential for the mining sector, as Oman has an abundance of minerals such as limestone, gypsum and copper,” Sreekumar Nair, CEO of Al Fajar Al Alamia, a firm that provides explosives for the mining and quarrying industry, told OBG. “Limestone in Salalah is considered one of the best grades globally, and a focus on the development of the sector can significantly increase its contribution to economic growth.”

Major Operations

Large-scale projects under way in the country include a potash mine with the capacity to produce 500,000 tonnes per annum, and the potential to expand to 1m tonnes. Based in Duqm and set to become Oman’s single-largest mining project, full-scale commercial production of the crop fertiliser is expected by 2022. Gulf Potassium Mining, a subsidiary of local Gulf Mining Group, is to invest $300m-500m in the project between 2018 and 2022.

Major established mines include those tapping the Al Ram chromite deposit, as well as various copper and gold mines at Mandoos. Iron ore pelletising and aluminium smelter plants in Sohar, meanwhile, are some of the largest downstream mining operations in the country.

Foreign Investments

Investment and know-how from abroad will be crucial to Oman securing a larger piece of the global metals and minerals market. The Foreign Capital Investment Law, the subject of a comprehensive revamp, outlines investment rules across all sectors, including mining and quarrying. However, the law has been criticised for several restrictions that pose major obstacles to investment, including measures aimed at limiting the scope of foreign ownership, which require firms based abroad to engage with a local partner that holds at least a 35% stake in projects. Prioritising state-owned companies in the granting of licences, as well as limiting some export rights to government companies only, have been named as other issues.

A new investment law prepared by the MoCI, which was in the final draft stage as of October 2018 and is expected to be ratified by the end of the year or in early 2019, offers some welcome changes. These include allowing for 100% foreign ownership and the removal of a share capital requirement of OR150,000 ($390,000). Another proposed change allowing for dispute resolution and international arbitration is aimed at addressing concerns over foreign investors’ rights.

Mining Legislation

While well established sectors of the economy tend to benefit from more robust, stable legislation, emerging industries often see their rules evolve as activity takes off. “The Ministry of Oil and Gas is well regulated and has very clear rules, but there is a lot of uncertainty in mining, and the perception is that the government competes with the private sector. There needs to be a concerted effort among authorities to provide clarity on the regulations and framework of the mining industry,” Usama Barwani, director of local conglomerate MB Holding, told OBG.

To address such concerns, a new mining law is due to be unveiled in the coming months. Drawn up by PAM in collaboration with a consortium of international firms, the Mineral Wealth Law aims to clarify answers to common questions, streamline investment procedures for local and foreign mining companies, and increase the transparency of licensing processes. After undergoing extensive stakeholder consultation, a final draft was agreed upon at the end of June 2018 by Oman’s bicameral Parliament, and ratification is expected to occur by the end of 2018 or in early 2019.

Investors are hoping that the new law will extend the current five-year licence period and scrap a mandatory annual renewal requirement. In addition, change is also afoot to centralise and streamline the licensing application process, which currently requires regulatory approval from eight different ministries. The legislation is seeking to establish a one-stop shop for the issuance of new licences in order to allow investors to apply for investment-ready blocks or concessions with all the required permits already in place.

Greater transparency is another key focus, particularly for the awarding of mining concessions. “The new law will promote development within the sector, as it will impose a monitoring process to ensure concessions are tendered for mining purposes,” Al Maqbali told OBG.

Exploration Activities

Although the application process for exploration licences will be streamlined under the new regulation, some industry stakeholders argue that more still needs to be done in order to incentivise exploration. According to a white paper on ongoing changes to the mining sector, concession transfer requirements will still be challenging to meet under the new law. The draft regulation reportedly includes a provision that will allow licence holders to sell a mining licence after completion of exploratory operations. However, the first licence holder will still be required to achieve 40% of project execution before they can apply to PAM to transfer the concession. At the moment, there is no provision allowing for the auctioning of exploration permits to private sector players on a revenue-sharing basis.

Royalties

Reforms to royalty payment rules are expected as well. Mining royalties already decreased from 10% to 5% of the sales value of minerals and metals in 2010, but under the new law, fixed royalties and tax rates could be replaced by adjustable royalties that would help incentivise investment by offering lower rates during periods of very low commodity prices. Government revenue from mining royalties and other taxes on the industry amounted to OR15.3m ($39.7m) in 2017, up from OR12.2m ($31.7m) in 2016.

It is still unclear, however, whether there will be adjustments to annual exploration and mining fees as well. According to an investor presentation by PAM, as of 2015 exploration fees were OR25-100 ($65-260) per sq km, depending on the size of the concession area and whether metallic or non-metallic minerals are sought, and OR500 ($1300) per sq km for mining operations.

Outlook

Oman’s prioritised and developing mining sector presents numerous investment opportunities. As much of the country’s mineable resources remain untapped, firms willing to engage in capital-intensive exploratory work will likely be rewarded with lucrative deposits. New mining and foreign investment laws are creating an increasingly favourable business climate, and as more players become involved in the country’s mineral trade, infrastructure upgrades such as railway links and port expansion projects are expected to follow to capitalise on global demand for such commodities.