Oman's mineral exploration creates positive environment for foreign investment

Significant legislative developments in 2019 laid the groundwork for positive growth in Oman’s mining sector. The full extent of its mineral wealth has only recently been realised, and with a number of projects under way across the sultanate, the sector has strong potential to affect positive economic diversification of the country. At the same time, a welcoming climate for foreign investment and rapidly developing infrastructure demonstrates that companies are taking a holistic approach to the sector. Furthermore, investment in local downstream processing could lead to an increase in profits earned from raw resources.

Performance & Size

Mining and quarrying’s contribution to Oman’s economy continues to steadily increase. According to the Central Bank of Oman (CBO), in its Annual Report for 2018, the country’s mining sector recorded the highest rate of growth among non-oil activities, at 16%.

In 2018 mining activities contributed a total of OR171m ($444.1m) to GDP, up from OR147.4m ($382.8m) in 2017, maintaining a pattern of growth seen over recent years. In 2015 the sector was worth OR122.2m ($317.4m, or 0.46%), increasing to OR128.1m ($332.7m, or 0.51%) in 2016. This growth is expected to continue in the future, with the mining sector forecast to contribute some OR300m ($779.1m) to the economy by 2030. If this target is achieved, the industry will be more than 20 times its size in 2003, when it was worth approximately OR14.2m ($36.9m). According to the latest available data from the National Centre for Statistics and Information, the value of exports rose from OR482.3m ($1.3bn) in 2016 to OR858.9m ($2.2bn) in 2017, with trade shipments totalling around OR553m ($1.4bn) in the first six months of 2018 – on track to outpace figures from the previous year.

In 2019 there were 50,000 people employed in the mining and quarrying sector, of which 30,300 were Omani. As with many of Oman’s key development sectors, there is a minimum Omanisation target of 35% for all private companies. The mining sector has comfortably surpassed that target and in 2019 reached approximately 61%.

Structure & Oversight

Regulation of the sector is the responsibility of the Public Authority for Mining (PAM), which was created in 2014 for the purpose of optimising the country’s use of mineral wealth and supporting the wider development agenda. Housed under the Ministry of Commerce and Industry, PAM’s duties include undertaking the geological mapping of the sultanate and conducting feasibility studies, developing investment opportunities and initiatives, and setting the mining strategy.

As one of the five key sectors under the government’s National Programme for Enhancing Economic Diversification, or Tanfeedh, the mining and quarrying sector is imperative for the diversification of Oman’s economy. The mining lab, organised by PAM and supported by Tanfeedh’s Implementation Support and Follow-up Unit, has created some 43 projects and initiatives with an estimated value of OR813m ($2.1bn), some 99% of which will be led by the private sector. These projects and initiatives are set to increase the sector’s contribution to national GDP, provide more than 1600 direct jobs to Omanis and increase the country’s mineral production to 147m tonnes by 2023.

By the end of 2018 PAM had issued 291 licences for conducting mineral exploration operations. Furthermore, the collaboration between PAM and Tanfeedh has led to an additional nine initiatives that are set to unlock potential, as well as regulate and facilitate exploration in the sector. A particularly notable initiative under this umbrella is the mining blocks system, By 2030 the mining sector is forecast to contribute some $779m to the economy which the authority has been working to establish since 2016. PAM has created roughly 110 investment opportunities through the system.

As part of this process, PAM has undertaken efforts to secure the requisite permits from the government’s ministries and state agencies whose approvals are mandatory before exploration and development work can begin at these sites. The process of securing pre-approvals for mining blocks before they are auctioned off, which is done in a competitive tendering process, is one of several key initiatives proposed by the mining labs to accelerate investment in Oman’s mining and mineral processing industry. Other developments include creation of a central, integrated database, as well as overall simplification of exploration and licensing procedures.

Building on PAM’s activities, Minerals Development Oman (MDO), a partnership of four sovereign Omani wealth funds and investment entities, was established in 2016 “to unleash the potential of Oman’s mining sector in support of the socio-economic progress of the Omani population, notably through employment creation, local capacity building, small business growth, community sustainable development and GDP growth”. MDO’s shareholders include the State General Reserve Fund (50%), the Oman Investment Fund (25%) and Oman National Investments Development Company (25%). MDO’s role is to facilitate investment through joint ventures with private firms. As of 2019 it had invested in six major projects, including joint ventures with Mawarid Mining and state-owned Oman Mining Company. These firms, along with local Gulf Mining Group, Zawawi Minerals, Kunooz Oman Holding and Australian firm Alara Resources, are the key players in the Omani market. Recent entrant Savannah Resources was awarded mining licences over the Mahab 4 and Maqail South high-grade copper deposits near the Port of Sohar. Savannah Resources is a 65% shareholder in Omani company Al Fairuz Mining, which holds the exploration licence for Block 5, encompassing the two deposits.

Meanwhile, in 2019 Oman Mining Company conducted feasibility studies on its Lasail, Aarja and Bayda mines, located in Sohar, regarding the possible extraction of additional ore reserves. An objective of these studies is to increase employment opportunities for Omani nationals across all levels.

New Legislation

The Mineral Wealth Law, which came into effect in March 2019, reinforces PAM’s regulatory position in the sector. It is investment-driven legislation that has the potential to transform the sector by streamlining investment procedures and increasing licensing transparency. “The law is based on the results of a comprehensive assessment study on the mineral sector and is guided by a number of relevant national and regional legislations and regulations,” Hilal bin Mohammed Al Busaidi, CEO of PAM, told local media. “PAM has ensured that the law includes incentives for developing the mineral sector, boosting its investment appeal, and facilitating and expediting the procedures for obtaining mining approvals,” he said. Drafted in collaboration with a number of international advisors, such as legal firm Mayer Brown and consultancy firm Wood Mackenzie, the law encourages investment in a number of ways. Licences for exploration and prospecting now may be granted for terms of one year, renewable for periods of up to three years. The licence period for exploitation is up to five years, while also being renewable for longer periods.

Meanwhile, concession agreements for large deposits may be granted for intervals of between 20 and 30 years. Furthermore, the fiscal regime has been revised to make royalty payments more flexible. Where previously the royalty was set at 10%, it was dropped to a minimum of 5%, dependent on market conditions. For non-metallic materials, such as aggregate, gypsum and marble the royalty is fixed, while for metallic elements it is likely to remain at 6%. PAM hopes that tying payments to the economics of the relevant projects will spur investment in the sector.

Key Updates

The Mineral Wealth Law has also made revisions to the conditions of the social investment contribution. Under the new law, a minimum of 1% of production will be invested to social development programmes through a fund run by PAM. This change is expected to benefit the communities located closest to the mining blocks. Previously just 5% of net profit was invested, however, occasionally this could climb as high as 20%. Under the previous law, the process for obtaining licences required companies to obtain eight approvals from various ministries, however, the Mineral Wealth Law has cut this requirement by half. Companies must now receive approval only from the Ministry of Defence, the Ministry of Health, the Ministry of Environment and Climate Affairs and the Ministry of Housing. Furthermore, the new law stipulates that the government must provide a timely response within 60 days. If there is a rejection or no response is received, PAM is entitled to bring it to the government council and force a decision. Licence holders may no longer retain their licences without performing their obligations, and if they fail to conduct licensed activities or make the required investments within specified time periods, PAM retains full authority to terminate the licence. It may also terminate a licence if the holder fails to pay an amount that is due to the government, transfers the licence without approval, or otherwise breaches terms of the licence or the law. By bringing clarity to the regulations, the Mineral Wealth Law will help encourage investment and provide a clearer understanding of what companies can and cannot do.

Licence holders also have reporting obligations to PAM, such as submission of monthly reports on extraction, inventory and sales, and quarterly reports on employees, processing, development and operations. They must also notify the authority of any changes to their shareholding structure. It is strictly prohibited to carry out any mining activities without first obtaining a valid licence. Any entity found conducting mining activities without a licence is subject to penalties, confiscation of any produced minerals and possible criminal liability.

In addition to the new legislation, PAM has made a number of moves with the goal of streamlining the tender process and encouraging sector investment. They have developed separate tenders for whole life licences, which last from exploration to extraction, and for individual extraction or exploration licences. Each of the new blocks has four bidding rounds, including general, limited, local and a single-source option that allows PAM to undertake separate negotiations. The sector is undergoing a near complete remodelling to drive up business readiness.

Exploration

One of PAM’s strategic priorities has been creating a large geological database, building on over three decades of survey work conducted by local and foreign companies. Meanwhile, private investment remains the primary engine for sector exploration. For example, the Manajem Mining project, located in the north of Oman, is a joint venture between MDO (40%) and Mawarid Mining (60%). It was signed in 2018 for an exploration programme for metallic minerals, mainly copper and gold, in Blocks 1 and 2. These efforts demonstrate that the sultanate possesses significant mineral resources, most of which are concentrated in the country’s mountain ranges. Copper, chromite, manganese, zinc and gold are distributed throughout the mountains in an ophiolite sequence that is 1-6 km thick.

In terms of non-metallic minerals, Oman is most abundant in dolomite, limestone, gypsum, clay, silica, ornamental stones and building materials, resources which are spread throughout the country. The main copper reserves, with an estimated exploration resource of around 54.5m tonnes, are located in the Sohar area of the Al Batinah region. Gold, gabbro and limestone are also found in this area. In addition to limestone, the Dhofar Governorate, in the south, is best known for gypsum, with total reserves estimated at 170m tonnes. Duqm, meanwhile, in central Oman, holds reserves of industrial minerals and salt.

Production

The mining sector recorded production of more than 26m tonnes of various mineral ores and 40m cu metres of building materials in 2018. Building material made up the highest share, with about 60% of the total mineral production in 2018, followed by limestone, marble and gypsum, the latter of which Oman remains the world’s largest producer. According to recent CBO data, the total number of quarries operating in the country reached 291 in 2018, some 66 of which are located in the Al Batinah North Governorate. Limestone is the most highly produced resource in the country, although production dropped from 19m tonnes in 2017 to 13.9m in 2018. Gypsum production increased to 9.1m, up from 8.7m, and marble saw a drop from 1.4m to 1.2m, according to the CBO’s 2018 Annual Report. The slight decline in production was offset by promising developments in minerals, such as copper, potash and gabbro. After two years of low demand that resulted in no copper production, a number of companies are investing in exploration and extraction of the metal. Savannah Resources has outlined 1.7m tonnes grading 2.2% copper in indicated and inferred resources, including a high-grade zone of 500,000 tonnes at 4.5%. These copper reserves are found within tenements covering 1000 sq km in the Semail ophiolite of the northern Hajar Mountains. David Archer, CEO of Savannah Resources, told online mining and business information portal Mining Journal that the high-grade copper deposits found in Mahab 4 and Maqail South are characteristic of the Semail ophiolite area and are expected to lead the way for copper mine developments throughout the country. Savannah Resources’ actions follow that of Alara Resources, a 70% partner in local Omani company Al Hadeetha Resources.

In June 2018 the government awarded Alara Resources the licence to develop a major deposit at the Washihi-Mazzaza copper project in the Al Mudhaibi wilayat (province), which served as the first copper mining licence in Oman since 2004. Local firm Al Hadeetha Investment owns the remaining 30% of the project, which will yield an estimated 16m tonnes of copper ore and is billed as the largest copper resource in the sultanate’s history. The project includes plans for a 1m-tonne-per-annum copper concentration plant with an initial 10-year mine life. In light of these developments, further investment in modern copper smelting and refinery projects, expected to add downstream value to the sultanate’s extensive resources, is increasingly promising.

In March 2018 the joint venture announced a $68m agreement with investment management and development firm SAMA Global, headquartered in Qatar, to help finance the venture. The capital injection will fund the infrastructure required to utilise the copper deposits, as well as build the centrepiece concentrator and processing plant. Potash is also seeing development in its upstream and downstream activities. In February 2018 Gulf Potassium Mining, a subsidiary of Gulf Mining Group (GMG), received a licence to start work on promising mineral resources in Umm Al Samim, located in the far west of the sultanate. The project has an estimated value of $300m.

In April 2019 the GMG announced that it would begin looking for an international partner to invest in a two-phase project to develop a processing plant at the site and a blending plant at Duqm Special Economic Zone. The blending plant will convert potassium chloride into sulphate of potash (SOP), a premium quality fertiliser. The project demonstrates a holistic approach that is being undertaken by companies across the sector. SOP, with its potassium and sulphur components, has a competitive edge over the more commonly available muriate of potash-type fertiliser in world markets and is expected to help to develop and diversify Oman’s export offering.

The third-most prominent mineral in Oman is gabbro, an igneous rock used in the construction sector. During the April 2017 Oman Mining Expo MDO signed a joint venture agreement with Omani trading and investment firm Assarain Group for a new gabbro concession in Liwa. Located in the Al Batinah North Governorate, the project covers an area of around 2 sq km. The mineable quantity of the project is estimated at approximately 211m tonnes with a production of 5m tonnes per annum.

Investment

Oman’s infrastructure has seen steady investment over recent years. Marafi, a newly established organisation and subsidiary of state-owned holding company Asyad Group, has stated its intention to develop Oman into one of the top-10 logistics centres globally, attracting foreign investment and creating jobs across every sector.

In 2018 Marafi signed a joint venture with Qatarbased company Dolphin Integrated to develop an aggregate terminal in Port of Sohar. This development will be Oman’s first minerals terminal and will provide a welcome boost to the country’s exports. The proposed terminal will provide an initial loading capacity of approximately 8m tonnes per year and will enable a large export volume of gabbro. The project will be developed in two phases and once complete will facilitate aggregate exports with a capacity of 12m tonnes per year by 2020. Considering the port’s strategic location and its proximity to a significant number of quarries, there is the potential that it will become a global export centre.

The country’s lack of developed ports has previously been a hindrance for industry players. Due to the sultanate’s unique geographic position, increasing the export capacity of mining materials from its ports and providing investment opportunities for mining companies in the economic free zones is a strategic imperative for PAM. The country has allocated $10bn to the Duqm Special Economic Zone and is seeking another $10bn in foreign investment by 2022. For example, the Salalah Free Zone, an industrial and manufacturing complex, has seen more than OR2bn ($5.2bn) worth of investment already and is expected to create an estimated 21,000 jobs. From mid-2018 to mid-2019 it secured foreign direct investment worth approximately OR30.8m ($80m) to establish three plants within its free zone, including manufacturing facilities for solar panels and gypsum products. Another project with high investment potential is the so-called Mineral Line. In May 2019 the Asyad-owned Oman Rail Company announced that it would resume tendering for the project as a public-private partnership within the year. A single-track line is planned to stretch between Dhofar’s Thumrait and Duqm, connecting the mining centres of Al Shuwaymiyah and Manji. When complete, the line could potentially extend up to 653 km and support the annual transport of 30m tonnes of minerals, 1m tonnes of oilfield equipment, 3m tonnes of industrial goods and as much as 15m tonnes of general products.

Exports

Oman has seen rapid expansion in the export of its mineral products in recent years. In 2017 exports rose by around 78.2% and amounted to one-third of PAM’s direct revenues. India, China and the GCC are the country’s most significant export destinations. “Aggregate and rock products exports to Qatar, Kuwait and Bangladesh will continue into the foreseeable future,” Sreekumar Nair, CEO of local drilling and blasting operator Al Fajar Al Alamia, told OBG. “The sultanate is also poised to considerably increase its gypsum exports, mainly to India, to cater for the increasing cement industry there,” he said.

Iron ore is Oman’s largest metallic export, with a value of $1bn in 2017, more than double its $484m total in 2016. This is part of a larger trend which has seen iron exports grow by 72.1% since 2014. Saudi Arabia was the lead destination for iron ore exports, with roughly 49% of the total, at $495m. Furthermore, around 400,000 tonnes of chromite, with a value of $49.9m, is exported to China annually. GMG, for whom chromite makes up a large portion of business, supplies 80% of the total. Demand for gypsum is projected to rise to 36m tonnes per year by 2025, due to significant growth in cement and gypsum production across the continent. With domestic gypsum resources estimated at more than 1bn tonnes, Oman is extremely well placed to meet this demand. In 2018 gypsum exports from the country rose over 25%, further establishing the sultanate as the world’s largest exporter of the industrial mineral. Exports surged to nearly 9.4m metric tonnes in 2018, up from 7.4m metric tonnes the previous year. The volumes were handled almost exclusively by the Port of Salalah.

Outlook

Oman’s strong commitment to creating an encouraging climate for its mining sector looks set to continue driving investment into the sector in the short to medium term. Furthermore, the new Mineral Wealth Law has the potential to transform the industry for foreign players, while substantial developments in processing and export capabilities could see the sultanate emerge as an important regional and global centre for mineral production.