Mining Law - Possible Value Addition Requirements

The Government of the Sultanate of Oman's emphasis on diversification and increased role of the non- Oil and Gas sectors in the national economy has recently led to a focus on the mining industry in the country.

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Legal Developments in Oman - January 3, 2011

Iran Sanctions and Iran-Oman Trade – Part I Oman is a close neighbor and a significant trading partner of the Islamic Republic of Iran, which is located just across the Strait of Hormuz from the Sultanate. Iran accounts for approximately 4% of Oman’s exports. As reported in the Omani press, Oman and Iran recently held the 13th round of the Omani-Iranian Joint Committee to discuss ways to strengthen their trade relationship in areas such as investment, transportation, banking, tourism, mining, oil and gas, petrochemicals, shipping and telecommunications. However, numerous aspects of Omani-Iranian trade are likely to come under stress as a result of the sanctions that have been imposed against Iran in recent months by the international community. Nuclear Program Prompts Sanctions In response to Iran’s nuclear development program, which many suspect of pursuing nuclear weapons, the United Nations (“U.N.”) Security Council, the United States of America, and the European Union have all imposed sanctions relating to trade with Iran. All of these sanctions have the potential to affect Omani companies that do business, directly or indirectly, with Iran. This month we discuss the U.N. Security Council resolution against Iran, Resolution 1929. In next month’s Client Alert, Part II of this article will discuss the sanctions that the United States and the European Union have imposed against Iran. U.N. Security Council Resolution 1929 In recent years, the United States, many European nations, and other countries have grown increasingly alarmed at the prospect of Iran developing nuclear weapons, and have urged the larger international community to take measures to rein in Iran’s nuclear program. On June 9, 2010, the U.N. Security Council passed Resolution 1929, holding Iran in violation of its non-proliferation obligations under international law and instituting a fourth round of sanctions. Resolution 1929 was passed by the Security Council with twelve votes in favor, one abstaining, and two against. Under Chapter VII of the U.N. Charter, Security Council resolutions finding a threat to the peace, such as Resolution 1929, are binding upon member states and require implementation of their provisions via national law. Accordingly, all U.N. member states, including Oman, are obligated to implement and enforce Resolution 1929. Resolution 1929 institutes a number of measures targeting Iranian military and nuclear capabilities, as well as entities that provide financial or transportation services related to Iran’s military or nuclear activities. Among other measures, the resolution seeks to ban the sale of weapons and military equipment to Iran. Furthermore, all U.N. member states are prohibited from allowing Iranian investment in uranium mines, enrichment facilities and other nuclear technology. Finally, Resolution 1929 calls on U.N. member states to ban travel by, and freeze the assets of, specifically named Iranian officials and entities tied to the Iranian government, in particular those connected to the Islamic Revolutionary Guard Corps.

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Focus On: Mining in Oman

Oman has vast mineral resources which could provide project opportunities for both foreign companies and Omani companies and individuals. Specifically, Oman’s mineral resources include chromite, copper, dolomite, zinc, limestone, marble, gypsum, silicon, gold, cobalt and iron.

There are several projects either planned or already underway in the mineral sector, including plans to establish a “Minerals-City” to serve as a hub for a number of minerals based downstream processing projects. The Minerals City is planned by Takamul Investment Company, a majority Omani government-owned investment vehicle having Oman Oil Company as the majority shareholder. The projects will include a US$450 million salt/soda ash project in partnership with the Tata group, an Indian business conglomerate. The Minerals City will also include a silicon carbide processing facility at a cost of US $40 million, in partnership with SNAM Abrasives of India.

In addition, Brazil-based Vale International has established a subsidiary in Oman that is constructing a pelletizing plant in Sohar. The plant will produce high grade iron ore pellets that will supply the direct reduction facilities of the steel industry in MENA. Vale is also performing exploration studies in Oman to determine what minerals are suitable for potential development.

Several studies in the mining sector are also underway, including an economic feasibility study on silica and another on the exploitation of gold and copper ores in the Ghaizeen area. Gold in particular has tremendous potential in Oman, which is the only Gulf country with substantial gold reserves other than Saudi Arabia. In fact, the United States Geological Survey estimates that gold production in the Middle East will more than triple in 2009 from 2006 levels.

For those seeking to engage in mining activities in Oman, there is a comprehensive legal framework laid out in Oman’s Mining Law (Royal Decree 27 of 2003). The mining law includes provisions relating to the issuance of mining licenses, dispute resolution in the mining sector and environmental protection.

Joint ventures may be a good option for those seeking to get involved in the mining sector, as local license holders can partner with foreign investors to get the benefit of their technology and resources. In such a case, the Ministry of Commerce and Industry may issue a mining concession or license to an Omani company or individual for a particular site. If the license holder lacks the technology and resources to fully exploit the site, a foreign company can bridge that gap. The parties will enter into a mine exploitation agreement, in which the foreign company will assist with or execute mining operations under the local partner’s license. At a minimum, the Mining Law requires any mine exploitation agreement to include: (i) provisions relating to the payment of fees and taxes, and other financial matters; (ii) provisions relating to environmental conservation; and (iii) a dispute resolution mechanism that complies with the provisions of the Mining Law.

In addition to these minimum provisions, the parties also may consider the inclusion of market disruption clauses that provide for the consequences of any substantial changes in the market for the mining product. This is essential as prices for different minerals can change dramatically over the term of an agreement.

Further, the Mining Law requires that any dispute arising regarding a mining concession or license, or in relation to the drilling or exploitation of a mine, be resolved through arbitration rather than through the courts of Oman or another jurisdiction. The mine exploitation agreement should specify the location, language, governing law and applicable rules of the arbitration.

Oman’s mineral resources are expected to be a large source of revenue and growth for the Omani economy outside the oil and gas sector, presenting a wide array of project opportunities for investors.

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