Malaysia: The Awakening Of An Ancient Industry - Is The Law Ready For Modern Mining?

Last Updated: 18 February 2016
Article by Kamlesh Menon

It is a wellknown and documented fact that Malaysia is a country rich in natural resources. The common perception on Malaysia's mining industry revolves around the mining of tin, and it is understandably so.

Malaysia was one of the top tin producers in the early 1900's until the collapse of the global tin market in the year 1985. Since the collapse, most major players in the industry have either packed up or downsized their operations, thus creating new opportunities for many small scale miners to carry on with the industry. However, with the advancements in technology and improvement in mining methods as well as the increase in prices of minerals on a global scale, mining seems to be making a big comeback in the country. Long gone were the days of dredging whereby the famous "kapal korek" can be seen harvesting tin ores leaving behind huge mining ponds in its wake.

Breaking the preconception of mining, tin is actually only one of the many possible types of minerals which Malaysia is abundant with. Mining is really a very diverse industry and it encompasses a large variety of substances. Before detailing the local mining industry further, a distinction between minerals and rocks would be necessary. The natural composite categorized as "rocks" are governed under the National Land Code 1965 ("NLC") which is a federal law rather than a state enacted law. Rock material has been defined in the National Land Code (Amendment) Act 2009 to be, in simplified terms, any rock and sand apart from minerals.

The mining industry in Malaysia is under the jurisdiction of the State Government within each state in Malaysia as mining is classified as a state matter in List II of the Ninth Schedule of the Federal Constitution, until and unless such right is disposed by the State. Therefore, most if not all states in Malaysia will have a framework or laws governing the mining industry. Essentially, the law in each state follows the same concept but application of the laws may differ depending on each state's authoritative body. In Perak for instance, the main laws governing mining is the Mineral (Perak) Enactment 2003, the Mineral (Perak) Regulations 2008 with certain references made to the Mineral Development Act 1994, and the Environmental Quality Act 1974 when it comes to safety concerns and environmental impact. Therefore, with the exception of rocks as discussed above and the naturally occurring mineral –

petroleum, most other minerals that you can think of would fall under the classification of a mineral under the Mineral Enactment and the mining such minerals will have to follow the due processes laid out under the Mineral (Perak) Enactment 2003.

Generally speaking, a prospective miner who is interested in applying to mine on State Land would first require an exploration license/prospecting license, and subsequently a mining lease and the "Sijil Kelulusan Melombong". This is a broad view of the necessary processes which one would need to follow. However, this isn't the end of it. If a prospective miner intends to enter the industry, each level of application is imposed with many conditions and criteria by the State in order to ensure that the prospective miner is going into the industry in a manner acceptable by State. This includes the submission of environmental reports, mine plans, rehabilitation plans and not to mention the obtainment of many other required licenses in order to operate a mine which includes, inter alia, explosive licenses and water license/permit. If you were to dissect the processes, it would seem like a tedious process in order to even start mining.

Well, it seems fair as mining is a multimillion dollar industry and those with deep pockets may venture into this as the capital needed purely for exploration, which I may add, carries a huge risk on its own and is usually in the range of millions of dollars.

The laws currently in place here in Malaysia involves many overlaps and intertwining between different legislation. For example, in terms of a designated permanent forest reserve, the laws do not cater for mining. Under the National Forestry Act 1984, no mining can be done in permanent forest reserves. The only way around such a prohibition is to excise the parcel of the forest reserve. This would then inevitably cause negative political and social consequences as the general public still has the perception that mining is destructive for the environment.

Lands that have been zoned for other purposes apart from mining under the Town and Country Planning Act 1976 also pose prohibits mining unless the area is rezoned as mining lands. This leaves miners or mining corporations the only option to mine on state land or alienated land. It gets even more complicated when mineral deposits are found to be spread across different parcels of land which

may include a combination of state land and permanent forest reserves, or the lands may even cross into a different district or state whereby the licenses and permits obtained prior do not cover. These leave the potential miner in a lurch as it may not be commercially viable to just mine on the state land, and it becomes exponentially complex to get all necessary approvals from so many different entities just to mine in Malaysia should the scenario described above happen.

Another example of intertwined legislations is where changes have been made to the NLC whereby limestone and granite are removed from the definition of a rock material. In turn, the Mineral Perak (Amendment) Regulations 2013 was amended to include limestone and granite as a mineral. Therefore now, for the mining of limestone and granite on state land, a mining lease has to be issued by virtue of the 2013 Regulations rather than a "4C permit" under the NLC. Furthermore, being redefined to be minerals, limestone and granite are consequently not allowed to be mined on permanent forest reserve lands. This is where a confusing overlap occurs. The National Forestry Act 1984, however, still classifies limestone and granite as rock material and therefore, limestone and granite can be removed from permanent forest reserve lands albeit them being classified as rock material under a different legislation. This creates uncertainty and confusion for potential international investors and prospective miners.

The laws in Malaysia give an obligatory role to prospective miners whereupon the burden of assessment of viability and commercialization of a potential mine site lies with the prospective miner rather than the State government itself. The State Government, through its relevant agencies and departments, takes a more authoritative role in ensuring that the prospective miner complies with all conditions and regulations imposed on them.

Taking heed of other countries with more advanced mining industries, it is clear that Malaysia would need to take crucial steps in order to make mining here a more investment friendly industry for bigger industry players. According to the 2014 Fraser Institute Survey, Malaysia has been ranked the least attractive jurisdiction for mining investments, placing us behind countries such as Nigeria, Botswana and even our neighbour Indonesia. From a legal standpoint, the laws here although comprehensive, lack the simplicity to attract investments. The survey also stated that the main aspects that miners look for are competitive taxation regime, good scientific support, efficient permitting procedures and clarity around land claims, all of which we currently need to improve on to properly establish Malaysia as a global name in the mining industry.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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