GUIDELINES TO DOING MINING BUSINESS IN MALAYSIA
GUIDELINES TO DOING MINING BUSINESS IN MALAYSIA

OVERVIEW

Malaysia is one of the largest economies in South East Asia, and one of the fastest growing. It's estimated around 28 million populations increasingly prosperous, making it a growing market with considerable potential.

Malaysia is endowed with over 33 different mineral types, comprising metallic, non-metallic and energy minerals, worth several billion dollars in economic potential. However, the country's mineral resource industry continues to remain sluggish. There was a generally a lack of exploration, mine development and capacity expansion in the local industry thus providing a great opportunity to those who see to venture into this area. Trade and trade-related policies remain integral parts of Malaysia's broad economic development strategy, whose key objectives are economic growth sufficient for the attainment of developed country status by 2020.

 

MINERAL POLICY

The mining industry comes under the purview of the Ministry of Natural Resources and Environment (NRE). However, as mining activity involves land which is State matter, the approval for mining related applications is empowered to the respective States in consultation with the federal agencies under the purview of the NRE such as the Department of Minerals and Geosciences (DMG), and the Department of Environment (DOE). The Federal Government in 1998, established a National Mineral Council (NMC) to coordinate mineral related matters, co-operation between the Federal and State Governments and oversee the overall integrated development on the mineral industry.

The Federal Government has been urging that abandoned mines be revived, and also encouraging the States to issue more mining licenses. To spearhead the country's mineral resource industry going forward, the Federal Government has recently formulated the National Mineral Policy 2 (NMP2), a revision of the earlier Policy formulated in 1994. The NMP2 was launched in January 2009. The NMP2 provides the foundation for the development of an effective, efficient and competitive regulatory environment for the mineral sector. The thrust of the policy is to expand and diversify the mineral sector through optimal exploration, extraction and utilization of resources using modern technology supported by Research and Development (R&D).

The salient features of the NMP2 are the provisions for the security of tenure, high land-use priority for mining, uniform and efficient institutional framework, regulations and guidelines. Under the NMP2, emphasis is also given to rehabilitation, environmental protection, sustainable development and the management of social impacts. The country's environmental aspects of mine development are regulated by the Environmental Quality (Prescribed Activities) (Environmental Impact Assessment) Order 1987, which is a subsidiary legislation to the Environmental Quality Act of 1974. Under order1987, a mining lease application for mining leases that are larger than 250 hectares must include and environmental protection plan that is approved by the DOE.

 

LEGISLATIONS

A.     

FORMATION AND ADMINISTRATION OF COMPANIES

 

Essential requirements of a company

 

A company shall have—

 

1) A name;

b)      2) One or more members, having limited or unlimited liability for the obligations of the company;

c)       3) In the case of a company limited by shares, one or more shares;  and

d)      4) One or more directors.

 

Types of companies

 

        1) A company may be incorporated as—

a)      A company limited by shares;

b)      A company limited by guarantee; or

c)       An unlimited company.

2.       2) A  company  is  limited  by  shares  if  the  liability  of  its members  is  limited  to  the  amount,  if  any,  unpaid  on  shares  held by  the  members.

3.       3) A  company  is  limited  by  guarantee  if  the  liability  of  its members  is  limited  to  such  amount  as  the  members  undertake to contribute  in  the  event  of  its  being  wound  up.

4.       4) A  company  is  an  unlimited  company  if  there  is  no  limit on the liability of its members.

 

Private or public company

1.       A  company  limited  by  shares  shall  either  be  a  private company  or  a  public  company.

2.       A company limited by guarantee shall be a public company.

3.       An  unlimited  company  shall  either  be  a  private  company or  a  public  company.

 

Prohibition on companies limited by guarantee with a share capital

No  company  shall  be  formed  as,  or  become,  a  company limited  by  guarantee  with  a  share  capital.

 

Prohibition for unincorporated associations, Etc.

No association or partnership consisting of more than twenty persons  shall  be  formed  for  the  purpose  of  carrying  on  any business  for  profit,  unless  it  is  incorporated  as  a  company  under  this  Act,  or  is  formed  under  any  other  written  laws.

 

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MINING LEGISLATION

The two main legal instruments that govern activities relating to mining are the Mineral Development Act (MDA) 1994 and the various State Mineral Enactments. The MDA came into force in August 1998.

Each State has its own legislation governing mining activities. One of the objectives of the National Mineral Policy project was to harmonize these States Laws and a Model State Mineral Enactment (SME) was prepared. As at end of 2008, ten States have adopted the SME.


Mineral Development Act (1994)

The MDA defines the powers of the Federal Government on matters pertaining to the inspection and regulation of mineral exploration, mining and other related issues. The legislation is enforced by the Department of Minerals and Geosciences of Malaysia.

 

State Mineral Enactment

The SME empowers the States the rights to issue mineral prospecting and exploration licences and mining leases. The administration of the legislation is undertaken by the office of the State Director of Land and Mines (SLDM). The SME is currently at various stages of implementation in the respective States, which have adopted the Enactment.

The SME has several distinguishing features, which are conducive to mineral investment, as follows;

         One-stop-centre

Administration is centralized at the office of the SDLM for lodging applications for prospecting / exploration licenses and mining leases and for up keep of information on mineral tenements, including areas subject to applications.

         State Mineral Resources Committee

A 10-member State Mineral Resources Committee (SMRC) is established to coordinate vetting of applications for prospecting/exploration, and submits recommendation to the State Authority for a decision pertaining to licenses and mining leases and other mineral tenements.

Members of the SMRC comprise:

        I.            Chairman � appointed by the State Authority;

      II.            State Legal Advisor or his representative;

    III.            State Director of Land and Mines - as the Secretary;

    IV.            Director General of the Department of Minerals and Geosciences or his representative;

      V.            Director General of the Department of Environment or his representative;

    VI.            Director General of the Department of Forestry or his representative;

  VII.            Director of State Economic Planning Unit or his representative; and

VIII.            Three other members to be appointed by the State Authority.

 

Process Flow � Applications for prospecting/exploration licenses and mining leases

Under the SME, a prospecting license, exploration license and mining lease may be granted to;

         A person;

         A company;

         A body expressly empowered to hold mining land under any other written law of Malaysia; and

         A foreign company as defined in the relevant legislation relating to companies, registered under the said legislation and authorized by its constitution to hold mining land.

 

The issuance of licenses and leases by the State is subjected to certain conditions and restrictions as prescribed under the SME, as follows;

        I.            Prospecting/Exploration License:

 

Prospecting License

Exploration License

Area for exploration work

25-400 hectares

400-20,000 hectares

Valid period

Maximum 2 years

Maximum 10 years

Extension period

+ 2 years

+ 5 years

Application for renewal

Not later than 6 months prior to expiry of the License

Not later than 12 months prior to expiry of the License

                               

      II.            Small scale mining operation/large scale mining operation:

 

Small scale operation

Large scale operation

Target for mining

Alluvial

Hard rock

Area for mining lease

Such size as reasonably required for the mine

Such size as reasonably required for the mine

Requirement for EIA

Areas more than 250 hectares

Areas more than 250 hectares

Duration of mining lease

Estimated life of the ore body to be mined or 21 years whichever is shorter

Estimated life of the ore body to be mined or 21 years whichever is shorter

Term of renewed mining lease

Estimated remaining life of the ore body or 21 years whichever is shorter

Estimated remaining life of ore body or 21 years whichever is shorter

When to apply for renewal

12 months prior to expiry of the lease

12 months prior to expiry of the lease

 

The SME provides an attractive, efficient, harmonious and stable mineral regulatory framework that is conducive to the development of the industry. It was enacted replacing existing laws to cover conditions allowing not only for small scale and labor intensive mining but also for large scale exploration and capital intensive modern mining that the country anticipates in the future.

 

FISCAL REGIMES

        I.            Equity Participation:

Foreign investors undertaking mineral explorations and mining in Malaysia may be permitted to control 100% equity, and may also form joint ventures with local companies.

 

      II.            Incentives:

Amongst some of the incentives that have been accorded to the mineral sector includes abolishment of export duty on most minerals. Most raw minerals, including ores and concentrates, are subject to low or zero level import duty. For those minerals still subject to import duty, the importer may apply to the Government for a waiver. Imported equipment for use in mineral projects are subject to the general schedule of import tariffs but an application for a waiver may be made on a case-by-case basis.

 

    III.            Taxation:

A business entity incorporated in Malaysia, whether resident or not, is assessable on income accrued in or derived from Malaysia. The Government has reduced corporate tax from 28 per cent in 1998 to 25 per cent in 2009. This move has helped to reduce further the cost of doing business and accorded companies with greater capacity to expand capital spending.

 

    IV.            Royalty:

Apart from paying corporate tax to the Federal government, mine operators also pay value-based royalty to the State where their mining operation is located. Royalty rate in general is 5 % of the value of the mineral extracted but may vary depending on the mineral commodity, and as assessed by each of the individual States.

 

INVESTMENT ENVIRONMENT

Apart from supportive Government policies, well developed and uniform regulatory framework and attractive fiscal regimes, Malaysia�s market oriented economy, strategically located in the heart of South East Asia, offers a cost-competitive and conducive business environment which is the ideal prerequisite for growth and profits.

Infrastructure:

The country has a well developed network of good highways and railways, well-equipped seaports and airports and high quality telecommunications network and services.

Utilities:

Competitive electricity tariff rates and reliable service are provided by:

         Tenaga Nasional Berhad (TNB) in Peninsular Malaysia.

         Sabah Electricity Sdn. Bhd. (SESB) in the State of Sabah and the Federal Territory of Labuan, Malaysia's international offshore financial centre.

         Sarawak Electricity Supply Corporation (SESCO) in the State of Sarawak.

 

Workforce:

The country has talented, educated and productive and multilingual workforce speaking two or three languages, including English. It also has a comprehensive system of vocational and industrial training, including advanced skills training. In addition, industrial relations is generally harmonious with minimal trade disputes.

Quality of Life:

         Friendly and hospitable Malaysians.

         Safe and comfortable living environment

         Excellent housing, modern amenities, good healthcare and medical facilities

         Excellent educational institutions including international schools for expatriate children

         World-class recreational and sports facilities

         Excellent shopping with goods from all over the world

 

Sources:

  1.         I.            Law of Malaysia, Act 777, Companies Act 2016 (http://www.federalgazette.agc.gov.my/)
  1.       II.            Invest in Malaysia, Your Profit Center in Asia published by Malaysian Industrial Development Authority (MIDA).
  1.     III.            The State Mineral Enactment: Meeting Investor�s Needs by Dato� Haji Zulkifly Abu Bakar, Department of Minerals and Geosciences, Malaysia.

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