Legal Process for Mining Activities in Sabah: A Step-by-Step Guide for Foreign Investors
Sabah’s mineral wealth, spanning gold, coal and industrial minerals, continues to draw foreign capital. However, mining in Sabah sits at the intersection of state land law, environmental regulation and federal investment policy, and the approval pathway is materially longer and more layered than in Peninsular Malaysia. Sabah has its own unique, distinct law due to its historical background when it joined Malaysia in 1963.
This write-up aims to set out the principal statutory steps a foreign investor must follow from the inception of its incorporation through to the production stage. It begins with a brief overview before proceeding with a step-by-step guideline.
Brief Summary of Pertinent Provisions
1. Incorporate a Locally Registered Company
A foreign investor cannot hold mining rights directly. A company must first be incorporated with the Companies Commission of Malaysia, also known as Suruhanjaya Syarikat Malaysia (“SSM”), under the Companies Act 2016 (Act 777).1
The Act itself imposes no general equity ceiling on foreign shareholding, and since 2003 foreign investors have been permitted up to 100% equity in most sectors, mining included, although a local or Bumiputera participation condition may still be attached at state level depending on the licence sought.2 A Malaysian company can be incorporated fairly quickly (within 2 days after its proposed name’s approval by the Registrar of Companies.
2. Apply for a Prospecting Licence
Exploration requires a prospecting licence under the Sabah Mining Ordinance 1960, specifically through Section 6 of the Ordinance, which vests the sole power to grant prospecting or mining licences in the Minister3 exercised on the recommendation of the Land and Survey Department known as Jabatan Tanah dan Ukur (“JTU”) after review by the state-government-owned entity, namely Sabah Mineral Management Sdn Bhd (“SMM”) and other technical agencies.
SMM itself has no licensing authority; it screens applications before they are forwarded to JTU. This process commonly takes six to twelve months to complete, and the licence typically runs for one to two years, with the option to renew.
3. Resolve Land Status and Native Customary Rights
Before a mining lease can proceed, land status must be verified against the Sabah Land Ordinance (Cap. 68), and any overlap with Native Customary Rights land must be cleared through the relevant District Office. Native Customary Rights issues are consistently flagged as the most unpredictable stage of the Sabah process, and early, documented community engagement is strongly advisable to avoid later legal challenge or delay.
4. Conduct an Environmental Impact Assessment
Unlike Peninsular Malaysia, Sabah does not adopt the federal Environmental Quality (Prescribed Activities) (Environmental Impact Assessment) (“EIA”) Order4 and instead operates its own regime under the Sabah Environmental Protection Enactment 2002, administered by the Sabah Environment Protection Department (“EPD”).
Mining is a prescribed activity requiring a full EIA report prepared by a registered consultant, with public display and comment where the project is environmentally sensitive. This stage frequently takes six to nine months and can run longer for projects near biodiversity-sensitive or indigenous land.
5. Secure the Mining Lease
Once the application for a prospecting license is successful and EIA approval is obtained, the investor applies for a mining lease under Part III of the Sabah Mining Ordinance 1960.
The application must generally be accompanied by a feasibility study, financial guarantees (commonly bank guarantees or performance bonds) and the EIA approval. Leases are typically granted for five to twenty-one years and subject to royalty, rent and premium conditions, ultimately requiring gazettement and, for larger projects, endorsement by the Sabah State Legislative Assembly.
6. Obtain Operational Permits
Depending on the project’s scope, further approvals may be required, such as the following: –
(a) a water extraction licence;
(b) forestry clearance under the Sabah Forest Enactment5;
(c) safety approvals under the OSHA 19946; and
(d) the Factories and Machinery Act 1967, including explosives handling and waste disposal permits7.
7. Federal Investment Incentives and MIDA Facilitation
Following the grant of the relevant mining licence or other mining approval and/or permits, the project proponent must comply with the applicable conditions of the approval and ongoing regulatory requirements, including payment of prescribed fees and royalties, compliance with operational requirements, and the submission of any reports or information required by the relevant authorities. Where the proposed mining activity constitutes a prescribed activity under the Environment Protection (Prescribed Activities) (Environmental Impact Assessment) Order 2005, the requisite environmental assessment must be approved before the activity commences.
Following environmental approval, the foreign investor or project proponent must continue to comply with the conditions imposed by the Sabah Environment Protection Department, including applicable environmental monitoring, mitigation and reporting requirements. For approved mining-related EIAs, the Sabah Environment Protection Department requires the proponent to comply with the Agreement of Environmental Conditions (“AEC”), which sets out the environmental conditions applicable to the project8. Accordingly, relevant mining licences, leases and other approvals must also be renewed within the prescribed periods to ensure continued lawful operation.
Practical Observations/Key Takeaways
For foreign investors, mining in Sabah is not simply about securing a licence; it is about navigating a layered legal framework that balances state authority, environmental protection, and native customary rights. Success depends on early incorporation of a local entity, proactive engagement with communities, and strict compliance with environmental regulations, as well as early engagement with professional advisers (including lawyers).
Timelines can stretch over a period, but careful planning, parallel filings, and early applications for investment incentives can expedite the entire process and timeline.
In short, the pathway to mining in Sabah rewards investors who integrate business, commercial, partnership and legal diligence with social and environmental responsibility.
1. Section 14 of the Companies Act 2016 (Act 777).
2. Malaysian Investment Development Authority, ‘Equity Policy’ dated 17 June 2003 – Equity Policy – MIDA | Malaysian Investment Development Authority.
3. Section 6 of the Sabah Mining Ordinance 1960.
4. Environmental Impact Assessment Order (a state-based law of Sabah).
5. Section 24 of the Sabah Forest Enactment 1968.
6. Section 15 of the Occupational Safety and Health Act 1994.
7. Section 6 and Section 33 of the Factories and Machinery Act 1967 (Act 139).
8. Environment Protection Department Sabah, ‘Introduction’ – Introduction – Interactive Isometric Map.
Written by:
Dato’ Azmi Mohd Ali (Senior Partner) azmi@azmilaw.com
Corporate Communications, Azmi & Associates – 4 September 2026
