Mining & Quarry Licence in Nepal: Mines and Minerals Act Guide

All mineral activity in Nepal is governed by the Mines and Minerals Act, 2042 (1985) and the Mines and Minerals Rules, 2056 (1999), together with amendments. The Act received Royal Assent and was published in the Nepal Gazette on 2042-07-14 BS (30 October 1985 AD), while the operative provisions were brought into force by Gazette notification from 2056-05-31 BS (16 September 1999 AD). A First Amendment (Mines and Minerals First Amendment Act, 2050) and the Republic Strengthening and Some Nepal Laws Amending Act, 2066 (2010) later updated the text.

A foundational principle sits in Section 3: all minerals lying on the surface or underground in Nepal, whether on private or government land, are the property of the Government of Nepal. Section 4 gives the state exclusive power to carry out mining operations, which it may exercise itself or license out to a capable person. In practice this means no person can dig for, extract or sell minerals commercially without an authorisation traceable to the Act.

The Act deliberately separates two phases of work. 'Prospecting operations' (Section 2) means exploration and feasibility study to discover a deposit and determine the category, quality and quantity of a mineral. 'Excavation' means the actual opening, producing, purifying, processing, transporting, storing and selling of minerals. Together these are 'mining operations', and the licence you need depends on which phase you are in.

The Department of Mines and Geology (DMG), under the Ministry of Industry, Commerce and Supplies, is the authority defined in the Act as 'the Department'. Within DMG, the Mining Licence Administration Section studies mining and prospecting proposals, recommends conditions, issues, renews and cancels licences, monitors production and sales, and collects royalty under the Act. DMG also carries out geological mapping and mineral exploration and promotes mineral-based industry.

DMG administers licences for a wide range of minerals, from metallic ores (copper, iron, lead, zinc, gold) to non-metallic and industrial minerals (limestone, magnesite, marble, talc, quartz, quartzite, dolomite, calcite, granite, red clay). For commercial metallic and non-metallic minerals, DMG is the licensing body. By contrast, ordinary construction materials for public use, soil, stone, sand and gravel, are handled through a district/local process described later, under Section 12(3) of the Act.

The Act frames two principal licences, one for prospecting operations and one for excavation (mining), but the Rules, 2056 add scale-based and material-based distinctions that create the practical 'types' people search for. A prospecting licence (Rule 6-7) covers exploration where quality and quantity are not yet known. An excavation/mining licence (Rule 14-15) covers extraction where the deposit has already been proven. A prospecting licensee has a priority right (Section 6) to obtain the excavation licence for the same mineral in the same area.

Scale is set by daily production. Rule 4 and Schedule-2 divide metallic and non-metallic mining into very small, small, medium and large scale. For example, for land-excavated metallic minerals the bands are roughly up to 10 tons (very small), up to 100 tons (small), up to 500 tons (medium) and above 500 tons (large) per day, with different thresholds for surface excavation and for stone, sand and gravel. This scale drives how long your excavation licence can run and what qualifications you must show.

'Small-scale', 'artisanal', 'quarry' and 'placer' licences are commonly used labels rather than separate statutory instruments. Small-scale mining maps to the very small / small scale bands. Quarrying of dimension stone, aggregate and industrial rock is an excavation licence for the relevant non-metallic mineral, while sand, gravel and river-bed material generally fall under the district-level ordinary-construction-materials route. Placer (alluvial) working of gold and gemstones is covered as prospecting/excavation of the relevant mineral, subject to the same scheme.

To obtain a licence you must satisfy the qualification rules in Rule 5, which vary by mineral importance (very precious, precious/valuable, ordinary). You need relevant mining experience (two years for precious minerals, one year for ordinary), or the ability to employ a registered mining expert, plus demonstrated financial capacity. For very precious minerals, for instance, Rule 5 requires financial capacity of about NPR 400,000 per square kilometre for prospecting and NPR 3 million per square kilometre for excavation; the figures step down for precious and ordinary minerals. Financial capacity can be shown via valued property or bank deposits.

Area limits are fixed by the Department. A prospecting area (Rule 8) may be set between 0.25 sq km minimum and 250 sq km maximum. An excavation area (Rule 16) is between 0.25 sq km minimum and 25 sq km maximum, in a rectangle whose length may not exceed four times its breadth. Licensees may later relinquish parts of the area in blocks of not less than 0.25 sq km.

Prospecting periods (Rule 9) are four years for very precious or precious/valuable minerals and two years for ordinary minerals, extendable by up to two years on application filed at least three months before expiry. Excavation periods (Rule 17) depend on scale: ten, fifteen, twenty and thirty years for very small, small, medium and large scale respectively, with longer initial terms for cement-grade limestone. Crucially, Section 7 of the Act requires the mining licence to be renewed every year within the prescribed time on payment of the annual renewal fee, so the multi-year term is contingent on yearly renewal.

The process is sequential. You apply to DMG for a prospecting licence in the format of Schedule-3 with a proposed prospecting scheme and the required fee. DMG makes inquiries into your financial and technical capacity and, if satisfied, issues the prospecting licence in the Schedule-5 format. You must actually begin prospecting within 90 days of issue (Rule 10) or the licence can be revoked. Before the prospecting period expires, you submit a detailed prospecting report and an excavation scheme to convert to an excavation licence.

For excavation you apply in the Schedule-7 format with the proposed excavation scheme; DMG issues the Schedule-8 licence after inquiry and fee payment, and you must collect it within 30 days or it is cancelled. You then have to start excavation within six months (Rule 18). Throughout, Section 23 empowers DMG to authorise experts, authorities or agencies to inspect and investigate whether operations comply with the Act and Rules, and the licensee has a legal duty to permit entry to the site and to produce documents. This inspection and inquiry step is where the physical site check, environmental review and technical evaluation happen.

For a working crusher or aggregate business you should also expect parallel approvals outside the Act: an environmental clearance (an Initial Environmental Examination, or a full Environmental Impact Assessment for larger or forest-land projects, under the Environment Protection Act/Rules), industry registration with the Department of Industry, PAN/VAT registration with the Inland Revenue Department, and local-level and District Coordination Committee consent. The mineral licence and the industry/environmental permits are separate tracks that must all be in place before commercial operation.

Under Section 18 of the Act the licensee must pay royalty and other charges to DMG based on the category, quality and quantity of the mineral. Rule 21 requires royalty at the rates in Schedule-10 to be paid on each despatch of minerals from the mine gate, calculated on the quantity removed. Royalty must be deposited into the Department's revenue account within seven days of each month-end, and monthly production details plus the deposit voucher submitted within fifteen days. Late payment attracts an additional charge of 10% up to three months overdue, 20% up to six months and 30% up to one year.

Because Schedule-10 sets specific per-unit rates by mineral (and is amended from time to time), you should confirm the current figure for your mineral directly with DMG rather than rely on an old table; rates differ sharply between, say, ordinary construction stone and precious minerals. In addition to royalty, Section 19 and Rule 22 levy a local development fee at one-tenth (10%) of the royalty, payable to the District Coordination/Development Committee or its designated agency. Applicants also pay application, licence-issue, renewal, extension and transfer fees (Schedule-4) and a refundable deposit/security amount during excavation.

For ordinary construction materials licensed at district level, the District Coordination/Development Committee issues the licence but must remit 20% of the income it receives to DMG's revenue account (Rule 37), and such licences are still renewed annually. This keeps a share of local aggregate revenue flowing to the central mineral authority even where the day-to-day permit is local.

Sand, ordinary stone, gravel and soil used widely by the public for construction are treated specially. Under Section 12(3) of the Act and Chapter 6 of the Rules, a person wanting to work these materials applies to the District Coordination/Development Committee (Schedule-12). A district-level Mines Development Committee, chaired by the Local Development Officer and including district forest, road, soil-conservation, survey and DMG/cottage-industry representatives, inquires and recommends, and DMG must give approval, deciding within six months. If the area falls in forest land, prior consent of the forest ministry is required. This is the route most river-bed and quarry-aggregate operators actually follow.

Operating without a licence is an offence. Under Section 25(1), the Government may stop unauthorised mining, seize machinery, equipment and the minerals extracted, impose a fine of up to NPR 100,000 and recover compensation for damage. Failing to follow environmental directives (Section 11A) or DMG orders (Section 13), or not furnishing required reports (Section 20), can lead to suspension or revocation of the licence and further fines up to NPR 100,000. Obstructing lawful mining carries a fine up to NPR 10,000 or up to six months' imprisonment or both. Appeals against penalties go to the Court of Appeal within 35 days.

Ongoing compliance is therefore central: avoid significant adverse environmental effect (Section 11A), maintain accounts and records, submit annual and monthly production statements (Section 20, Rule 20), keep the licence renewed each year, and pay royalty and the local development fee on time. The Government also retains special powers (Section 27) to revoke a licence for national security or public interest, with compensation for direct loss.