A brief summary of Turkish Mining Law
1. Mining regulatory
Mining is highly regulated in Turkey and is governed by a special set of laws. As per Article 168 of the Turkish Constitution, natural wealth and resources are under the authority and disposition of the state. The state may delegate its rights to explore and exploit the natural wealth and resources to persons or corporate bodies for a specified period, if explicitly permitted by law. Nobody can have ownership over natural resources. However, a permit, by way of several licenses, may be granted for activities planned to be undertaken in relation to such resources for a limited period of time.
In accordance with the Constitution, the Mining Law regulates the principles and procedures in relation to the discovery, exploration and operation of mines; persons or companies being entitled to or losing rights in relation to mines in compliance with national interests. The key secondary legislation that play a vital role in the regulation of the mining sector are as follows:
- Mining Regulation;
- Mining Permits Regulation; and
- Mining Areas and Licenses Regulation.
It must be noted that mining activities are subject to other legislation such as forestry law, environmental law, labor law, occupational health and safety law, tax law, criminal law to the extent that permitted by the characteristics of the mining activities and the relevant mining fields.
1.1 Administration of mining activities
Administration of mining activities comes under the Ministry of Energy and Natural Resources ("MENR"). Under the structure of MENR, Maden ve Petrol İşleri Genel Müdürlüğü ("MAPEG") is the authorized government agency primarily responsible for the administration of mining activities and issuance of mining licenses. The General Directorate of Mineral Research and Exploration, the Turkish Coal Enterprises Institution and the Turkish Hard Coal Authority are also responsible for administering mining activities that fall under their scope.
MAPEG is responsible for keeping the records of technical and financial issues in relation to all mining rights and activities on the Mine Registry. The Mine Registry is publicly available and relevant parties may request to review it in the presence of mining registry officials. The Mining Registry is essential and mining licenses shall only become effective once they are recorded in the Mine Registry.
In addition, MAPEG recently launched a platform, e-Maden (e-Mining), in order to alleviate the bureaucratic burden in relation to mining activities. E-Maden provides the opportunity for inquiries and/or verification of licenses and other mining documents through this platform.
1.2 Mining rights and licenses
Pursuant to the Mining Law, all kinds of substances (other than petroleum, natural gas, geothermal and water sources) that are naturally found on earth and in springs that have economic and commercial value are defined as mines regardless of their group classification. Accordingly, the Mining Law provides five different classification for mine areas depending on the type of the substance:
- Group I: Sands, gravels, clays etc;
- Group II: decorative stones such as marbles, granites etc;
- Group III: salts, gases other than natural gas;
- Group IV: industrial raw materials, energy raw materials and metallic materials including gold and silver;
- Group V: precious and semi-precious minerals such as diamonds.
All permissions and financial opportunities granted based on the aforementioned groups and their sub-groups for discovery, exploration, development and operation of mines are regarded as mining rights. However, as a reflection of the authority and sole ownership of the state over natural resources, mining rights may only be granted to Turkish citizens who are qualified to execute civil rights or corporations that are legal entities duly established under Turkish law and have mining as their registered field of activity. Considering this, any foreigner wishing to invest in mining activities in Turkey must establish a corporation in Turkey within the meaning of the Turkish Commercial Code, which is not a burdensome procedure and does not contain special provisions for foreigners.
Examples of mining rights include discovering rights, exploration rights and operational rights. These rights may be granted to right holders by way of permits or licenses depending on the nature of the right and the class of the relevant mine. It must be noted that a license enables the license holder to engage in mining activities in relation to the class of mines for which the license is granted. However, the Mining Law allows license holders to apply for more than one license per mining field, in order for the entities to explore or operate different mines in the same area.
1.1.1 Discovery rights
In case a resource or a reserve is discovered while conducting activities within the scope of a license, discovered mines are reported as reserves in the technical reports. The license holders shall be deemed as "finders" and granted a document of discovery. Having said that, the discovery right is independent of any license and therefore, may be transferred with or without the license. Discovery rights must be registered in the Mine Registry for information purposes.
If the mining area subject to a discovery right is operated by a third party, such an operating third party shall be entitled to make a payment to the discovery right holder for the mine production in the relevant area. The discovery fee is calculated as 1% of the ex-mine sales price.
1.1.2 Exploration rights
Exploration rights are granted through a license that allows the license holder to conduct mineral exploration activities and allows the licensee to detect resources in the specified area. Applications for an exploration may be submitted directly to the MAPEG or via the application form published on MAPEG's website.
Exploration activities consist of three main periods, namely; preliminary exploration, general exploration and detailed exploration. The first year of an exploration license is considered as the preliminary exploration period and license holders should prepare a preliminary exploration report at the end of the period.
In principle, the general exploration period is one year. However, this period is two years for Group IV Licenses, which includes precious metals such as gold and silver. This period aims to detect general characteristics of the mine such as capacity, mineral type and quality. At the end of the general exploration period, Group II (b), III and V license holders should apply for an operational license, while Group IV license holders should apply for a detailed exploration license. Otherwise license owners lose their rights to exploration licenses. Group IV license owners receive detailed exploration rights for four years in the specified area.
Each application must be accompanied by an exploration report and a preliminary examination report. Additionally, documents for financial capability and deposit of the exploration license fee1 must be provided with the application. Applications may be limited to a certain geographical area per license. For example, applications for gold mining exploration may not exceed 2,000 hectares, however in case the entire exploration field is wholly under the sea, the limit is extended up to 50,000 hectares.
Applicants are also required to obtain relevant permits from the relevant authorities, such as permits in relation to forestry law, environmental law, labor law, occupational health and safety law and other relevant legislation governing the area of request.
In order to complete applications, applicants shall submit their documents to MAPEG within two months following the deposit of the exploration license fee. Following the submission of the required documents, the exploration license is registered to the mining registry and put into effect.
Exploration licenses do not allow the parties to conduct any production activities in the licensed area. Exploration licensees may carry out production-related activities for only test purposes and with the administration's knowledge. However, if licensees discover a valuable resource in the exploration area, they may apply for an operational permit.
18.104.22.168 Exploration period and activities
Mining Law and the Mining Regulation set out four stages for the exploration period, which are defined as (i) a 1-year pre-exploration period, (ii) a 2-year2 general exploration period, (iii) a 4-year3 detailed exploration period and (iv) a 2-year feasibility period. The feasibility period may only be granted upon the license holders' request and the approval of MAPEG. Considering this, the exploration period for Group IV mines generally last for seven years. On the other hand, following the expiry of the exploration period, if the license holder continues its operations through an operation license, the license holder may continue to engage in exploration activities for the duration of the operational license.
License holders are obliged to provide the required documentation and reports after the end of each period in order to move forward with the exploration activities. In case the license holder fails to provide the required reports in a timely manner, the administration may grant additional time to license holders. Administrative fines of TRY 20,000 (approx. US$2,950) may be applicable to license holders who do not comply with the administration's instructions. In case the license holder fails to provide the period reports in the provided timeframe, the exploration license may become null and void.
Mines (i.e. gold) discovered as a result of the exploration activities may be assigned to the license holder to the extent that MAPEG deems suitable, provided that the license holder files an application containing its exploration activity report, environmental impact assessment documentation and the ownership permit.
1.3. Operational rights
Operational licenses are authorization certificates required for performing mining operational activities in a specified area and for a specified timeframe. However, an operational license is not equivalent to an operational permit and therefore, MAPEG grants licenses only for extraction from the mine, not processing.
As opposed to the exploration licenses, which are granted to the applicant upon completion of the application, the administration has a discretionary power to grant operational licenses to applicants. Additionally, MAPEG may dictate a minimum production amount for the license holder, considering the type, reserve amount, quality of the resource, as well as the production region and the regional scope of the operating permit.
License holders have various obligations that they have to fulfil while operating mines. For example, right holders should pay the state's royalties, maintain ideal working conditions, obtain necessary licenses from other authorities, pay license fees and obey the minimum operational requirements. In principle, the ownership of operations licenses cannot be transferred to third parties.
1.3.1 Operating permits
An operating permit allows the license holder to process the minerals it extracts through its operational license. The operational permits are generally granted for the period of the operational license. In order to obtain an operating permit, the applicant is expected to apply to the administration that may be in charge of the mining area in question as explained above. Upon receiving permits from the relevant administration, the applicants must once again apply to MAPEG for the grant of an operating permit with the required documents.
1.3.2 Term of operational licenses
The total term of operation licenses may not be less than 10 years except I (a) group licenses, which are five years. In order to extend an operational license, the license holder must file an application six months prior to the expiry of the operation license and provide the administration with the documentation showing the payment of operational license fees, as well as a new project consisting of information in relation to apparent and possible reserves and the environmental compliance plan. The tenure of the operational licenses may be extended by MAPEG considering the investment made in the field, the status of the project and prior conduct of the license holder during the initial license period. If MAPEG rejects the extension application, it has to issue a tender for the specified mine. In principle, license owners have the rights in the area until MAPEG rejects the extension application and nobody can conduct mining activities in the area. In the absence of termination conditions, MAPEG does not deny extension applications. Termination conditions, inter alia, include misleading submissions to MAPEG, activities conducted beyond the rights provided by the license, failure to provide reports.
1.4 Assignment of licenses
As per the Mining Law and the Mining Regulation, none of the mining rights or licenses may be divided into shares and partially assigned to a third party. Rights associated with licenses shall always be dealt with in their entirety.
Under the current structure, there is no provision preventing the assignment of operational licenses to another party in its entirety as long as the assignee also has the qualifications for engaging in mining activities as stipulated by the Mining Law. Having said that, the operating permit may not be the subject of an assignment transaction by itself; it can only be transferred within the operation license.
Parties to the assignment are obliged to deposit twice the value of the operation license on the date of the assignment. The assignment shall have effect and bear consequences upon the approval of MENR and any assignment transaction shall be registered at the Mine Registry; such a transaction shall be completed only after its annotation at the registry.
1.5 Transfer of control
Pursuant to the Mining Law, if the shareholders of the license holders engage in a share transfer that gives rise to a change in the direct shareholding structure by more than 10%, such a share transfer is subject to the approval of MAPEG.
1.6 Merging / subdividing licensed fields
The legislation allows for the merger of operational licenses if the licenses are provided for adjacent areas with at least two common points, provided that the licenses are given for the same group of resources. The merged area of the licenses are subject to the area restrictions provided by the Mining Law. If the merging of the licensed fields is due to a necessity arising from the unity of the apparent reserve, establishment of a joint operation or a necessity for feeding the integrated plants by means of production, the new license shall be granted with no limitation in terms of the boundaries.
Following the merger, the new license's expiry date will be determined as the closest expiry date of the merged licenses. However, if an exploration license is merged with an operating license, the term of the operational license shall prevail. Additionally, any mortgage, pledge or other restrictions on relevant licenses shall survive following the merger of licensed fields.
On the contrary, in case the necessary mining activities are not completed and the reports are not prepared as required by law, mine reserve fields may be subdivided. Until the registration of the subdivided field to the Mine Registry, the license holder's obligations, such as the payment of the state's royalties, shall prevail.
1.7 State royalties
In return for providing mining rights to relevant entities, the state receives a royalty payment called the State Royalty, where a portion of the revenue generated from mine production is paid to the state by the license holder. In case there is no production in the said mining area, the payment to be made to the state shall not be less than the minimum license fee.
The rate at which the state royalty is calculated may vary from 1% to 15% of the ex-mine sales amount. The state royalty is specified for each license group in the mining law and the base amounts might be increased depending on the nature and place of the mine.
Likewise, the license holder may also be obliged to pay a fee to the municipalities if the area in which the mine output is produced falls within the borders of the municipality. In such a case, the license holder is obliged to pay 0.2% of the ex-mine sales amount for its mine production. If the mining area is governed by more than one municipality, the 0.2% share is divided between the municipalities
There might be additional factors relevant to the state royalty depending on the area where the mine is. For example, if the mining activity is conducted in the government forests, the state royalty increases by 30% for the first five hectares.
1.8 Production obligations
Within a five-year time period, any three years with the lowest production must exceed at least 30% of the annual production amount declared by the license holder in the project, or the license holders shall face an administrative fine of TRY 77,632 (approx. US$11,592). Additionally, if the production realized in the last three years prior to the administrative fine is calculated to be below 10% of the annual production amount, the license holder shall face an additional administrative fine of TRY 77,632 (approx. US$11,592). If the non-compliance with the production obligation continues, the licenses shall be annulled.
The administrative fines stipulated above are not applied if the reduction in production is caused by force majeure. For example, if a mine terminates its operations due to natural disasters, political tensions in the area and MAPEG considers the situation as a force majeure, it may reduce production obligations.
1 For 2020, the base price of exploration licenses is announced as approximately TRY 1,904 (approx. US$280).
2 This tenure is foreseen for Group IV mines only, other classes are provided a1-year general exploration period.
3 This tenure is foreseen for Group IV mines only.
Originally published 26 June, 2020
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.