Turkey: Mining Sector And Mining Law

Last Updated: 22 January 2013
Article by Gözde Esen Sakar and David Clark

Developments

Turkey is a seismic region rich in minerals that is considered underexplored for a number of important resources, such as gold, silver, copper, lead, zinc, chrome and nickel amongst others. The country has an established mining industry which accesses 77 of the 90 different types of minerals traded globally, with 50 of those commercially viable for exploitation currently. According to the Directorate General of Mineral Research and Exploration (MTA) the market value of Turkey's known mineral resources is circa US$2.5 trillion.

The sector continues to attract foreign investment and local development, and whilst Turkey has not yet seen large scale entry from the global mining giants a great deal of interest has been experienced from exploration and junior mining companies particularly for precious and base metals.

Turkey has been making serious legislative steps to encourage inbound investment, not just with the most recent amendments to Mining Law but also through the new Commercial Code that was introduced last year. Turkey remains a challenging place to do business however, so choosing the right local advisors is important and although it is feasible to establish a mining business independently many investors seek reputable local partnerships as a strategy for market entry.

The Turkish Mining Law

Mining rights and minerals are exclusively owned by the state and the ownership of the minerals in Turkey is not defined by private land ownership. The state delegates rights to explore and operate to Turkish individuals or legal entities through set period licences in return for royalty payments. Local and foreign investors can acquire the same mining rights but foreign investors need to establish a Turkish company to do so, which can be 100% foreign owned.

The mining regime is regulated by the General Directorate of Mining Affairs (MIGEM), a unit of the Ministry of Energy and Natural Resources. Local administrations also have a level of authority in relation to licencing and regulation of mining facilities.

Mining is primarily governed by the 1985 Mining Law no. 3213. This law has been amended several times in recent years, but most significantly in June 2010 by law no. 5995. This latest amendment aims to provide a more investment friendly environment, particularly for exploration projects, alongside bringing aspects such as environmental protection and health and safety more in line with international expectations. Other updates include:

  • Improved development and administrative controls to help combat unlicensed activities.
  • Requirement of licensee to provide Environment Friendly Guarantees (an annual guarantee equal to the annual licence fee to incentivise correct environmental practice); both the mining licensee and any sub-licensee/operator are now jointly and severally liable for any and all damage caused by mining activities.
  • Necessity to obtain Workplace Opening and Operating Permits prior to operational commencement. There are also improved provisions protecting the health and safety of workers, including the requirement for professional mining engineers and technical staff to be present at mining facilities.
  • Clarification of ambiguities with forestry law.

Type of Mines and Type of Licenses Under Turkish Mining Law

The Turkish Mining Law classifies underground resources in six different groups, and the licensing procedure for each class is slightly different. The classes are as follows; (I) sand and gravel, (II) marble and other similar decorative stones, (III) mineral salts from seas, lakes and fresh waters, (IV) energy, metal and industrial minerals, (V) precious/gem stones, and (VI) radioactive minerals.

Licenses are granted separately for exploration and operation stages. The exploration license grants the right to explore within a specific area and is generally granted for three years which can be subject to extension.

For class 4 mining, a popular class for foreign investment which includes gold, silver, copper, lead, zinc and manganese, the licencing stages are as follows:

Exploration

Exploration stage has been split into three distinct phases to help ensure effectiveness of the exploration licences. During this period the holder can be granted permission to produce and sell up to 10% of the visible reserve.

Pre-Exploration Period

The pre-exploration period for the relevant classes is the first year after application for an Exploration Licence. Before the end of the period the holder must submit an activity report to MIGEM for consideration, detailing financial investment made and demonstrating that the activities indicated for the exploration license have been completed. This report will include data on the resource / reserve and information relating to the adequacy of the project and activity plans.

Minimum financial investment criteria* during this period varies depending on class (2013 rates between 50,000 and 120,000TL). For class 4c metals the minimum total investment during the period, which includes all expenditure, fixed assets, working capital etc. is currently 120,000TL; at least 40% of this amount must be expenditure to add value to the mine site.

General Exploration Period

Class 4 Mining License holders fulfilling pre-exploration obligations are granted a general exploration period of two years. Again, before the end of the period the holder must submit a further activity report detailing investment made into exploration activities during this period. The general exploration activity report must also include data on the resource/reserve and updated information about the adequacy of activity being carried out for the project.

Minimum financial investment criteria* during this period varies depending on class. For most classes General Exploration applies for one year, but for class 4c metals it is two years. 2013 rates for one year classes vary between 20,000 and 100,000TL, but for class

4c metals the minimum total investment during the two year period is 250,000TL at 2013 rates; at least 40% of this amount must be expenditure to add value to the mine site.

Detailed Exploration Period

Class 4 license holders satisfying their obligations are granted a detailed exploration period of a further four years. During this period, an exploration activity report must be produced and submitted annually, including a resource/reserve report and details of activities conducted during the year. Each year, within two months of the report submission, MIGEM decides whether the detailed exploration period will be extended for another year.

Minimum financial investment criteria* during this period again varies by class with 2013 rates between 128.013 TL to 256.025 TL required per year (class 4c group minerals minimum is 256.025TL each year). Value add expenditure must be at least 20% of the total investment specified in any given year, but with a weighted average across the full detailed exploration period not falling below 30%.

Within the detailed exploration period the applicant needs to submit their operation project plan documentation together with the detailed exploration activity report and application fees in order to obtain an operating license.

In the event that an annual report is not submitted and/or the license holder does not apply for an operation license before the period ends, the guarantee amounts provided shall be registered as revenue and the exploration license can be cancelled.

* Minimum financial investment criteria amounts shown for exploration stages are base amounts. MIGEM can assess the project and add an additional ratio appropriate to meet project requirements, thus the minimum required investment can increase.

Operation

Following successful application, the operation license validity period shall be determined pursuant to the visible and estimated reserve together with the operation project plan. The operation term granted will be between 10 and 60 years and is extendable, based on predicted reserve and actual production average (over the previous 5 years), for a further 10 to 30 years. Extension requests can be made no earlier than 3 years before licence expiration.

Fees, Guarantees and Royalties

Fees

Upon application for the licence, an application fee is payable at a rate announced annually by the Ministry of Finance; for example the 2013 rate for class 4c is 1,939TL for an exploration application.

Annual license fees are determined by the Ministry of Finance and are based on the mineral type and stage of the mine. It is straightforward for exploration, with current annual licence fees at 775TL plus a further annual pre-operation fee of 2,715TL payable. Annual fees during operation are based on a sliding scale that reduces the fee as the licence period reduces; for example, a class 4c licence with less up to 15 years remaining has an annual fee of 5,432TL at 2013 rates, but if the remaining period is less than 10 years that fee is 4,656TL. During operation there is also a mandatory technical supervisory fee of 387TL per annum.

Depending on location and other mine specific factors there can be other administrative expenses to consider, such as municipality fees during production stage.

Guarantees

Upon grant of the licence, a security deposit is required to be put in place for the duration of the licence equal to 1% of the total annual licence fee per licenced hectare. This can increase annually based on prevailing evaluation ratios announced by MIGEM.

The Environmental Friendly Guarantee is provided annually and is equal to the annual licence fee.

Royalties

Turkish Mining Law stipulates royalty rates payable to the Ministry of Energy and Natural Resources varying between 1-4% of total annual sales from the mine dependant on mining class and sub-class; for example 4% is applicable for gold, silver and platinum and 2% for other class 4 metals like copper, lead and zinc.

In addition, if the mining activity is conducted on state-owned land (except Forestry land) an additional 30% royalty is payable to the Treasury by the licence holder. If the licence area is state-owned forestry land larger than five hectares, the royalty is paid to General Directorate of Forest Affairs by way of a forestry fee instead of to the Treasury.

Incentives

There are various incentives available. By way of example, where class 4c minerals are produced from underground operations and are refined to metals in Turkey (with gold silver and platinum specifically excluded from this incentive) only 50% of the royalty is payable.

If the Council of Ministers decide, based on mineral type and location of the mine, it is within their power to apply a further discount; this can be up to 50% off the royalty calculated as payable to the state through the other mechanisms.

Supply Agreements

Supply Agreements can be governed by foreign laws, but Turkish law will apply to matters specific to mining legislation. It is important to ensure that all responsibilities necessary for the performance of the Agreement are well defined, such as temporary or permanent export, water consumption permissions, waste disposal, supply of data and technical information, insurance etc.

The contractor/supplier must demonstrate adequate health and safety, environmental, emergency procedure and loss management standards; they will at all times be responsible for safety and loss management during performance of their mining work and for their own employees.

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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