1 Legal and regulatory framework

1.1 Which legislative and regulatory provisions govern mining in your jurisdiction?

Legislation: The principal statute governing mining activities in Kazakhstan is the Code on Subsoil and Subsoil Use, dated 27 December 2017, which came into force on 29 June 2018.

It replaced the similarly named Kazakhstan Law on Subsoil and Subsoil Use, dated 24 June 2010, save for certain provisions that remain effective for entities whose subsoil use contracts (SUCs) were concluded before 29 June 2018.

Some specific issues relating to precious metals are governed by the Law on Precious Metals and Precious Stones, dated 14 January 2016.

There are also numerous decrees of the Kazakhstan government and orders of the head of the competent authority for solid minerals (currently the Ministry of Industry and Infrastructural Development (MIID)), which regulate mining issues set out by the Code on Subsoil and Subsoil Use in more detail.

Under the previous Law on Subsoil and Subsoil Use, a subsoil use right (SUR) was awarded under a subsoil use contract (SUC). Under the Code on Subsoil and Subsoil Use, SURs for exploration or mining of solid minerals are granted under subsoil use licences (SULs) issued by the competent authority (except for SURs for uranium production, which are granted to National Atomic Company Kazatomprom by the Ministry of Energy through execution of uranium production contracts on the basis of direct negotiations).

The territories available for SULs can be viewed on an e-map at https://gis.geology.gov.kz/geo. For more details on exploration and mining licences, see questions 3 and 4.

Transitional provisions: All SUCs concluded under the Law on Subsoil and Subsoil Use remained in effect after 29 June 2018. Such subsoil users were entitled either:

  • to preserve their SUCs; or
  • to convert their SUCs into exploration or mining licences.

For owners of SUCs that decided to preserve their contracts and wished to extend them, the extension term was limited depending on factors such as:

  • the stage (exploration or mining);
  • whether the deposit was major or not;
  • whether there was a discovery of a deposit; and
  • whether the extension was permitted by the SUC (Article 278.14 of the Code on Subsoil and Subsoil Use).

For owners of SUCs that decided to transition to an SUL, the term of the SUL cannot exceed the term of the relevant SUC. Conversion of an SUC to an SUL neither terminated the SUR issued on the basis of the SUC nor terminated any encumbrances over the SUR valid at the moment of re-registration.

Other issues: Broadly, mining regulation can be categorised by reference to specific minerals as follows:

  • solid minerals (eg, gold, silver, coal); and
  • commonly occurring minerals (COMs) (eg, sand, clay).

In addition to the above minerals, the Code on Subsoil and Subsoil Use regulates issues relating to hydrocarbons and uranium production. Unless otherwise stated, these issues are not discussed in this Q&A.

1.2 When was the mining legislation last reviewed?

The last substantial amendments to the mining legislation were made through the enactment of the Code on Subsoil and Subsoil Use, which is based on the Western Australian model.

By adopting the Code on Subsoil and Subsoil Use, Kazakhstan moved from a contractual regime to a licensing regime for solid minerals (except for uranium production, which remains under a contractual regime).

The Code on Subsoil and Subsoil Use is periodically amended. As of the time of writing, the last amendments to mining issues were introduced by Law 284-IV dated 26 December 2019.

1.3 What other legislative and regulatory provisions have relevance for mining operations in your jurisdiction?

Depending on the sphere of activities, the mining industry is also affected by the following statutes, among others:

  • the Environmental Code, dated 9 January 2007;
  • the Land Code, dated 20 June 2003;
  • the Tax Code, dated 25 December 2017;
  • the Law on Permits and Notifications, dated 16 May 2014;
  • the Law on Architecture, Town-Shipping and Construction Activities, dated 16 July 2001;
  • the Code on Customs Regulation in the Republic of Kazakhstan dated 26 December 2017 and the Customs Code of the Eurasian Economic Union; and
  • the Rules on Procurement of Goods, Works and Services at Performance of Subsoil Use Operations approved by the Competent Authority.

1.4 Are there any regional treaties or laws that need to be taken into account?

Kazakhstan is a party to several international treaties relevant to the mining industry, including:

  • the Partnership and Cooperation Agreement with the European Communities and their Member States, dated 23 January 1995; and
  • the Agreement on Cooperation in Study, Exploration and Use of Mineral Resources, dated 27 March 1997 with the Commonwealth of Independent States countries.

Kazakhstan is also a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the International Centre for Settlement of Investment Disputes Convention.

Kazakhstan has also entered into bilateral investment treaties with approximately 50 countries establishing guarantees for the protection of investment activities. The texts of these treaties may differ in terms of their definitions of an investor, an object of investment, the protected rights of an investor and the procedure for investment protection. However, they all stipulate the investor's right to apply for international investment arbitration to protect their rights and investment.

1.5 Which bodies are responsible for enforcing the applicable mining laws and regulations? What powers do they have?

Depending on the category of minerals, there are two ministries which are competent authorities:

  • the MIID, which administers SUCs and SULs for solid minerals, except for uranium production; and
  • the Ministry of Energy, which administers SUCs for hydrocarbons and uranium production.

In addition, the local executive bodies (Akimats) of regions or major cities (Astana, Almaty, Shymkent) have the functions of a competent authority with regard to:

  • exploration of COMs under SUCs or mining of COMs under SULs; and
  • artisanal mining.

Akimats also formalise the grant of land plots to owners of SUCs/SULs.

The MIID:

  • approves the State Subsoil Fund Management Programme with coordinates of subsoil plots available for exploration and mining;
  • drafts legislative acts in the mining sphere;
  • grants and terminates SURs for solid minerals (except for uranium production);
  • monitors subsoil users' performance of their obligations; and
  • imposes penalties on subsoil users for breach of their obligations.

1.6 What is the regulators' general approach in regulating the mining sector?

The regulator's current general approach is aimed at promoting geological exploration and removing administrative burdens for subsoil users. Since the enactment of the Code on Subsoil and Subsoil Use, many business processes have been simplified. For example, while previously exploration contracts were concluded within 1.5 years of the date of winning a tender, under the Code on Subsoil and Subsoil Use, exploration licences are normally issued within 10 business days, under the principle ‘first come, first served'.

The Code on Subsoil and Subsoil Use has entitled subsoil users applying for mining licences to estimate their reserves under the Committee for Mineral Reserves International Reporting Standards-aligned Kazakhstan Public Reporting Code on the Results of Geological Exploration Works, Mineral Resources and Mineral Reserves standard, which facilitates the evaluation of projects by the international community (earlier reserves estimations were made under the standards of the State Commission for Minerals Reserves only).

The digital National Mineral Resources Data Bank is scheduled to become accessible by July 2021.

Previous quarterly reports on the performance of licensing contractual obligations were replaced by annual reports.

Some obligations were excluded for holders of exploration licences, such as the obligation to:

  • procure goods, works and services under the procurement rules approved by the competent authority;
  • comply with local content requirements in works and services;
  • finance the tuition of Kazakhstani personnel; and
  • finance research and development works.

2 Mining industry

2.1 How mature is the mining industry in your jurisdiction?

During the Soviet era, extensive works were conducted in Kazakhstan both to explore and develop a raw base and to construct advanced mining and metallurgical facilities, as well as related infrastructure. After gaining independence in 1991, the state has continued to develop its mining industry, which is now the second most important sector of the economy after oil and gas.

Kazakhstan has taken measures to align with international mining standards – for example, the Code on Subsoil and Subsoil Use is based on the Western Australian model. According to the Fraser Institute's Annual Survey of Mining Companies 2017, Kazakhstan was "the most attractive jurisdiction in the [Asia] region based on its investment attractiveness rating", ranking in 24th position overall, compared with its previous position of 73rd. (The surveys conducted in 2018 and 2019 did not include Kazakhstan.)

According to officials, before the enactment of the Code on Subsoil and Subsoil Use, the expenses for the exploration of 1 square kilometre were $7; while the same work would cost $167 in Australia, $87 in the United States and $203 in Canada.

Only subsoil plots included in the State Subsoil Fund Management Programme are available for applicants. The programme is periodically updated and the authorities plan to cover the whole territory of Kazakhstan by the end of 2022. For major parts of the territory, state geological surveys are being conducted and on their completion, such land plots will become accessible for exploration.

Accordingly, the number of junior companies is expected to increase substantially in the near future, with related consequences for the Kazakh economy.

Eventually, with the launch of mass geological exploration in Kazakhstan, McKinsey & Company forecasts the discovery of at least 15 world-class deposits, as well as new mining provinces.

2.2 What are the key minerals which are mined in your jurisdiction and where is mining activity typically based?

The Kazakhstan state balance takes into account mineral reserves for 102 types of mineral raw materials, including 40 types of solid minerals.

When compared with world reserves, Kazakhstan ranks:

  • first for total reserves and quality of chrome ores (according to the US Geological Survey, 86% of the world's reserves of chrome ores are in Kazakhstan and South Africa);
  • second for reserves and resources of uranium and silver;
  • third for confirmed reserves of lead and proven reserves of manganese ores;
  • fourth for confirmed reserves of zinc;
  • fifth for proven reserves of iron ore (and in terms of their quality, Kazakhstan ranks third in the world);
  • eighth for:
    • the quantity of confirmed reserves of tin, with the quality (Syrymbet deposit) being not inferior to the main world producers; and
    • gold reserves (mainly represented by small and medium-sized deposits by the standards of the industry);
  • ninth for proven cobalt reserves and confirmed reserves of titanium dioxide; and
  • thirteenth for proven nickel reserves and bauxite reserves (the latter being in eighth place in terms of mine production).

According to Kazakhstan's Report on the Implementation of the Extractive Industries Transparency Initiative for 2017, the leading regions attracting investments into mining industry were:

  • East Kazakhstan (27.8% of the total investment);
  • Karaganda (24.9%);
  • Kostanay (16.9%);
  • Aktobe (10.9%); and
  • Akmola (9.5%).

The priority areas of investment were:

  • copper (25.2% of total investment);
  • polymetals (lead and zinc) (20.7%);
  • gold (20.2%);
  • iron and manganese (13.8%);
  • chromite (6.3%); and
  • aluminium (bauxite) (2.7%).

An overall picture of all subsoil sites (under current subsoil use licences (SULs)/SUCs or available for potential exploration and mining) may be obtained through the e-map (see question 1.1).

2.3 Are any minerals deemed strategic and, if so, what impact does this have?

The Code on Subsoil and Subsoil Use defines ‘strategic subsoil plots' as subsoil plots that:

  • contain geological reserves of oil in a volume of more than 50 million tonnes or natural gas of more than 15 billion cubic metres;
  • are located in the Kazakhstan sector of the Caspian Sea; or
  • contain a uranium deposit.

In other words, out of solid minerals, only uranium is deemed a strategic mineral.

Furthermore, uranium deposits are acknowledged as ‘strategic objects' under the Kazakhstan Civil Code. Accordingly, transactions resulting in a change of direct or indirect control over uranium deposits, in addition to the consent of the competent authority (the Ministry of Energy), require a separate government decree.

2.4 Who are the key players in the mining industry in your jurisdiction?

The key players in mining industry can be divided into two categories:

  • private companies, such as Rio Tinto, ERG, Kazchrome, Tin One Mining, ArcelorMittal, Kazminerals, Kazzink, Kazakhmys and Altyntau Kokshetau; and
  • quasi-state companies, such as Tau-Ken Samruk JSC, Qazgeology JSC and Kazatomprom.

For example, based on their results for 2019, the following companies were among the country's top taxpayers:

  • Kazzink – KZT 106.59 billion (approximately $278.4 million);
  • Kazchrome (a subsidiary of ERG) – KZT 63.17 billion (approximately $165 million);
  • Kaz Minerals Aktogay – KZT 58.02 billion (approximately $151.5 million);
  • Kazakhmys – KZT 48.7 billion (approximately $127.2 million); and
  • Altyntau Kokshetau (a subsidiary of Kazzink) – KZT 51.75 billion (approximately $135 million).

International companies such as Glencore, Rio Tinto, Iluka Resources, Yildirim Group, Korea Resources Corporation, Polymetal, Russian Copper Company, Ulmus Fund, Areva Sa and Rusal operate in Kazakhstan.

2.5 In addition to exploration rights and mining rights, what other mining rights and titles exist (eg, artisanal or small-scale mining rights)?

Under the Code on Subsoil and Subsoil Use, in addition to licences for exploration or mining, the following SURs are also granted under separate licences:

  • geological surveys of subsoil;
  • subsoil space use; and
  • artisanal mining (only for Kazakh citizens).

Unless otherwise stated, these SURs will not be discussed in this Q&A.

3 Exploration rights

3.1 What licences are required to undertake prospecting and exploration activities in your jurisdiction? Do these vary depending on the type of mineral or the location of the activity?

Under the Code on Subsoil and Subsoil Use, there are licences for geological surveys of subsoil, exploration and mining.

The holders of licences for geological surveys of subsoil are entitled to use the subsoil for geological survey and (or) geophysical works, as well as prospecting and evaluation works with regard to underground waters, for three years.

An exploration licence owner has the exclusive right to use a subsoil plot to explore for solid minerals, including solid mineral deposits, and to estimate their resources and reserves for subsequent mining.

Accordingly, to undertake prospecting and exploration activities, an exploration licence is required. The type of mineral or the location of the activity does not matter, unless there are restrictions for conducting exploration in a certain territory.

3.2 What requirements must be satisfied to obtain a licence?

Requirements for the proposed territory: The territory under an exploration licence cannot be more than 200 blocks (each being approximately 2 square kilometres). The number of such licences that may be held by one person is unlimited.

A licence is issued only for territories available for exploration determined by the State Subsoil Fund Management Programme, which are reflected on the e-map (see question 1.1). If the territory of interest is not included in the programme, anyone may address the Ministry of Industry and Infrastructural Development (MIID) with a request to include the territory in the programme. The MIID will either adopt amendments to the programme (to include the new subsoil plots) or refuse to do so, providing grounds for the refusal.

With very limited exceptions, subsoil use operations are prohibited in specially protected natural areas.

Further, Article 25 of the Code on Subsoil and Subsoil Use contains a list of lands on which subsoil use operations are prohibited (under the latest amendments dated 26 December 2019, this provision has been suspended until 1 January 2023 with regard to the grant of exploration and mining SURs). This list includes lands needed for defence and national security purposes, water fund lands, lands of settlements and adjacent territories at a distance of 1,000 metres (limited exceptions may apply).

Lastly, an exploration licence may not be issued for territories referred to in Article 186.2 of the Code on Subsoil and Subsoil Use (ie, territories in which hydrocarbons, uranium production, subsoil space use operations or abandonment works are performed, or which belong to other holders of exploration, mining or subsoil space use licences).

Requirements for the applicant: The applicant must lodge an application together with the relevant documents envisaged by Article 187 of the Code on Subsoil and Subsoil Use, and meet the requirements pertaining to its professional and financial capacities.

Compliance with professional capacities includes the availability of a geology or geophysics specialist either on the applicant's staff or under a services agreement.

Compliance with financial capacities requires the applicant to provide evidence of the availability of sufficient funds to cover the required minimum exploration costs in the first year of the exploration licence.

3.3 What is the procedure for obtaining a licence? How long does this typically take?

The territories available for exploration are included in the State Subsoil Fund Management Programme and may be viewed on the e-map (see question 1.1). The licence is issued within 10 business days under the ‘first come, first served' principle. Applications for exploration licences for the same block are considered by the competent authority in order of their receipt. The later application is considered only if the first application is rejected.

For new territories recently added to the programme, there is a one-month preliminary period from the application filing commencement date. Where two or more applications are lodged for the same block(s) during this period, an auction will take place between the applicants.

3.4 Who can own exploration rights in your jurisdiction? Do specific requirements or restrictions apply to foreign operators?

Any local or foreign individuals or legal entities that comply with the criteria set out in the Code on Subsoil and Subsoil Use may apply for an exploration licence.

Under the Code on Subsoil and Subsoil Use, the term ‘operator' refers to an entity established or designated by the subsoil user which acts as the subsoil user's representative during the performance of subsoil use operations. For the purposes of this Q&A, the term ‘operator' is used to refer to the subsoil user.

Generally, there are no specific requirements or restrictions applicable to foreign entities engaged in exploration or mining of solid minerals, except for the following. Pursuant to Article 160 of the Code on Subsoil and Subsoil Use, an SUR for uranium production is provided only to Kazatomprom and can be transferred only to a legal entity in which more than 50% of the shares directly or indirectly belong to Kazatomprom.

3.5 What fees and other charges are incurred in obtaining a licence?

When an exploration licence is obtained, a signature bonus is paid (see question 9.1).

The holders of exploration licences also undertake to comply with other financial obligations, as discussed in question 3.7.

3.6 What is the duration of a licence? What is the process for renewal?

An exploration licence is issued for six consecutive years, with the possibility of a single extension for an additional five years. An application for its renewal must be filed with the competent authority during the sixth year of the licence.

If the licence includes 10 or more blocks, the extension will be allowed if the subsoil user has relinquished part of the exploration site comprising at least 40% of the blocks, calculated based on the total number of blocks included in the exploration territory at the time the licence was issued (save for the blocks for which an application for a mining licence was filed).

The MIID will consider the application within 15 business days of receipt.

A licence may not be extended if:

  • the declared extension term does not comply with the maximum extension period;
  • the application is filed after the licence has expired;
  • the applicant fails to rectify breaches of the licence conditions relating to the payment of rent fees and minimum exploration expenses for the years preceding the date of the application; or
  • the applicant fails to relinquish the part of the territory, as described above.

3.7 What are the operator's rights and obligations under the licence?

A licence owner has the exclusive right to use the subsoil plot to explore for solid minerals, including deposits of solid minerals, and to estimate their resources and reserves for subsequent mining.

Its financial obligations under the licence are as follows.

Security for performance of abandonment works: The licence owner must provide security for remedying the consequences of subsoil use operations (abandonment works). This may take the form of a pledge of a bank deposit, a guarantee or an insurance agreement. The amount is determined according to Order 373 of the minister of investment and development dated 24 May 2018. Under its current version, the security for one block is 720 monthly calculated indicators (MCIs) (for 200 blocks, approximately $937,000). The competent authority plans to adopt amendments to reduce the security amount.

Annual rent payments: See question 9.1.

Table 1. Annual minimum expenses for exploration (Article 192 of the Code on Subsoil and Subsoil Use) (All figures are in MCIs, with approximate $)

1 block 2-5 blocks 6-10 blocks Additionally, for each subsequent block within the territory comprising more than 10 blocks
First to third years (ie, during each of the first, second and third years)
1,200 ($7,800) 1,800 ($11,700) 2,300 ($14,950) 120 ($780)
Fourth to sixth years
1,200 ($7,800) 2,300 ($14,950) 3,500 ($22,750) 180 ($1,170)
Seventh to eighth years
1,800 ($11,700) 3,500 ($22,750) 5,800 ($37,700) 230 ($1,495)
Ninth to tenth years
2,300 ($14,950) 5,800 ($37,700) 8,000 ($52,000) 350 ($2,275)
11th year
3,500 ($22,750) 8,000 ($52,000) 11,500 ($74,750) 460 ($2,990)

Before the commencement of exploration works, a subsoil user must prepare an exploration plan under the authorities' guidelines, obtain relevant state approvals and submit a copy of the plan to the competent authority.

3.8 Are there any requirements re relinquishment of an exploration licence or part of the area covered by an exploration licence?

Yes, such requirements arise when the licence holder applies for an extension of its licence. See question 3.6.

Also, a relevant subsoil use contract may contain an obligation to relinquish part of the subsoil site during the exploration stage.

3.9 Can licences be transferred? If so, how and subject to what consents? Do any restrictions or taxes apply to direct or indirect transfers?

Regulation under the Code on Subsoil and Subsoil Use: Except for the transfer of a licence during the first year of its operation, exploration licences (exploration subsoil use contracts (SUCs)) or shares in their direct or indirect holders may be transferred to any person subject to the competent authority's consent.

Articles 41.2, 42.3 and 44.2 provide for exceptions when no consent is required, which include:

  • transactions with shares circulating on a stock exchange;
  • transactions to which a national company is a party;
  • the transfer of shares to a person that, after the transaction, will possess less than 1% of the shares; and
  • transactions within one group of entities where more than 99% of the shares belong to the same person, provided the acquirer is not registered in an offshore country.

Consent is obtained through a procedure set out in Article 45 of the Code on Subsoil and Subsoil Use.

According to Article 44.3.3, those entities that receive notification from the competent authority on the need to obtain state expertise or approval for project documents for the purposes of issuing a mining licence are also acknowledged as subsoil users. Accordingly, the above requirements to obtain consent also apply to such entities.

Other consents are required for transactions that result in a change of direct or indirect control over a subsoil use right (SUR) for uranium (ie, SUCs for exploration and (or) production of uranium), as discussed in question 2.3.

Anti-monopoly approval: If a transaction simultaneously meets the two conditions set out by Article 201 of the Commercial Code, dated 29 October 2015, it is subject to the approval of the Anti-monopoly Authority as an economic concentration. Failure to obtain such approval may result in invalidation of the transaction by the Anti-monopoly Authority.

The first condition comprises any of the following:

  • the reorganisation of a business entity by merger or accession;
  • as a result of the transaction, the acquisition by a person (or group of persons) of the right to dispose of more than 50% of shares (participatory interest) in a Kazakh legal entity, provided that previously that person (or group of persons) had possessed none or less than 50% shares (participatory interest) in the target; or
  • the acquisition by a business entity (or group of persons) of the assets of another business entity, if the book value of the alienated property (eg, a SUR) exceeds 10% of the book value of the fixed production-related assets and intangible assets of the seller.

The second condition is met when an aggregate book value of assets of the purchaser (or group of persons) and the target exceeds 10 million MCIs (eg, KZT 27.78 billion in 2020 or approximately $65 million) for the last financial year.

Summarising the above, if a related transaction meets both above conditions, then the purchaser will have to obtain the permit.

There are some exceptions from the above requirement to be considered at the pre-final stage of the transaction.

Direct sale of an exploration SUR: The direct sale of an SUR for exploration of solid minerals under relevant subsoil use licences (SULs) or subsoil use contracts (SUCs) (‘exploration SURs') gives rise to corporate income tax at the rate of 20% where the sales price of the exploration SUR exceeds the amount of the expenses spent on the geological survey, exploration and preparatory works, including expenses on evaluation, infrastructure development, general administrative expenses, payment of a signature bonus, purchase and creation of fixed and intangible assets, as well as other deductible expenses. The buyer of the exploration SUR is entitled to deduct the expenses on purchasing the SUR. Moreover, the direct sale of the exploration SUR is subject to value added tax (VAT) at a rate of 12%. The buyer of the exploration SUR is entitled to offset the VAT against its own VAT liabilities.

Indirect sale of an exploration/production SUR: The indirect sale of an exploration SUR or SUR for mining of solid minerals under a relevant SUL or SUC (‘production SUR') – that is, when the buyer purchases a participatory interest or shares of the Kazakh company having an exploration or production SUR – triggers tax obligations only in the event of a capital gain. The capital gain is calculated as the positive difference between the sale and the initial prices of the shares. The initial price of the shares is recognised as either the total amount of expenses on their acquisition plus the expenses increasing their value (eg, fees and commissions paid to agents, consultants, Kazakhstaners and dealers, levies of regulatory agencies and stock exchanges, taxes and charges for fund transfer, or the amount of contribution to the charter capital of the subsoil user). The capital gain is subject to corporate income tax at the rate of 20% if the buyer is a resident of Kazakhstan or a tax haven country, or withholding tax at the rate of 15% if the buyer is a non-resident of Kazakhstan.

Herewith, both resident and non-resident (except for residents of a tax haven country) shareholders may be exempted from taxation upon receipt of a capital gain from the sale of their shares in the subsoil user. Such exemption is available upon compliance with the following conditions:

  • The shareholder has owned the shares for more than three years as of the date of sale;
  • The subsoil user in which the shares are sold performed further processing of half of the extracted mineral resources within the 12 months prior to the first day of the month in which the shares in it were sold; and
  • The subsoil user in which the shares are sold owns not more than 50% of shares in any other mining company.

3.10 Does an exploration licence give any priority when applying for a mining right?

Yes, in the event of a deposit discovery where the resources and reserves have been confirmed by a relevant competent person's report, the subsoil user has an exclusive right to obtain a mining licence.

Such right may be exercised at any time during the validity term of the exploration licence.

4 Mining rights

4.1 How is ownership of mining rights determined in your jurisdiction?

Mining rights are determined under relevant mining licences or subsoil use contracts.

The owner of the licence has an exclusive right to use the subsoil site for the purposes of conducting the following operations:

  • mining of solid minerals (extraction);
  • the use of the subsoil area for the purposes of mining, the deployment of mining or mining and processing production facilities, and the location of technogenic mineral formations; and
  • exploration of the mining site (in-mine exploration).

4.2 What are the key requirements in order to apply for a mining right?

Anyone interested in obtaining a mining licence must meet the following requirements.

Requirements for the proposed territory: Except where a mining licence is issued based on the exclusive right of an exploration licence holder, as discussed in question 3.10, a mining licence may be issued for territories identified by the State Subsoil Fund Management Programme as available for mining.

As a rule, mining operations are prohibited in specially protected natural areas.

Further, Article 25 of the Code on Subsoil and Subsoil Use provides for a list of territories where subsoil use operations are prohibited (as noted in question 3.2, this provision is suspended until 1 January 2023).

Lastly, a mining licence may not be issued for territories referred to in Article 203 of the Code on Subsoil and Subsoil Use (ie, territories in which hydrocarbons are produced (unless the owner gives consent) or granted for exploration, mining or subsoil space use operations; territories with uranium or rare-earth uranium deposits or where abandonment works are performed).

Requirements for the applicant: The applicant must lodge an application with relevant documents envisaged by Article 204 of the Code on Subsoil and Subsoil Use, including drafts of a mining works plan and an abandonment plan, a report on estimation of resources and reserves of solid minerals of the subsoil site requested for use, among other things.

The applicant must also provide documents evidencing its compliance with the requirements pertaining to professional, financial and technical capacities.

Compliance with professional capacities includes the availability of specialists in any of the following spheres, either on the applicant's staff or under a services agreement:

  • geology or geophysics;
  • mining engineering; or
  • geodesy or mine surveying.

Compliance with financial capacities requires the applicant to provide evidence of the availability of sufficient funds to cover the required minimum mining costs for the first three years of the requested licence. There are four options to prove such availability.

Compliance with technical capacities includes the availability of either:

  • an exploitation licence issued in the applicant's name under the Permits Law; or
  • heads of terms, a preliminary or services agreement with a contractor that owns the exploitation licence.

The competent authority may refuse to issue a licence on any of the grounds set out in Article 207 of the Code on Subsoil and Subsoil Use (eg, non-compliance with the application requirements; the failure by the applicant or its affiliate to perform abandonment works on a subsoil plot in the previous five years).

4.3 What fees and other charges are incurred in obtaining a mining right?

When a mining licence is obtained, a signature bonus is payable (see question 9.1).

The holders of mining licences must also comply with the following financial obligations.

Security for performance of abandonment works: A licence holder may start mining only after it has provided security for performance of abandonment works. The security amount shall cover the estimated cost of works for liquidation of consequences of operations both performed and for the following three years from the date of the last positive integrated state expertise of the abandonment plan. During the first third of the licence term, the security in the form of a bank deposit pledge or a bank guarantee shall comprise not less than 40% of the total security amount. During the second third of the term, it shall be not less 60% and during the last third it shall be 100% of the total security amount.

Annual rent payments

See question 9.1.

Table 2. Annual minimum expenses for mining (Article 210 of the Code on Subsoil and Subsoil Use)

(All figures are in MCIs (approximate $))

No Up to 5 hectares From 5 to 100 hectares (inclusive) For each further hectare within the territory from 100 to 10,000 hectares (inclusive) For each further hectare within the territory over 10,000 hectares
1 For ferrous ores mined under a mining licence and mining works plan
3,170 ($20,605) 6,350 ($41,275) 60 ($390) 720 ($4,680)
2 For other minerals
530 ($3,445) 1,063 ($6,910) 10 ($65) 120 ($780)

Additional obligations (Article 208 of the Code on Subsoil and Subsoil Use): Starting from the second year of the mining licence, the holder must annually finance:

  • the tuition of Kazakhstani personnel in the amount of 1% of the mining expenses incurred during the previous year; and
  • research and development works in the amount of 1% of the mining expenses incurred during the previous year.

If the applicant complies with all the requirements, the competent authority will notify it that it has a one-year period to obtain the relevant state approvals for the mining works plan and the abandonment plan. This notification is the basis for reservation of the relevant state-owned land plots for subsoil use purposes by the related Akimat. The competent authority will issue a mining licence within five business days of receipt of the above approvals.

4.4 What is the duration of a mining right? What is the process for renewal?

A mining licence is issued for up to 25 years, with the possibility to extend for a further period not exceeding the initial term of the licence. The number of such extensions is unlimited.

An application for an extension must be filed at least four years before the expiration of the mining licence. The competent authority will consider the application within 10 business days of receipt.

A licence may not be extended:

  • if the declared term of the extension exceeds 25 years;
  • in case of a breach of the above term for submission of applications; or
  • in case of non-rectified failures to comply with the licence conditions (rent payments and minimum mining expenses) during the reporting periods preceding the date of the application.

4.5 Who can own mining rights in your jurisdiction? Do specific requirements or restrictions apply to foreign operators?

The same regime as discussed in question 3.4 applies.

4.6 Do any indigenous ownership requirements apply in your jurisdiction?

There are no specially protected communities, such as aboriginal or indigenous people, in Kazakhstan.

4.7 What role does the state play in the mining industry in your jurisdiction?

In the mining industry, the state is represented by:

  • the government, which, among other things:
    • organises the management of the subsoil as an object of state property;
    • develops the main directions of state policy on subsoil use, and strategic and tactical measures for its implementation; and
    • establishes restrictions and prohibitions on the use of subsoil in order to ensure national security, safety of life and the health of the population, and environmental protection;
  • the Ministry of Industry and Infrastructural Development (MIID) (see question 1.5);
  • Akimats (see question 1.5); and
  • the Geology Committee under the Ministry of Ecology, Geology and Natural Resources, which issues licences for geological surveys of subsoil and subsoil space use, maintains the e-map (see question 1.1) and the state mineral reserves balance, approves reserves under the State Commission for Minerals Reserves standards and so on.

4.8 Are there requirements for the government to enter into a mining development (or similar) agreement in addition to the licences/permits? When is this required or available?

The only requirement in the sphere of solid minerals is Kaztomprom's exclusive right to obtain a subsoil use right (SUR) for uranium production and possess a further direct or indirect state of at least 50% in the charter capital of the entity to which the SUR will be transferred, as discussed in question 3.4.

Until 29 June 2020, national companies such as Tau-Ken Samruk JSC and Qazgeology JSC had the right to obtain exploration or mining licences in the territories not included in the State Subsoil Fund Management Programme.

4.9 Can mining rights be transferred? If so, how and subject to what consents? Do any restrictions or taxes apply to direct or indirect transfers?

Yes, mining licences or shares in their direct or indirect holders may be transferred to any person. See question 3.9 with regard to the potential consents required.

In the case of an SUR for uranium production, please see questions 2.3 and 3.4.

The direct sale of a production SUR gives rise to corporate income tax at a rate of 20% if the sale price of the production SUR exceeds its balance value. The balance value is recognised as the balance value as of the date of the previous tax period, excluding statutory deductions. The buyer of the production SUR is entitled to deduct the expenses on the purchase of such SUR. Moreover, the direct sale of the production SUR is subject to value added tax (VAT) at a rate of 12%. The buyer of the production SUR is entitled to offset the amount of charged VAT against its own VAT liabilities.

Regarding the indirect sale of the production SUR, please see question 3.9.

4.10 Can security be taken over mining rights?

Yes, mining rights may be pledged by third parties subject to registration with the competent authority. Information on the pledge of any subsoil use licence (SUL) is included in the register of SULs published on the MIID's website.

4.11 What provisions apply with regard to closure or abandonment of a mining right?

At any time until the expiry of a mining licence, the subsoil user is entitled to relinquish the entire mining plot by filing a relevant application with the competent authority. Before filing such application, the subsoil user must remedy the consequences of the subsoil use operations through abandonment works as set out in Article 218 of the Code on Subsoil and Subsoil Use. Abandonment works are conducted on the basis of the abandonment project. The completion of such works is formalised by execution of an act on remediation of the consequences of mining at the mining plot.

If a mining licence is revoked by the competent authority, the subsoil user must prepare the abandonment project, obtain the relevant approvals and commence the abandonment works within eight months of termination of the SUR. For further details, see question 6.3.

Mining licence holders may apply for obtaining a retention status for their mining plots. The grounds for assignment of retention status include:

  • unprofitability of mining due to market conditions;
  • force majeure;
  • absence of ecologically compliant technology for mining; or
  • a court decision on implementation of a rehabilitation procedure regarding the subsoil user.

If the competent authority's response to the application is positive, the subsoil user must provide a relevant conservation project within four months. After the assignment of such status, the subsoil user need not commence or suspend the extraction of ore solid minerals at its specified mining plot for a period of up to five years (with the possibility to extend for an additional five years). Assignment of retention status releases the subsoil user from the obligation regarding minimum annual mining expenses.

5 Surface rights

5.1 Does the law of your jurisdiction distinguish between mining rights and surface rights? If so, how does an owner of mining rights acquire surface rights?

Surface rights (known in Kazakhstan as land use rights) are separate from exploration or mining rights and are obtained under procedures set out by the Land Code.

Under the Law on Subsoil and Subsoil Use, execution of a subsoil use contract (SUC) is an unconditional ground for grant of a land use right by the Akimats (applicable to SUCs concluded before 29 June 2018). The land use right is confirmed by signing a land plot lease agreement with the land authorities.

The owners of subsoil use licences (SULs) for exploration or geological surveys may conduct relevant operations based on a public or private servitude. In the latter case, unless otherwise set out by an agreement on establishing a private servitude, subsoil users may not commence operations on exploration or geological surveys unless they have paid a servitude free and reimbursed losses under the agreement on private servitude or a court decision (in case of a dispute with landowners or land users).

Execution of an SUC/SUL for mining of solid minerals is grounds for reserving and subsequently granting a land use right by the Akimats under the Land Code.

If the land plot on which mining operations are conducted is state property, the relevant regional Akimat provides such land.

If land plots on which mining is supposed to be undertaken are owned or leased by a third party, subsoil users must conclude an agreement with such owners/leaseholders. Normally, subsoil users must reimburse the landowner for losses of agricultural activity (due to withdrawal of land plots used for agricultural activities). In certain cases, subsoil users must conclude servitude contracts.

The only free right which individuals and entities have with regard to subsoil use on land plots owned or leased by them is the mining of commonly occurring minerals for their own needs, unconnected to entrepreneurial activity.

5.2 Where surface rights are acquired, what are the operator's rights and obligations as regards the landowner? And what are the landowner's rights and obligations as regards the operator?

Generally, subsoil users obtain land for subsoil use activities in the form of a lease. The state is mostly the owner of such lands.

As discussed in question 5.1, for exploration licences, public or private servitude is required; while for mining licences or SUCs, the state provides land use rights in the form of a lease.

Subsoil users are entitled to use the land for a fee (rent payments) for subsoil use purposes. Also, they must liquidate the consequences of exploration or mining operations.

The rights of third parties are described in question 5.1.

The state as the owner of the land (in most cases) has the right to payment for land use (rent payments), to inspect the land user's compliance with land legislation and so on.

5.3 Please give an overview of the process for any mandatory acquisition of surface rights (eg, process and time to enforce).

To acquire a land use right, a subsoil user must obtain a temporary land use right. It can be obtained either through public or private servitude (for exploration) or through a lease (for mining).

Public or private servitude: Public servitude is established by resolution of the Akimats. Private servitude is established by agreement with the landowner.

Public servitude is established only if the land was in state ownership. The Akimat must make the land plot available for the subsoil user for the duration of its exploration licence.

The procedure of a subsoil user's interaction with a third party is described in question 5.1.

Servitude is subject to state registration. The term of the state registration is 20 business days after submission of all necessary documents (eg, a servitude agreement; document certifying payment of the registration fee).

Lease: A lease is provided by resolution of the Akimat. To obtain land use rights, a subsoil user must file an application with the Akimat. The application must contain the following information:

  • the purpose of use of the land plot;
  • the estimated size of the land plot;
  • the location of the land plot; and
  • copies of the relevant mining licence/SUC.

It takes the Akimat up to two months to consider the application and issue its resolution. This term does not include the time required for:

  • preparing a land use design project (in practice, this takes one to three months);
  • defining the boundaries of the land plot; and
  • obtaining approvals required under Article 44.6 of the Land Code (if certain facilities or ecological areas are to be demolished or transferred, agreements for compensation of losses concluded with owners must be provided).

A subsoil user obtains the temporary land use rights after execution of the lease agreement and its state registration.

5.4 Are any native title issues applicable, either at the exploration licence stage or when a mining right is issued?

There is no concept similar to Australian ‘native title' in Kazakhstan.

5.5 Are any other rights needed to use the land (eg, zoning permissions or planning requirements)?

The grant of land use rights to subsoil users by the authorities means that relevant zoning requirements set out by the Land Code have been taken into account.

Under Kazakh law, all industrial, municipal or warehouse facilities, as well as special purpose zones (eg, landfill sites, sewage treatment facilities) which might threaten the population or environment are subject to the imposition of a so-called ‘sanitary protection zone' (SPZ), in which most types of activities are prohibited. The territory of each SPZ depends on the class of danger (from 0 to 99 metres for V-class objects to 1,000 or more metres for 1-class objects).

6 Environmental issues

6.1 What environmental authorisations are required to undertake prospecting, exploration and mining activities in your jurisdiction? Do these vary depending on the type of mineral or the location of the activity?

To perform subsoil use operations (exploration and/or mining) in Kazakhstan, the environmental legislation requires:

  • approval of the state environmental expertise document (SEE) or by the Ministry of Ecology, Geology and Natural Resources; and
  • an environmental permit.

The subject of the SEE document and approval is the project documentation. The SEE document is prepared in a standard form, based on the SEE results. SSE approval will be issued, for example, for project documents such as artisanal mining plans, exploration and production plans for hydrocarbon deposits, and projects and plans relating to uranium production. The opinion must contain conclusions about the admissibility and feasibility of the project document.

In cases specified by Kazakhstan law, the environmental authority will issue its approval for the design documents. For instance, mining works plans are subject to approval.

An environmental permit certifies the right of entities to make environmental emissions. These include emissions, discharges of pollutants, disposal of production and consumption waste in the environment, and the placement and storage of sulphur in the environment.

All companies, including subsoil users, that make emissions to the environment from stationary (ie, fixed) sources must have an environmental permit.

Kazakhstan law provides for two types of environmental permits:

  • an environmental emissions permit; and
  • an integrated environmental permit.

Both permits grant the right to make environmental emissions within certain parameters. However, unlike an environmental emissions permit, an integrated environmental permit must be issued in cases where a company plans to implement the best available technologies to reduce environmental emissions and increase the efficiency of its use of natural resources. The technologies included in the integrated environmental permit must comply with the list of best available technologies approved by the environmental authority.

The procedure for obtaining environmental permits is the same as that for exploration and mining of all types of minerals.

Subsoil use operations are restricted in specially protected natural areas. For example, geological exploration and mining are prohibited in state nature reserves, and in zones of the reserve regime of state national and state regional natural parks.

6.2 What environmental obligations must the operator observe while the mine is operational?

Kazakh law establishes obligatory environmental requirements for all subsoil users, which include:

  • the application of special methods of development of deposits in order to preserve the integrity of land, with due regard for technical, technological, environmental and economic feasibility;
  • the prevention of anthropogenic desertification;
  • the application of measures to prevent dangerous anthropogenic processes during subsoil use operations;
  • the protection of subsoil resources from flooding, fires and other natural factors during the operation and development activities;
  • the prevention of subsoil contamination, especially in the underground storage of oil, gas or other substances and materials, disposal of hazardous substances and waste; and
  • compliance with the established order of suspension, termination of subsoil use operations, conservation and liquidation of consequences of mining operations.

Kazakh law provides for sets of special requirements for certain types of work performed as part of subsoil use. In particular, such requirements include the following:

  • During drilling and other subsoil use operations with the use of diesel generator and diesel-driven installations, the release of untreated exhaust gas emissions from such installations must comply with their specifications and environmental requirements;
  • In the construction of subsoil use facilities on fertile lands and agricultural lands during the preparatory works for the equipment installation, the fertile layer must be removed and stored separately for subsequent land remediation; and
  • To exclude the migration of toxic substances into nature, an engineering system must be implemented for the organised collection and storage of subsoil use waste with waterproofing of technological sites.

The scope and nature of the requirements depend on the type of subsoil use operations, the features of the mining, the location of the operations and other factors.

6.3 What environmental obligations must the operator observe in relation to closure of the mine?

Under the subsoil use legislation, the closure of a mine/deposit involves conservation and abandonment procedures. The financing of conservation or abandonment works is provided by the subsoil user as follows.

Before the commencement of subsoil use operations, the holders of subsoil use licences (SULs) must provide relevant security, as described in questions 3.7 and 4.3.

The owners of subsoil use contracts must make annual transfers to their abandonment fund deposits in any Kazakh bank (normally 1% of the work programme amount). Any use of such abandonment fund requires the prior competent authority's approval. If the actual expenses for abandonment works exceed the amount of the abandonment fund, the subsoil user must provide additional financing.

Conservation measures are taken during the temporary suspension of mining operations at the subsoil plot. The purpose is to:

  • ensure that mining and other facilities can be brought to a condition suitable for their future operation when resuming mining operations; and
  • reduce the harmful effects of hazardous production factors and the prevention of emergency situations.

Conservation of a subsoil plot shall be carried out pursuant to a conservation project developed on the basis of the work programme agreed by the subsoil user with the competent authority.

Unlike conservation, abandonment works must be carried out on the subsoil plot as a result of termination of the subsoil use right (SUR) (termination of a subsoil use contract or revocation of a SUL). Subsoil users are entitled to perform such works before termination of the SUR with respect to part of the subsoil plot only and for the purpose of reducing the volume of abandonment works.

The requirements for abandonment works depend on the type of subsoil use operations.

For example, in case of exploration for solid minerals, abandonment works must be carried out by reclaiming the lands in accordance with the Land Code. Prior to the commencement of exploration operations, an exploration licence holder must provide the competent authority with security for the performance of abandonment obligations in the form of a bank deposit pledge, guarantee and (or) insurance.

In the case of mining, the consequences must be remedied in accordance with the abandonment project developed on the basis of the abandonment plan. The abandonment plan will outline:

  • the activities for decommissioning the mine and other mining and infrastructure facilities located at the mining site;
  • activities for the reclamation of land damaged as a result of the mining operations;
  • measures for carrying out liquidation and reclamation works, and other abandonment works; and
  • calculation of the approximate cost of such works.

The abandonment plan is developed by the subsoil user and is subject to approval by the competent authority.

6.4 What are the potential consequences of breach of these requirements – both for the operator itself and for directors, managers and employees?

Breach of the requirements specified in questions 6.1 to 6.3 may result in the following liability.

According to Article 238 of the Code on Administrative Offences dated 5 July 2014, if a subsoil user exceeds the emissions limits set out in its environmental permit or does not have such a permit, it may be subject to a fine (for large-scale business entities) of 10 times the fee for the environmental emissions for the excess volume of emissions.

The authorities may also impose a fee for environmental pollution under the Rules of Economic Calculation of Losses from Environmental Pollution (Government Decree 535 of 27 June 2007). For example, for the unlawful use of subsoil, an entity may be fined 10 times the cost of actually mined minerals or the commercial products manufactured on the development and primary processing of minerals. For unlawful environmental emissions, multipliers for ecological danger and risk (up to three and up to two respectively, depending on the territory of the pollution and the number of ecological breaches over the previous three years) may also apply.

For failure to remedy the consequences of subsoil use operations in due time, a fine of up to approximately $900 will apply (Article 353 of the Code on Administrative Offences). For failure to comply with environmental requirements, a fine of up to approximately $975 will apply (Article 356 of the Code on Administrative Offences).

If breach of the requirements specified in questions 6.1 to 6.3 causes damage to the environment, human life or health, the property of an individual, legal entity or state, then the company that committed the breach must compensate the damages caused in civil proceedings.

Article 333 of the Criminal Code provides for the liability of individuals for breach of the rules on the protection and use of subsoil when designing and conducting subsoil use operations, where this causes or might cause serious damage to the environment or human health. These breaches are subject to various punishments, the strictest being imprisonment for up to three years. A guilty individual may also be deprived of the right to hold certain positions or engage in certain activities for up to two years. If such breaches cause exceptionally serious damage to the environment (where the cost of remediation is more than $130,000), human death or mass illness, the guilty person may be punished by imprisonment for between three and seven years.

Article 343 of the Criminal Code provides for liability for failing to conduct or improperly conducting rehabilitative measures in areas exposed to environmental pollution. If this violation results in the threat of death, serious or moderate harm to health or serious damage (where the cost of remediation is more than $6,500), the guilty person may be sentenced to correctional works, community service, a fine or imprisonment for up to 40 days. If these consequences actually occur, the punishment is much more severe, including imprisonment for up to three years.

Article 347 of the Code on Administrative Offences establishes violations similar to those under Article 333 of the Criminal Code, where is no evidence of a criminal offence. However, if the violation has not caused significant damage, the infringer will be subject to a warning only. If the same administrative violation is committed repeatedly within one year of the warning, a fine will be applied, the maximum amount of which will be equal to the amount of harm caused to the environment (the fine does not exempt the company from compensation for environmental damage under a civil claim).

6.5 Which bodies are responsible for enforcement of environmental obligations?

Compliance with the environmental requirements is monitored by the Environmental Authority. This authority carries out inspections of companies in cases under conditions specified by the Commercial Code. Inspections may also be carried out on behalf of the prosecutor.

Administrative penalties are imposed by the Environmental Authority or the courts, while criminal penalties are imposed by the courts only.

6.6 What is the regulators' general approach in regulating the mining sector from an environmental perspective?

Subsoil use involves high environmental risks. Therefore, the Environmental Authority inspects subsoil users more frequently than companies in other sectors. It endeavours to hold subsoil users liable for all offences, even if they are insignificant. The courts in most cases support the Environmental Authority's position.

7 Health and safety

7.1 What key health and safety requirements apply to operators in your jurisdiction?

Several legislative acts establish health and safety requirements for the subsoil use sector.

The Law on Civil Protection dated 11 April 2014 establishes which industrial facilities are hazardous. They include enterprises and structures in which mining, exploration, drilling, blasting, production and processing of minerals or underground works are carried out.

Hazardous industrial facilities are subject to the following safety and health requirements:

  • They must have a declaration of industrial safety – that is, a document which reflects the nature and scale of the facility, as well as measures to ensure industrial safety and protect the public. The declaration is subject to examination and registration by the Industrial Development and Industrial Safety Committee of the Ministry of Industry and Infrastructural Development.
  • They must provide industrial safety training for specialists and other workers;
  • They must have a plan for dealing with accidents, as well as training alerts and emergency prevention training;
  • Technologies, technical devices and materials used at the facilities must be used subject to a permit issued by the Industrial Safety Authority;
  • Explosives must be used and explosive works carried out according to a permit issued by the Industrial Safety Authority; and
  • Incidents and accidents must be investigated and registered under the procedure set out in the Civil Protection Law.

In addition, subsoil users must comply with the labour safety and labour protection requirements set out in the Labour Code dated 23 November 2015. These requirements apply to all companies, regardless of whether they operate hazardous industrial facilities.

Under the Labour Code, employers must:

  • take measures to prevent risks at work and in technological processes;
  • conduct training and testing of employees to ensure they are aware of safety and labour protection measures, and provide them with documents on the safe conduct of production and work procedures, at their own expense;
  • provide employees with overalls and safety shoes, preventive treatment means, detergents and disinfectants, a first-aid kit, milk or equivalent food products, and special products for dietary (medical and preventive) nutrition, and personal and collective protective equipment, in accordance with the standards established by the labour authorities;
  • register, record and analyse accidents related to work activities and occupational diseases;
  • ensure investigation of work-related accidents;
  • provide accident insurance for employees for accidents that occur during the performance of job duties;
  • at their own expense, ensure obligatory medical examinations and pre-shift medical examination for employees as set out by Kazakh laws; and
  • perform other duties to ensure safety and labour protection envisaged by Kazakh laws.

7.2 What reporting requirements apply with regard to mining accidents in your jurisdiction?

Kazakh laws require that local state authorities be informed of incidents and accidents involving personnel.

The Civil Protection Law establishes a different plan of action in the event of an incident or accident at a hazardous industrial facility, given that such events are different in scale.

The term ‘incident' refers to a failure of or damage to technical equipment used at hazardous industrial facilities, as well as deviation from procedures at such facilities.

The term ‘accident' refers to the destruction of buildings, structures or technical equipment, uncontrolled explosions or the release of hazardous substances.

The incident response algorithm is simpler than that for accidents. In case of an incident, a company must:

  • immediately inform its workers, the local population that might be affected, the territorial subdivision of the Industrial Safety Authority and the local executive authorities of the incident;
  • investigate the incident;
  • develop and implement measures to prevent such incidents in the future; and
  • register the incident.

In case of an accident, a company must:

  • immediately inform its workers, the local population who might be affected, the professional accident rescue services and groups servicing the facility, the territorial subdivision of the Industrial Safety Authority and the local executive authorities of the accident;
  • provide the accident investigation commission with all necessary information to execute their powers; and
  • ensure that the commission can conduct its work safely.

Accidents and incidents will be investigated by a commission chaired by a representative of the Industrial Safety Authority or its territorial subdivision.

According to the results of the investigation, the commission shall:

  • issue its conclusions on the circumstances and causes of the accident;
  • specify measures to mitigate the consequences; and
  • recommend measures to prevent such accidents in the future.

The company must inform the territorial subdivision of the Industrial Safety Authority in writing of the implementation of measures proposed as a result of the investigation within the specified timeframe. If the accident was caused by structural defects of technical equipment, the company must send a complaint to the manufacturer and a copy to the territorial division of the Industrial Safety Authority.

The Labour Code requires an employer to investigate and record any occupational accidents which result in occupational injury or a sudden deterioration in health or poisoning of the employee, leading to temporary or permanent disability or death.

The employer must inform the following parties of an occupational accident within 24 hours:

  • the local labour inspection authority;
  • the territorial division of the Industrial Safety Authority, if the accident occurred at a hazardous industrial facility;
  • the territorial office of the state authority for sanitary and epidemiological welfare of the population in case of professional diseases or poisoning;
  • employee representatives;
  • the insurer from which it has obtained employee insurance against occupational accidents; and
  • the law enforcement body at the accident site.

A special investigation will be conducted in the case of:

  • accidents resulting in a severe outcome or death;
  • group accidents involving two or more employees; and
  • acute poisoning of employees.

7.3 What are the potential consequences of breach of these requirements – both for the operator itself and for directors, managers and employees?

Breach of the requirements specified in questions 7.1 and 7.2 may result in administrative or criminal liability.

Administrative penalties are imposed for the following:

  • violation of the rules on the safe operation of mining and construction works;
  • violation of industrial safety requirements in the development of construction projects, reconstruction, modernisation and remediation of hazardous production facilities;
  • concealment of an accident or incident at a hazardous industrial facility;
  • failure to observe the health and safety regulations;
  • violation of the statutory requirements on certification of industrial facilities in terms of labour conditions;
  • failure to allow the investigation of work-related accidents; or
  • failure to inform the necessary parties about work-related accidents.

Pursuant to Articles 93 to 96 and 298 of the Code on Administrative Offences, the above violations are subject to a fine of up to $2,600.

Criminal liability is imposed for:

  • violations of labour safety regulations which result in moderately serious damage to health by negligence, the death of a person or the death of two or more persons (Article 156 of the Criminal Code). These breaches are subject to various punishments, including imprisonment for up to seven years;
  • violations of rules on labour safety on potentially hazardous facilities or units which by negligence result in:
    • serious or moderately serious damage to health;
    • the death of a person or other serious consequences; or
    • the deaths of two or more persons (Article 281 of the Criminal Code).

These breaches are subject to various punishments, including imprisonment for between three and eight years; and

  • violations of hygienic regulations which result in:
    • mass disease, contamination or poisoning of people;
    • the death of a person; or
    • the deaths of two or more persons (Article 304 of the Criminal Code).

These breaches are subject to various punishments, including imprisonment for between five and 10 years.

7.4 What best practices in relation to health and safety should operators consider adopting in your jurisdiction?

Pursuant to Article 53.5.5 of the Code on Subsoil and Subsoil Use, subsoil use operations must:

  • be carried out taking into account best practices; and
  • be accompanied by a special set of measures aimed at improving the composition of the mine atmosphere, enhancing the technologies used in mining works and ensuring the use of collective and individual protective equipment.

7.5 Which bodies are responsible for enforcement of health and safety obligations?

Such bodies include the Industrial Safety Authority, the Emergency Situations Committee of the Ministry of Internal Affairs, the local labour inspection authorities, the prosecutor's office and courts.

7.6 What is the regulators' general approach in regulating the mining sector from a health and safety perspective?

As subsoil use operations are associated with serious risks to the health and safety of personnel and the public, the state authorities strive to achieve strict compliance with the applicable legislation relating to safety and labour protection and industrial safety. Attention is primarily paid to preparing for and reducing the risks of accidents and incidents, as well as the imposition of liability for violations in this area, with the support of the prosecutor's office and courts.

8 Processing, refining and export

8.1 What requirements and restrictions apply with regard to the processing or refining (beneficiation) or minerals?

Article 278.27 of the Code on Subsoil and Subsoil Use provides that until 29 June 2023, mining licence holders which mine ore-bearing solid minerals with a metal content of more than 30% must process at least half of their total production in a calendar year in the territory of Kazakhstan.

If this is not possible for technological reasons, reasons of absence, insufficient production capacity or economic inexpediency, the subsoil user is entitled to export the minerals from Kazakhstan.

Under the Precious Metals Law, precious metals (ie, gold, silver, platinum and metals of the platinum group in any condition or form), except for native precious metals that are not subject to refining, must be sent for processing and/or refining to any of three local precious metal production refineries approved by the Government decree (Kazzink LLP, Kazakhmys Smelting LLP and Tau-Ken Altyn LLP).

If the holders of subsoil use rights for mining operations invest more than 7 million monthly calculated indicators (approximately $45.5 million) in the creation of new, enhanced or modernised processing facilities, they may conclude an agreement on the processing of solid minerals and receive certain incentives granted on the principles of reciprocity. (Technically, this right is granted only to mining licence holders, not to owners of subsoil use contracts.)

Incentives may include:

  • the tax incentives described in question 9.2;
  • investment subsidies (reimbursement of up to 30% of their construction and equipment acquisition costs, excluding value added tax (VAT) and excise duties), which may apply only to the creation of new facilities;
  • an exemption from customs duties and VAT for imports; and
  • a simplified procedure for hiring foreign personnel.

8.2 What requirements and restrictions apply to the export of minerals?

Precious metals: Under the Precious Metals Law, a person that intends to export raw materials containing precious metals from Kazakhstan must obtain a waiver from all refineries.

If the refineries issue a refinery waiver, by which they refuse to refine precious metals, the subsoil user may export the raw materials to a foreign refinery (which is not a party to the Eurasian Economic Union (EAEU)) further to the rules approved by Government Decree 422 dated 22 July 2016.

There are three grounds on which refinery waivers are issued:

  • the technical impossibility of processing or refining the minerals;
  • insufficient production capacity to process or refine the proposed volume of the raw materials; or
  • economic inexpedience.

Refining by a foreign refinery does not entail a transfer of the ownership right for precious metals.

The owners of raw minerals containing precious metals must propose to the Kazakhstan National Bank (which has the priority right to buy fine gold) fine gold refined at the Kazakh refineries or foreign gold-refining plants.

Customs duties: In general, the export of minerals from the EAEU is subject to tariff and non-tariff regulatory measures. The tariff measures include the payment of export customs duties and a rent tax on exports, while non-tariff measures include export controls and a licence requirement for the export of certain minerals.

Thus, export customs duties must be paid on the export of the following minerals from the EAEU.

Type of mineral Export customs duty rate
Waste and scrap ferrous metals, ingots of ferrous metals for re-melting 5% but not less than €5 per 1 tonne
Waste and scrap of copper Until 29 November 2020: 20% but not less than €168 per 1 tonne

After 29 November 2020: 10% but not less than €84 per 1 tonne
Primary aluminium alloy Until 29 November 2020: 11% but not less than €80 per 1 tonne

After 29 November 2020: 10% but not less than €76 per 1 tonne
Secondary aluminium alloy in ingot or liquid form 3% but not less than €22 per 1 tonne
Waste and scrap aluminium Until 29 November 2020: 15% but not less than €100 per 1 tonne

After 29 November 2020: 10% but not less than €76 per 1 tonne

Rent tax on exports is payable on the export of coal from Kazakhstan. The tax is levied on the basis of sold amounts of exported coal at the rate of 4.7%.

The export of the following minerals from the EAEU requires an export licence:

  • magnesium filings, shavings and granules sorted by size, as well as powders;
  • untreated zirconium;
  • raw beryllium;
  • powders from steelmaking iron, mirror cast iron and ferrous metals;
  • untreated magnesium;
  • non-layered aluminium powders; and
  • layered aluminium powders and flakes.

Finally, in some cases the authorities may impose temporary limitations (eg, bans on the export of gold).

9 Taxes and royalties

9.1 What taxes, royalties and similar charges are levied on mining operators in your jurisdiction? How are these calculated?

Generally, Kazakh mining companies are subject to corporate income tax, withholding tax and value added tax. Mining companies are also subject to the following subsoil use taxes:

  • signature bonus;
  • payment on compensation of historical costs (PCHC);
  • mineral extraction tax (MET);
  • a fee for land plot use; and
  • an environmental fee.

Mining companies may also be subject to other taxes and obligatory payments, such as licence fees and vehicle tax.

Signature bonus: The signature bonus is a lump-sum payment to be paid upon the acquisition of a subsoil use right (SUR) for a particular contract territory. A signature bonus must also be paid where the contract territory is increased.

Where the SUR is obtained on the basis of a subsoil use contract (SUC), the bonus shall be paid according to the following rates:

  • 280 monthly calculated indicators (MCIs) (approximately $1,820) for exploration SUCs; and
  • at least 500 MCIs (approximately $3,250) for production SUCs or combined exploration and production SUCs.

The above rates also apply to exploration or mining licences issued upon results of an auction.

Where the SUR is obtained on the basis of a subsoil use licence (SUL), the bonus shall be paid at the following rates (except where a licence is issued as the result of an auction):

  • 100 MCIs (approximately $650) for exploration licences;
  • 50 MCIs (approximately $325) for mining licences; and
  • 2,000 MCIs (approximately $13,000) for geological survey licences.

PCHC: PCHC is a fixed payment to compensate the state for costs incurred in conducting the geological survey and developing infrastructure in the respective contract territory prior to execution of the SEC or obtainment of the SUL. The PCHC rate is determined by the respective state authorities.

PCHC shall be paid to the budget in the following forms:

  • as PCHC in the amount determined under the confidentiality agreement minus the payment on the acquisition of state-owned geological information; and
  • as payment on the acquisition of state-owned geological information in the amount determined under the confidentiality agreement.

PCHC is not applicable to the mining companies that have an SUL for the territory which was not used for subsoil use purposes prior to 1 January 2018.

MET: MET is levied on the physical volume of minerals (ie, the taxable volume of extinguished reserves) extracted by a mining company. MET must be paid separately for each type of extracted mineral, at rates which vary from 0% to 18.5%.

The MET tax base is determined on the basis of the value of the taxable volume of the extinguished reserves calculated in the following order:

  • on the basis of the average stock exchange price in respect of minerals that have official price quotations on the London Metal Exchange or the London Bullion Market Association;
  • on the basis of the weighted average sale price in respect of all other minerals which are to be sold; and
  • on the basis of the actual mining costs and primary processing (enrichment), increased by 20% in respect of all other minerals which are to be transferred for further processing and/or utilisation for own production needs.

Fee for land plot use (rent payments): Mining companies that have an exploration or mining licence must pay a fee for land plot use. The rate depends on the period of use and the type of licence. Thus, the fee for land plot use under an exploration licence is levied for each block in the following amounts:

  • 15 MCIs (approximately $98) where the duration of the licence is between one month and 36 months;
  • 23 MCIs (approximately $150) where the duration of the licence is between 37 months and 60 months;
  • 32 MCIs (approximately $208) where the duration of the licence is between 61 months and 84 months; and
  • 60 MCIs (approximately $390) where the duration of the licence is more than 85 months.

The fee for land plot use under a mining licence is levied in the amount of 450 MCIs (approximately $2,925) for each square kilometre.

Environmental fee: An environmental fee is payable by mining companies for the actual volume of environmental emissions and the disposal of manufacturing waste. Environmental fees are levied in the following order:

  • The fees for the disposal of waste from mining and quarrying industries are as follows:
    • overburden rocks – 0.002 MCI (approximately $0.013) per tonne;
    • host rocks – 0.013 MCI (approximately $0.08) per tonne;
    • rock refuse – 0.010 MCI (approximately $0.065) per tonne; and
    • slag and slime – 0.019 MCI (approximately $0.12) per tonne.
  • The fee for the disposal of ash and ash waste formed in the course of metallurgical processing of ore, concentrates, agglomerates and pellets containing minerals, as well as production of alloys and metals, is 0.330 MCI (approximately $2.1) per tonne.

If the amount of the environmental fee is less than 100 MCIs (approximately $650), a mining company is entitled to obtain an emission certificate from the Ministry of Energy. The emission certificate allows for environmental emissions to be made within the specified limits at a flat rate.

Corporate income tax: Taxable income of the mining company is subject to corporate income tax at the rate of 20%. The taxable income is determined as the difference between the aggregate annual income and the statutory deductions, including depreciation and adjustments. The deductions generally include all expenses relating to the business activities which are aimed at income generation and supported through documentation. Expenses incurred prior to production and upon commercial discovery are excluded from the aggregate annual income of the mining company as depreciations in the amount of up to 25% from the accrued expenses. Such expenses generally include the expenses of the geological survey, exploration, preparation works, general administrative expenses, signature bonus payment, acquisition of fixed assets and other deductible expenses.

Withholding tax: Withholding tax obligations arise in case of payment of income that is recognised as income from Kazakh sources to a non-resident with no permanent establishment in Kazakhstan.

Withholding tax shall be withheld at the following rates.

Types of income General tax rate
Interest, dividends, capital gain and royalty 15%
Insurance premiums under risks insurance agreements 15%
Insurance premiums under risks reinsurance agreements 5%
Income from international transportation services 5%
Income of persons registered in tax havens 20%
Other income 20%

At present, Kazakhstan has signed 54 double tax treaties with foreign countries. Most of these treaties either include an exemption from Kazakh withholding tax or allow for a reduction in this rate to between 5% and 10% where the treaty provisions and certain documentary support requirements (eg, certificate of residence) are met.

VAT: Mining companies that are registered as VAT payers must charge VAT on their taxable turnover and fulfil obligations on the calculation and declaration of such tax. Taxable turnover is recognised as any sale of goods, works or services as well as taxable imports to Kazakhstan, excluding exempted turnover and cases when the place of supply of goods, works or services is not in Kazakhstan.

Mining companies are obliged to register for VAT if their turnover during a calendar year exceeds 30,000 MCIs (approximately $195,000). Even if a mining company does not have to register for VAT, it may do so voluntarily by applying to the tax authorities.

The rate of VAT on sales turnover and import VAT is 12%.

Zero-rate VAT is charged on exports. The sale and import of certain types of goods (and works or services) can be fully exempted from VAT.

In addition, mining companies may be subject to reverse-charge VAT at the rate of 12% in case of receipt of works or services from a non-resident that is not registered as a VAT payer in Kazakhstan, provided that such works or services are deemed to be supplied in Kazakhstan under the ‘place of supply' rules.

VAT paid for goods, works and services purchased by the mining company, including reverse-charge VAT and import VAT paid at customs (input VAT), may generally be offset against VAT charged by the mining company to its customers (output VAT) when determining its own VAT liability. However, an offset is not available for VAT incurred due to supply which is either exempt from VAT or deemed to be supplied outside Kazakhstan.

9.2 Are any tax incentives available for mining operators?

Besides the tax exemption applicable in case of the sale of shares in subsoil users, subsoil users may apply for an exemption from withholding tax when paying dividends to both resident and non-resident shareholders. In the case of non-resident shareholders, the following additional requirements are applicable:

  • The shareholder must not be a resident of or registered in a tax haven;
  • The shareholder must have owned the shares for more than three years as of the date of the dividends distribution; and
  • The mining company must have performed further processing of half of the extracted mineral resources within the 12 months preceding the first day of the month in which the dividends were distributed.

In addition, Kazakh mining companies performing enrichment and agglomeration of iron ore enjoy the following tax and customs incentives:

  • a 100% reduction of corporate income tax for:
    • 10 years in case of the construction of a new production facility; or
    • three years in case of the expansion or modernisation of an existing production facility;
  • land tax at the rate of 0% for 10 years in case of the construction of a new production facility;
  • property tax at the rate of 0% for eight years in case of the construction of a new production facility; and
  • a guarantee of stability in relation to the applicable Kazakh tax law and law on the employment of foreign labour.

In order to enjoy the abovementioned incentives, the following criteria must be met:

  • The investment project should not be financed from the state budget;
  • The investment project should not be implemented as a public-private partnership;
  • The share of the state or the quasi-state entity (if any) in the Kazakh legal entity implementing the investment project shall not exceed 26% and the ownership shall not last for more than five years; and
  • The investment project must be implemented:
    • as an investment in the construction of a new production facility (factory, industrial plant, workshop) amounting to approximately $13 million;
    • as an investment in the expansion or modernisation of an existing production facility amounting to approximately $33 million; or
    • on the basis of an investment contract signed with the respective state authority.

9.3 What other strategies might mining operators consider to mitigate their tax liabilities?

It is not recommended to own shares in Kazakh mining companies through a resident of a tax haven or any other entity registered in a tax haven, as such ownership might result in taxation at increased rates as well as additional control by the authorities.

As an alternative, we would recommend that shares in Kazakh mining companies be owned through a company registered in the Astana International Financial Centre, as such ownership allows for exemptions from withholding tax on capital gains as well as dividends.

9.4 Have there been any significant changes to the taxation rates applicable to mining companies in the last three years?

One of the most significant changes in tax legislation over the last three years was the adoption of a new Tax Code at the end of 2017, which introduced the following changes, among others:

  • the abolishment of the commercial discovery bonus;
  • the abolishment of the excess profit tax for mining companies; and
  • the introduction of the fee for land plot use for mining companies with SULs.

10 Disputes

10.1 In which forums are mining disputes typically heard in your jurisdiction?

For the purposes of this question, we consider only disputes between mining companies and the state authorities.

Most disputes between mining companies and the competent authority are considered by the Astana City Court as the court of first instance (the Supreme Court is the court of appeals and cassation). If a mining company has the status of a major investor (ie, the amount of investment exceeds approximately $12.7 million), the Supreme Court acts as the court of first instance.

Some disputes relating to tax, labour and environmental issues fall within the jurisdiction of the regional specialised administrative and commercial courts.

10.2 What issues do such disputes typically involve? How are they typically resolved?

Usually, mining companies appeal notifications, prescriptions and other similar documents issued by the competent authority, or the tax, environmental and labour state bodies. In practice, courts tend to support the position of state authorities. Nonetheless, if a subsoil user has strong legal arguments (including where it has previously obtained a relevant clarification from the authorised state body regarding how to interpret the law in a specific situation), there are good chances that the subsoil user's claim will be upheld.

Further, Kazakhstan has signed about 50 bilateral investment treaties, which as a rule contain a dispute resolution clause allowing affected parties to file an investment treaty claim against the host state for the actions of its authorities with respect to the affected party's investment.

Some investors choose international arbitration as a way to resolve their disputes where they feel that the interference of the state is so serious that it puts their investment into question. Examples of such disputes under bilateral investment treaties include World Wide Minerals v Republic of Kazakhstan (2013–19) and Alhambra Resources Ltd v Republic of Kazakhstan (2016 to present).

10.3 Have there been any recent cases of note?

The Kazakhstan Supreme Court's database (https://sud.gov.kz/) contains details of most court cases. Normally, if a subsoil user had breached its contractual obligations, there is a high probability that the court will decide in favour of the state authorities. Cases involving the competent authority include the following.

Subsoil User 1 (SUC) v Ministry of Industry and Infrastructural Development (MIID) (2019): The MIID filed a claim that the subsoil user had violated the terms of its subsoil use contract (SUC) by failing to make contributions to the social development of the region for six years.

The subsoil user partly recognised the claim, requesting the application the three-year limitation period with regard to the first three years.

The court applied the limitation period and partially satisfied the MIID's claim.

Subsoil User 2 (SUC) v MIID (2019): The subsoil user filed a claim to annul the MIID's decision on early termination of the SUC. The subsoil user grounded its claim on the fact that, after obtaining the subsoil use right (SUR) from the initial subsoil user in mid-2014, it found that it was not possible to perform operations at the site (eg, hoisting mechanisms, water-pumping equipment, the shaft of the mine and other equipment had been taken; the mines were flooded).

The subsoil user argued that for this reason, it could not fulfil the SUC obligations.

The MIID argued that the subsoil user had failed to comply with its financial obligations between 2014 and 2018 through substantial underperformance of the work programme and failure to execute obligations to transfer funds to an abandonment fund deposit; finance the tuition of Kazakhstani personnel and research and development works; and make payments for the social economic development of the region. It further maintained that the subsoil user had not rectified more than two breaches of contractual obligations within the timeframe set out in the MIID's notifications (notifications were sent in 2016, 2018 and 2019).

The subsoil user argued that the MIID had refused to amend the work programme. The MIID's counter-argument was that in early 2018 the subsoil user had proposed that it would submit a draft work programme for consideration by the MIID, but never did so.

Having considered the arguments of both parties, the court dismissed the subsoil user's claim.

Bank v MIID (2018): The subsoil user pledged an SUR to the bank to ensure the fulfilment of obligations under a credit line agreement.

The MIID sent three notifications regarding breach of contractual obligations to the subsoil user and ultimately terminated the SUC.

The bank filed a claim to cancel the decision on termination of the SUC, arguing that the SUR was a guarantee of fulfilment of the subsoil user's obligations under the credit line agreement.

The bank's claim was dismissed by the courts of first and second instance, on the following grounds:

    • The bank was not a party to the SUC;
    • The MIID had acted in accordance with the Law on Subsoil and Subsoil Use;
    • The MIID's consent for pledge of the SUR had been granted to the subsoil user, not to the bank;
    • It was the subsoil user's obligation to notify the bank of any threat to the pledged asset;
    • The MIID could not be held liable for the subsoil user's actions;
    • A civil agreement may not create obligations for third parties; and
    • The MIID had no obligations towards the bank.

    11 Trends and predictions

    11.1 What changes have there been to the mining landscape in your jurisdiction in the last five years?

    Major changes to the mining landscape relate to the enactment of the Code on Subsoil and Subsoil Use as described in questions 1.6 and 2.1.

    11.2 How would you describe the current mining landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

    In our view, the current legal framework is more straightforward and investor friendly than its predecessor. The Code on Subsoil and Subsoil Use itself is quite new and has fundamentally reformed the subsoil use legislation.

    The competent authority has announced that amendments to the subsoil use legislation are being prepared and will be published by the end of 2020.

    12 Tips and traps

    12.1 What are your top tips for mining operators in your jurisdiction and what potential sticking points would you highlight?

    Given that the major legal risk for mining operators is loss of their subsoil use rights (SURs), special attention should be paid to avoiding the occurrence of grounds on which the competent authority might be in a position to terminate the SUR.

    Such grounds differ depending on whether the subsoil user holds a subsoil use contract (SUC) or a subsoil use licence (SUL).

    The grounds on which the competent authority may unilaterally terminate an SUC are listed in Article 72.3 of the Law on Subsoil and Subsoil Use (which remains in force for owners of SUCs) and include:

    • failure to rectify more than two violations of its contractual obligations within the timeframe set out in the Competent Authority's notification:
    • failure to obtain consent in case of a change of direct or indirect control over an SUR, unless a statutory exception applies; and
    • performance of less than 30% of the financial obligations set out in the SUC for two consecutive years.

    In practice, most cases in which SURs are unilaterally terminated relate to the subsoil user's inability to comply with its financial obligations. There are three potential ways to resolve the risk of termination of the SUC in this case:

    • proof of force majeure circumstances which prevented the subsoil user from due compliance with its contractual obligations;
    • performance of all physical obligations under the work programme; or
    • conclusion of an agreement with the competent authority and transfer of work programme obligations to future periods by amendment of the SUC.

    The grounds on which the competent authority may unilaterally terminate an SUL are listed in Articles 200.1 and 221.3 of the Code on Subsoil and Subsoil Use, which provide that exploration or mining licences are subject to revocation in the following cases:

    • failure to obtain consent in case of a change of direct or indirect control over an SUR, if such transfer causes a threat to national security; or
    • failure to comply with obligations on payment of a signature bonus, a rent fee or annual minimum exploration or mining expenses.

    A certain timeframe will be specified in which to rectify the breaches. Revocation of an SUL is not allowed if a subsoil user proves force majeure circumstances which prevented it from due compliance with its obligations.

    In some cases, there may be ambiguity in interpretation of legislative regulations. In such cases, it is recommended to file a request for clarification with the relevant authority. Pursuant to Kazakh law, if a business entity acts in accordance with the authorised state body's clarification, such entity is considered to be acting in good faith, which may serve as strong legal argument in the event of any dispute.

    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.