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What is a Royalty Agreement?
A royalty agreement refers to a legal relationship that enables the transfer of the right to operate a mining licence, for a specified period and under contractual terms, to natural or legal persons, provided that the essence and ultimate responsibility of such operating right remain with the license holder. Under this agreement, the royalty holder assumes the actual operation of the mining site and becomes obliged to pay the license holder a fee determined in advance between the parties for each unit of mineral produced.
In the Mining Regulation, a royalty agreement is defined as "agreements concluded between license holders and third parties or entities for the purpose of granting disposal rights over the whole or a part of the license area in order to operate and utilize the minerals within the license areas," whereas a royalty holder is defined as "natural or legal persons, public institutions and organizations, their subsidiaries or affiliates with whom license holders have executed royalty agreements for the production and utilization of minerals within the license areas."
May Licence Holders Enter Directly into Royalty Agreements with Third Parties?
Royalty agreements to be executed between license holders and third parties are subject to the approval of the General Directorate of Mining and Petroleum Affairs (MAPEG). Mining activities carried out under a royalty agreement executed without obtaining such approval shall be suspended. License holders are required to submit to MAPEG, for informational purposes, the royalty agreements executed with third parties for the whole or any part of their license areas, as well as any amendments thereto, and to ensure that they are annotated in the mining registry for informational purposes. MAPEG shall in no event be a party to royalty agreements. Royalty agreements are annotated in the registry as of the date on which MAPEG grants approval.
Royalty agreements shall specify the termination date of the agreement on a day/month/year basis, including potential extensions.
What Should Be Considered in Applications for Royalty Approval?
In applications for royalty approval, the following requirements shall be met (i) the payment of the license holder's base operating license fee to the accounting unit of MAPEG, (ii) payment of annual license fees, license duties, and environmental compliance guarantees, (iii) as of the date of the application, the absence of any outstanding state royalty debt that has accrued and become overdue, (iv) submission to MAPEG of an active registered electronic mail address (KEP) or UETS address of the royalty holder, (v) appointment of a permanent supervisor for licenses with an operating permit, and (vi) the existence of a contract with an authorized legal entity. If the above requirements are not fulfilled, the application shall be rejected without refunding the base operating license fee.
Upon request, MAPEG shall evaluate whether the area is of a size suitable for mining activities and whether the operational activities adversely affect one another.
Royalty agreements may not be executed in underground coal fields, except for public institutions, organizations, and their affiliates. Except for Group IV (c) licenses and licenses belonging to public entities and their affiliates, more than one royalty agreement may not be executed within a license area, and royalty agreements lacking coordinate information shall not be annotated in the registry.
In royalty agreements annotated in the registry for informational purposes, extensions of the royalty term and/or changes in the coordinates of the royalty area shall be considered new applications. Upon MAPEG approval, such royalty agreements shall again be annotated in the license registry for informational purposes.
What Should Legal Persons Acting as Royalty Holders Consider?
Legal persons acting as royalty holders shall observe the following:
- They shall submit information regarding shareholding structure, address details, and an active registered electronic mail (KEP) or UETS address.
- They shall be entities established under the laws of the Republic of Türkiye, such as companies, state economic enterprises or institutions, their subsidiaries or affiliates, or other public institutions, organizations or administrations.
- They shall meet at least 30% of the financial adequacy amount specified in Annex-2 of the Mining Regulation according to license groups and updated annually based on the revaluation rate through paid-in capital, and the remaining amount through a bank reference letter demonstrating time-deposit/non-time-deposit funds or unused cash credit limits.
Share transfers of more than 10%, which may result in changes to the shareholding structure of the legal person acting as the royalty holder, are subject to MAPEG approval. In such cases, the parties to the share transfer shall apply to MAPEG. If the request is deemed appropriate, the decision shall be notified to the relevant legal person.
What Should Natural Persons Acting as Royalty Holders Consider?
Natural persons acting as royalty holders must observe the following:
- They shall be Turkish citizens competent to exercise civil rights.
- They shall meet the entire financial adequacy requirement by submitting a bank reference letter obtained within 15 days prior to its submission to MAPEG.
How is the Responsibility of the Royalty Holder Regulated Under the Legislation?
In royalty agreements executed between mining license holders and third parties for all or part of the license areas, the royalty holder is responsible for any administrative, financial and legal liabilities arising from the Labour Law, occupational health and safety, and related obligations in connection with mining activities conducted in such areas. However, this does not eliminate the license holder's technical, financial and legal responsibilities arising under the Mining Law.
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.
