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Mining industry


What is the nature and importance of the mining industry in your country?

Kazakhstan possesses substantial and diverse mineral resources. The mining and metals industries in Kazakhstan play an important role in the country’s economy and national plans for development.

The industry features a number of large mineral enterprises with significant direct and indirect domestic and state investment, in addition to foreign participation. The national atomic company, Kazatomprom, plays a central role in the uranium sector. For other sectors, the government has established the national mining company, Tau-Ken Samruk. Exploration works are within the scope of activities of the national exploration company Kazgeology.

Target minerals

What are the target minerals?

In addition to being one of the world’s largest uranium producers, Kazakhstan is a substantial producer of coal, iron ore, chromium, manganese, lead, zinc, copper, gold, nickel, cobalt, bauxite and rare earth, among others. Kazakhstan’s geographical location and relative isolation make transport logistics a key consideration in project development.

Kazakhstan is also trying to develop the renewable energy industry. Among other things, for this purpose, Kazakhstan adopted the Law on Support of Use of Renewable Energy Sources. Therefore, it can be expected that interest in minerals used in renewable energy will grow.


Which regions are most active?

Almost all regions are involved in mining production. For example, southern and central regions are the centre of uranium production. Central Kazakhstan is famous for its coal production. Complex ores are primarily mined in central and eastern regions of the country and iron ore is produced in northern regions.

Legal and regulatory structure

Basis of legal system

Is the legal system civil or common law-based?

Kazakhstan’s legal system is civil law-based, built on the traditions of the continental, Roman-Germanic family of laws. As in other Commonwealth of Independent States (CIS) countries, the legal system and administrative apparatus carry certain legacies from the Soviet era.


How is the mining industry regulated?

Kazakhstan is a unitary state. The mining industry is regulated by national laws and regulations adopted by various executive authorities depending on their powers. Mining rights are granted by the national government, represented by the Ministry of Energy (for uranium and coal) and Ministry of Investments and Development (for other minerals) on the basis of subsoil use contracts awarded generally through tenders (with limited exceptions where a subsoil use contract can be granted on the basis of direct negotiations).

Unlike many countries, Kazakhstan has a single system of law and regulation for both the oil and gas, and mining industries. Although there are specific provisions applicable only to the mining industry, the general legal and regulatory framework for the oil and gas and mining industries is the same. Accordingly, mining law in Kazakhstan includes features that are common in oil and gas regimes internationally but uncommon in mining regimes (eg, subscription and commercial discovery bonuses and a tender procedure for acquisition of mining rights from the state). Mining law and regulation in Kazakhstan is characterised by a high level of state control over the activity of mining companies.

At the same time, the government tries to reflect the main trends in international practice in national legislation. For example, at the end of 2014, the Subsoil Law was amended in order to increase the investment attraction of the mining sector. Among other things, the amendments introduced a simplified procedure for granting exploration rights with respect to certain unexplored areas on the basis of the first-come, first-served principle.

Further, at the end of 2017, Kazakhstan adopted a new Code on Subsoil and Subsoil Use (the Subsoil Code), which will replace the current Law on Subsoil and Subsoil Use dated 24 June 2010 and will enter into force in late June 2018. The Subsoil Code provides for more differentiated regimes in regulation of oil and gas, uranium and other minerals. The Subsoil Code will also introduce a number of changes into certain other matters: changes in procedures for granting mining rights, reinstatement of the licence as the main title document for mining activity (except for uranium mining, which will remain subject to the contractual system - the same as the oil and gas industry), potential changes in allocation of powers between industry regulators, changes in procedures for transfer of mining rights and certain other matters.

What are the principal laws that regulate the mining industry? What are the principal regulatory bodies that administer those laws? Were there any major amendments in the past year?

The primary law regulating the mining industry is the Law on Subsoil and Subsoil Use dated 24 June 2010 (the Subsoil Law). As noted above, the Subsoil Law will be replaced by the Subsoil Code in June 2018.

The industry is also regulated by other laws, such as the Tax Code, the Land Code, the Labour Code, the Environmental Code, and others, as well as by multiple subordinate legal acts adopted by various executive authorities.

The principal state authorities regulating the mining sector are the Ministry of Energy (ME) for uranium and coal and the Ministry of Investments and Development (MID) for other minerals.

The ME and MID are vested with the functions of the regulatory body in the mining industry. The regulatory body, in conjunction with other state agencies, establishes the terms of and conducts tenders for the granting of subsoil use rights and represents the state in negotiations, execution, monitoring of implementation and compliance of and termination of subsoil use contracts. It is expected that, after enactment of the Subsoil Code, there are likely to be certain changes in allocation of powers between the industry regulators.

Other ministries authorised to administer laws regulating some aspects of the mining industry include the Ministry of Justice, the Ministry of Healthcare and Social Development, the Ministry of Finance and the Ministry of Internal Affairs.

Classification system

What classification system does the mining industry use for reporting mineral resources and mineral reserves?

Kazakhstan’s mineral resource and reserve reporting system is notably different, both in principle and in practice, from generally recognised international systems such as Canada’s CIM standards, Australia’s JORC Code and South Africa’s SAMREC Code. Kazakhstan, along with other CIS countries, still uses the former Soviet system for classification of mineral resources and reserves, which categorises mineral reserves according to the extent to which they have been explored and substantiated. Specifically, mineral reserves are divided into categories A, B, C1 and C2 depending on the extent to which they have been explored and substantiated. Potential resources are categorised into P1, P2 and P3 groups depending on the extent to which they have been substantiated. Mineral reserves, on an economic-value basis, are also classified into balance reserves (commercial reserves) and off-balance reserves (reserves currently lacking commercial potential).

At the same time, the Subsoil Code envisages a transfer to the Kazakhstan Code for Public Reporting of Exploration Results, Mineral Resources and Ore Reserves. It is expected that this code will be closer to the JORC Code than the currently used system.

Mining rights and title

State control over mining rights

To what extent does the state control mining rights in your jurisdiction? Can those rights be granted to private parties and to what extent will they have title to minerals in the ground? Are there large areas where the mining rights are held privately or which belong to the owner of the surface rights? Is there a separate legal regime or process for third parties to obtain mining rights in those areas?

Under Kazakhstan’s Constitution, all subsoil resources in situ, including metallic minerals, are owned by the state. Private parties can obtain a ‘subsoil use right’ (ie, the right to explore and extract minerals). Title to minerals passes from the state to the subsoil user on extraction from the ground, pursuant to the terms of the subsoil use (mining) contract.

Publicly available information and data

What information and data are publicly available to private parties that wish to engage in exploration and other mining activities? Is there an agency which collects mineral assessment reports from private parties? Must private parties file mineral assessment reports? Does the agency or the government conduct geoscience surveys, which become part of the database? Is the database available online?

Kazakhstan’s government makes three types or levels of information relevant to possible exploration and mining activity available to private parties, as follows:

  • general: information on areas free from subsoil use rights;
  • basic geological and other information regarding a deposit or area (this is made available by the MID and ME in the course of conducting tenders or direct negotiations for the right to develop a particular deposit or exploration area. This information may be purchased by private parties for purposes of preparation of tender bids or in the course of direct negotiations. The geological information regarding the relevant deposit or area is prepared by the ME and MID and contains the information deemed necessary for applicants to prepare their bids. This information is provided on the basis that the prospective applicant may not transfer this information to third parties); and
  • a more complete package of geological information regarding a certain deposit or subsoil area, which is made available and sold to a subsoil user after execution of a subsoil use contract.

At the same time, the Subsoil Code envisages that publicly available information in the subsoil use area will be expanded. Among other things, publicly available information will include such data as contents of a subsoil use contract or licence, entities controlling a subsoil user, expenses made by a subsoil user, etc.

Acquisition of rights by private parties

What mining rights may private parties acquire? How are these acquired? What obligations does the rights holder have? If exploration or reconnaissance licences are granted, does such tenure give the holder an automatic or preferential right to acquire a mining licence? What are the requirements to convert to a mining licence?

Private parties may acquire subsoil use rights, comprising rights to conduct exploration or mining or, in certain limited cases, both exploration and mining.

Subsoil use rights are currently granted on the basis of a subsoil use contract, entered into by the subsoil user and the MID or ME representing the state. Such contracts are, with certain exceptions, granted following competitive tenders, pursuant to negotiations with the tender winners. Unlike many countries, subsoil laws in Kazakhstan envisage that mineral deposits to be put out to tender are determined by the government. Accordingly, a potential investor cannot choose a particular deposit that he or she wishes to explore since tenders are announced with respect to deposits from the list approved by the government.

That being said, there are certain exceptions to this general rule. In particular, subsoil use contracts are granted without conducting a competitive tender in the following cases:

(i) contracts for production (mining) with an entity that has an exclusive entitlement to obtain the rights to subsoil use in connection with a commercial discovery on the basis of an exploration contract;

(ii) contracts for operation or construction of underground facilities not related to exploration or production of minerals;

(iii) contracts for exploration or mining with a national company;

(iv) contracts for exploration and or production with entities involved in industrial and innovation activity (as defined in the Entrepreneurship Code) a manufacturing process of which is connected with subsoil use;

(v) contracts for exploration or production in cases where a repeated competitive tender on award of a contract has been failed in view of participation of only one qualified participant in such tender;

(vi) contracts for extraction of underground waters in volumes of more than 2,000 cubic metres per day for drinking or commercial needs with the owner or user of a land plot, provided that such owner has a special water use right;

(vii) contracts for exploration within areas granted on the basis of simplified procedures; and

(viii) contracts for production of state-owned anthropogenic minerals.

It is worth noting that the ground for the direct award mentioned in (vii) was adopted recently (at the end of 2014). This provision envisages that exploration rights with regard to certain unexplored areas (the list of which is approved by the MID and ME) are provided by the state on a first-come, first-served basis. Any interested party is entitled to apply with an application for grant of exploration right with regard to such area. If, within five business days after publication of the application, there are no applications from other entities for the same area, the exploration rights should be granted on the basis of direct negotiations.

At the same time, it should be noted that the Subsoil Code will reinstate the licensing regime for granting mining rights. By way of background, prior to August 1999, subsoil use rights in Kazakhstan were granted on the basis of both licences and subsoil use contracts. In August 1999, the previous subsoil use legislation was amended and the licensing regime was eliminated. Since then, the only documents that formalised the grant of subsoil use rights were subsoil use contracts. The Subsoil Code will now reinstate the licensing regime (for the mining industry only). It will reintroduces subsoil use licences as the main title documents confirming mining rights (except for uranium mining rights, which still will be granted on the basis of subsoil use contracts).

In addition, the Subsoil Law will bring certain changes to procedures for granting mining rights. The Subsoil Code envisages that mining rights (except for uranium) will be issued on a first-come, first-served basis (subject to the applicant’s compliance with the requirements set forth in the Subsoil Code and with certain limited exceptions).

The primary obligations of the mineral rights holder include the following:

  • use of contract area only for the purposes stipulated in the contract;
  • ensuring the safety of human life, health and natural environment;
  • selecting the most effective methods and technologies to conduct subsoil use operations;
  • conducting subsoil use operations in compliance with applicable legislation;
  • complying with approved project and technological documents for the exploration and development of deposits;
  • not impeding other persons from freely moving within the area, using common facilities and carrying out any types of work including the exploration and mining of other natural resources (unless special safety considerations require otherwise);
  • unreservedly providing necessary documents and information, and giving access to work sites to monitoring agencies fulfilling their official functions, and promptly remedying any breaches that they identify; and
  • restoring land plots and other natural features that have been disturbed as a result of subsoil use operations to a condition suitable for further use, in accordance with legislation.

A subsoil user’s obligations may be further detailed in a subsoil use contract. Compliance with contractual obligations is important because a breach may ultimately result in unilateral termination of a subsoil use contract by the state.

A holder of exploration rights who has made a commercial discovery has the exclusive right to proceed to the production stage. For these purposes, the subsoil user and the MID and ME should negotiate terms of the production contract, including the percentage of local content in purchased works and services and the volume of expenses for the social and economic development of the region and its infrastructure. If the contract is not executed for 24 months at the fault of a subsoil user, such subsoil user will lose its exclusive right to proceed to the production stage. The MID and ME should award the relevant territory to another entity with a condition that such new subsoil user will compensate to the previous subsoil user its expenses for exploration.

Renewal and transfer of mineral licences

What is the regime for the renewal and transfer of mineral licences?

Exploration rights are granted for six years. In the event of a commercial discovery, this term can be further extended for a period necessary for assessment of the commercial discovery. Extension is formalised by amendments to a subsoil use contract.

Production rights are granted for 25 years and, for deposits with unique or large reserves, 45 years. The production term can be extended provided that there are no breaches of contractual terms by a subsoil user.

Transfer of subsoil use rights requires consent of the competent authority (ie, the MID and ME). In addition, with respect to deposits included in a special list of strategic deposits approved by the government, a transfer of subsoil use rights requires waiver of the state’s pre-emptive purchase right. These consent and waiver requirements apply to both direct transfer of subsoil use rights and indirect transfer (ie, by way of transfer of shares in a subsoil user or its ultimate parent company). The Subsoil Law provides for certain limited exceptions to these consent and waiver requirements (eg, transactions at organised stock exchanges). Failure to obtain a consent and waiver where required may result in invalidation of the transfer or termination of subsoil use rights, or both.

The Subsoil Code will introduce a number of changes to the above provisions. Among other things, changes will be introduced to the term of mining rights and renewal term, list of strategic deposits will be further limited, exemptions from the consent and waiver requirements will be expanded, etc.

Duration of mining rights

What is the typical duration of mining rights?

As noted above, exploration rights are granted for a period of six years. In the event of commercial discovery, this period can be extended for the period necessary for the assessment of the discovered minerals. Production rights are granted for 25 years and, for deposits with unique or large reserves, 45 years. The production term can be extended provided that there are no breaches of contractual terms by a subsoil user.

As noted above, the Subsoil Code will introduce changes to duration of mining rights. In particular, uranium mining rights will be granted for the period of 25 years with the possibility of extension for up to 25 years. For other minerals, exploration rights can be granted for up to six years with the possibility of extension for up to five years. Mining rights can be granted for 25 years with the possibility of extension for a period not exceeding the initial term (the number of extensions is not limited).

Subsoil use rights can be revoked or terminated by the state in a number of cases envisaged by the Subsoil Law. In particular, a subsoil use contract can be unilaterally terminated by the state:

  • if a subsoil user has not rectified more than two breaches of the subsoil use contract within the deadline indicated by the regulator;
  • if subsoil use rights (or shares in a subsoil user or its parent company) are transferred with breach of applicable consent requirements; or
  • if subsoil user’s performance of its financial obligations is less than 30 per cent within two subsequent years.

In addition, with respect to strategic deposits, the competent body has the right to terminate the contract or demand that a subsoil use contract be amended in cases where the subsoil user’s actions result in changes to the balance of economic interests of the parties and such changes may affect national security.

In the event that the competent body requests the subsoil user to amend the contract, the competent body may terminate the contract if:

  • within two months after receiving the notification, the subsoil user does not confirm its consent to amend the contract or refuses to do so;
  • within four months of receiving the subsoil user’s consent to negotiate the amendments, the parties do not agree on the contents of the amendments; or
  • within six months of agreeing on the contents of the amendments, the parties do not execute the amendments.

In addition, the Subsoil Law provides for additional termination grounds for contracts executed under simplified award proceedings. Such contracts can be terminated:

  • if the subsoil user does not timely pay expenses for social and economic development of the region and its infrastructure;
  • if the subsoil user breaches requirements on the minimum amount of expenses and types of works prescribed by the contract; or
  • if the subsoil user uses the contractual territory with a breach of its designation as prescribed by the contract.

The Subsoil Code will introduce a number of changes to the grounds for termination of mining rights by the state. The grounds will also vary depending on the type of mineral (uranium, other minerals).

Acquisition by domestic parties versus acquisition by foreign parties

Is there any distinction in law or practice between the mining rights that may be acquired by domestic parties and those that may be acquired by foreign parties?

Currently, there is no distinction between the mining rights that may be acquired by domestic as distinct from foreign parties. Kazakhstan’s laws allow foreign individuals or legal entities to directly own mining rights in Kazakhstan.

At the same time, the Subsoil Code will provide certain changes to regulation applicable to entities that can obtain mining rights. Among others, uranium mining rights will be granted only to the national atomic company. Subsequent transfers are possible to companies where the national uranium company holds, directly or indirectly, more than 50 per cent of the shares.

Protection of mining rights

How are mining rights protected? Are foreign arbitration awards in respect of domestic mining disputes freely enforceable in your jurisdiction?

Kazakhstan’s legal system provides a framework and mechanisms for the protection of a subsoil user’s contractual and other legal rights. Article 30 of the Subsoil Use Law provides that a subsoil user shall be guaranteed protection of its rights in accordance with legislation.

It should be noted, however, that Kazakhstan is a country still in transition from the Soviet era to a modern market economy with a rule of law, independent judiciary and full protection for rights of private property and contract. Although these concepts are all recognised, in practice, there can be some unpredictability and inconsistency in court processes and decision-making.

Under the Subsoil Law, disputes arising out of or in connection with the performance or termination of mining rights shall be settled by negotiation or by Kazakhstan’s courts in accordance with the laws and regulations of the state, or by international arbitration in accordance with treaties ratified by Kazakhstan.

Kazakhstan is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Accordingly, foreign arbitration awards should be enforceable in Kazakhstan.

Surface rights

What types of surface rights may mining rights holders request and acquire? How are these rights acquired? Can surface rights holders oppose these requests?

The Subsoil Law provides that on execution of a subsoil use contract (ie, acquisition of mining rights) the contract holder should apply to the local executive authority (Akimat) for provision of a land plot for the purposes of mining operations. The local executive authority must make the land plot available to the subsoil user for the duration of the subsoil use contract. If the land plot is state owned, the Akimat will lease the same to the subsoil user. If the land is privately owned, the Akimat may requisition the same for leasing to the subsoil user. If the owner of the land plot does not agree to the buyout, such buyout will be conducted by the court. The owner of the land plot is entitled to obtain a compensation of the land plot’s value.

The right to use of the land plot is linked to the mining rights such that any changes in the title of the mining rights (transfer or termination) will lead to corresponding changes in the rights to use the land plot.

Participation of government and state agencies

Does the government or do state agencies have the right to participate in mining projects? Is there a local listing requirement for the project company?

While the government itself or state bodies do not directly participate in mining projects as subsoil users, indirect participation of the state in such projects is not unusual. Such indirect participation is typically conducted through participation in the projects of state-owned companies and their joint ventures. Also, there is a special list of deposits in development of which participation of a state-owned national company is mandatory.

There is no mandatory local listing requirement for a project company. However, if a project company wishes to make placement at a foreign stock exchange, in certain circumstances, it may be subject to the requirement to make placement at a local exchange as well (eg, if its main assets are in Kazakhstan). Such placement will be subject to consents by the state.

Government expropriation of licences

Are there provisions in law dealing with government expropriation of licences? What are the compensation provisions?

Generally, in the event of expropriation, an investor is entitled to obtain compensation of the mining rights. Such compensation should be made at the market terms value.

That being said, it is also worth noting that, under the Subsoil Law, in certain cases (eg, breach of contractual terms by a subsoil user), the state is entitled to unilaterally terminate a subsoil use contract. Generally, it is understood that, in such cases, an investor is not entitled to receive the compensation. However, if the investor is able to prove that its rights and other guarantees have been breached by the termination, it should be eligible for compensation.

Protected areas

Are any areas designated as protected areas within your jurisdiction and which are off-limits or specially regulated?

In general, there are currently no specific areas where mining operations are prohibited. However, the government may, by a special resolution, prohibit or limit mining operations in certain areas, if it is necessary owing to national security, the safety of the population and environmental protection considerations. In addition, mining operations may be limited or be subject to stricter regulation in specially protected environmental areas (eg, the Caspian Sea).

At the same time, the Subsoil Code will introduce a specific list of areas where subsoil operations are prohibited (eg, lands designated for the needs of defence and national security, lands of water sources, lands occupied by roads, railways and airports, etc, lands in populated areas, etc). In addition, there will be certain exceptions to these prohibitions.

Duties, royalties and taxes

Duties, royalties and taxes payable by private parties

What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these revenue-based or profit-based?

Kazakhstan’s Tax Code specifies several special taxes that apply to mining companies in addition to general taxes such as corporate income tax, VAT, excise and customs duty, payroll tax, tax on transport, environmental pollution fees, etc. These special taxes include the following.

Signature bonus

A signature bonus is a one-time payment to the state for the right to use the subsoil. The amount of this tax is determined for each separate subsoil use contract on the basis of a formula established by the Tax Code, which takes into account the market value of aggregate approved reserves, the preliminarily assessed reserves and the category of mineral resources. The market value of the mineral resources is generally determined using the average exchange price at the London Metal Exchange or the London Precious Metal Exchange as quoted by specified publications. The final amount of the signature bonus (which may not be less than the minimum amount prescribed in the Tax Code) must be determined by the tender committee (in case of a tender) or the competent authority (in case of direct negotiations) and must be set out in the subsoil use contract.

Commercial discovery bonus

A commercial discovery bonus is a fixed payment that is payable by subsoil users when a commercial discovery is made in the contract territory, including discovery made in the course of additional exploration that increases the previously approved reserves. The rate of the commercial discovery bonus is 0.1 per cent of the market value of proven extractable reserves. The market value of the mineral resources is generally determined using the average exchange price at the London Metal Exchange or the London Precious Metal Exchange as quoted by specified publications. The commercial discovery bonus will cease to apply with effect from 1 January 2019.

Mineral extraction tax

A mineral extraction tax is payable on the value of the mineral resources produced (minus normative losses) and is payable on a quarterly basis. The value of the mineral resources for purposes of mineral extraction tax is generally determined using the average exchange price of extracted minerals at the London Metal Exchange or the London Precious Metal Exchange as quoted by specified publications. If there is no official exchange price for a mineral, it will be determined as the actual average sales price. There are fixed approved percentage rates of mineral extraction tax that range from zero to 18.5 per cent depending on the type of minerals.

Subsoil rental payments

Subsoil users need to pay subsoil rental payments ranging from 15 to 60 monthly calculation indices (approximately 6,075-24,300 tenge) per one exploration block during the exploration stage and 450 monthly calculation indices (1,082,250 tenge) per one square kilometre during the production stage.

Tax advantages and incentives

What tax advantages and incentives are available to private parties carrying on mining activities?

No special tax advantages or incentives are available to companies carrying on mining activities in Kazakhstan.

Tax stablisation

Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force?

Only the following contracts are stabilised for tax purposes: production-sharing agreements (PSAs) entered into prior to 1 January 2009, and contracts that received presidential approval in the past or will receive it in the future. Such contracts, however, have been entered into only in the oil and gas area, and there are no contracts of this nature in the mining industry. Therefore, subsoil users in the mining industry do not enjoy tax stability.

Carried interest

Is the government entitled to a carried interest, or a free carried interest in mining projects?

A carried interest was previously provided in PSAs. However, it is currently not possible to enter into a new PSA, and all existing PSAs relate to the oil and gas industry. Therefore, carried interest is not required (or even possible) in mining contracts.

Transfer taxes and capital gains

Are there any transfer taxes or capital gains imposed regarding the transfer of licences?

The sale of mining licences is generally subject to corporate income tax (20 per cent) on the difference between the sale price and the expenses incurred after commercial discovery but prior to production (including expenses related to geological exploration, preparatory works, fixed and intangible assets).

In addition, sale of mineral licences is generally subject to VAT (at 12 per cent).

Distinction between domestic parties and foreign parties

Is there any distinction between the duties, royalties and taxes payable by domestic parties and those payable by foreign parties?

As a general matter, there are no distinctions in the application of taxes relating to mining activities between domestic and foreign companies conducting their activities through a permanent establishment (eg, a branch).

However, a non-resident company acting through a permanent establishment must additionally pay a tax on net income from its activity in Kazakhstan at the rate of 15 per cent (the rate of this tax may be reduced under relevant double tax treaties). Domestic parties are not subject to this tax, although they must generally withhold 15 per cent tax from dividends distributed to their foreign shareholders (the rate of dividends withholding tax may also be reduced under relevant double tax treaties).

Business structures

Principal business structures

What are the principal business structures used by private parties carrying on mining activities?

The Subsoil Law contains no stipulations or restrictions with respect to the business structures that may be used for the purpose of conducting mining activities in Kazakhstan. The Law allows any form of legal entity (whether local or foreign) to acquire mining rights in Kazakhstan.

The two most commonly used business forms in Kazakhstan mining activity are limited liability partnerships (LLPs) and joint-stock companies (JSCs). JSCs are favoured by those who prefer detailed corporate governance rules and the possibility of having shares, registered with specialised independent registrars. LLPs are favoured by those who prefer less statutory prescription with respect to corporate governance matters. JSCs and LLPs can each be used for either joint ventures or 100 per cent foreign-owned subsidiaries.

Local entity requirement

Is there a requirement that a local entity be a party to the transaction?

There is no mandatory requirement that a local entity be a party to the transaction.

Bilateral investment and tax treaties

Are there jurisdictions with favourable bilateral investment treaties or tax treaties with your jurisdiction through which foreign entities will commonly structure their operations in your jurisdiction?

Kazakhstan has bilateral investment treaties and double tax treaties with more than 40 countries. The most popular jurisdiction for structuring direct mining operations in Kazakhstan (ie, without setting up a local subsidiary) is the Netherlands.


Principal sources of financing

What are the principal sources of financing available to private parties carrying on mining activities? What role does the domestic public securities market play in financing the mining industry?

Generally, mining companies are free to choose their funding sources.

In practice, Kazakhstan-based mining companies commonly use the following financing techniques:

  • loans from shareholders;
  • loans from Kazakhstan and foreign banks (including loans from the European Bank for Reconstruction and Development and the International Finance Corporation);
  • issuance of domestic and foreign securities; and
  • public offering of equity securities.

More substantial companies may have access to the domestic debt securities market by issuing domestic bonds. Smaller producers may also tap the debt market by issuance of promissory notes. A few subsoil users have issued eurobonds on the international capital markets.

Direct financing from government or major pension funds

Does the government, its agencies or major pension funds provide direct financing to mining projects?

While government and state-owned companies are generally able to directly finance mining projects, in practice, the government tries to attract as much private investment to the mining sector as possible.

Security regime

Describe the regime for taking security over mining interests.

Kazakhstan has fairly flexible foreign exchange and currency control rules and Kazakh legislation provides for various options to secure mining companies’ borrowings (including by way of pledging the underlying subsoil use rights). At the same time, from a practical perspective, security over mining rights may be very difficult to enforce. The reason for this is that pledging mining rights and shares in a mining company requires a number of statutory clearances (consent for execution of a pledge agreement, consent for participation in a tender on enforcement of a pledge and, for strategic deposits, waiver of the state’s pre-emptive purchase right for the transfer to the winner of the tender). Therefore, it is typical to obtain other types of security (eg, guarantee) in addition to a pledge of mining assets.

At the same time, under the Subsoil Code, there will be certain changes to simplify the relevant procedures. Among other things, pledge of mining rights will not require consent of the competent body.


Importation restrictions

What restrictions are imposed on the importation of machinery and equipment or services required in connection with exploration and extraction?

There are no direct limitations or restrictions imposed on the import of machinery and equipment or services in connection with mining activities, although certain types of machinery and equipment may fall under limited restrictions (eg, equipment with integrated radio frequency devices and dual-use equipment). In certain cases, import operations may also be subject to Kazakhstan exchange control requirements. Certain equipment is subject to mandatory certification requirements to confirm compliance with Kazakhstan’s technical standards (limitations).

However, certain indirect limitations are imposed on the import of machinery, equipment or services under local content requirements stipulated in several laws, including the Subsoil Law.

Under the current rules on the purchase of goods, works and services for subsoil operations, the price proposed by a local manufacturer at tender shall be reduced by 20 per cent if the relevant goods, works and services satisfy conditions of the tender and legal requirements. This has been amended in view of Kazakhstan’s accession to the World Trade Organization. In particular, this notional discount will be applicable to purchases of goods until expiry of the relevant subsoil use contracts under which mining companies operate or until 1 January 2021, whichever occurs earlier. For works and services, the notional discount will be kept, but the percentage of local content in services and works with which mining companies must comply should not exceed 50 per cent.

Standard conditions and agreements

Which standard conditions and agreements covering equipment supplies are used in your jurisdiction?

There is no unified approach in using standard conditions and agreements. Various buyers may use their own standard forms of agreements. FIDIC forms are sometimes used, especially in major projects where foreign investors are involved. Use of Orgalime standard agreements is less usual.

Generally, mining companies in their procurement of goods, works and services are subject to special procurement rules. Under such procurement rules, in most cases, a subsoil user should purchase goods, works and services by conducting an open tender. Other procurement methods can be used in cases stipulated by the procurement rules.

In major projects, the parties choose international arbitration as dispute resolution forum. In smaller projects, local courts are also chosen as a dispute resolution forum.

Mineral restrictions

What restrictions are imposed on the processing, export or sale of minerals? Are there any export quotas, licensing or other mechanisms that prevent producers from freely exporting their production?

There are no general requirements that some or all minerals produced must be processed or sold domestically. However, a specific subsoil use contract may provide for a mining company’s obligation to process certain amount of minerals in Kazakhstan. Also, the Subsoil Use Law provides for the pre-emptive right of Kazakhstan to buy mineral resources produced by the subsoil user on a priority basis at prices not higher than prices on international markets. Details of such purchase entitlement are to be set out in the subsoil use contract.

Further, the export of certain minerals requires export licences.

Import of funds restrictions

What restrictions are imposed on the import of funds for exploration and extraction or the use of the proceeds from the export or sale of minerals?

There are no requirements to repatriate or use the proceeds of mineral sales domestically. However, there are some restrictions under foreign currency regulation according to whether the subject is resident or non-resident. Branches and representative offices of foreign entities established in Kazakhstan do not fall within the definition of residents for foreign currency control purposes.

In general, resident legal entities are required to do the following:

  • notify the National Bank of Kazakhstan in the event of opening an account abroad;
  • pay other residents in Kazakh currency; and
  • deposit their foreign currency received as the result of export operations at authorised banks and other financial institutions in Kazakhstan.

The foreign exchange regulations for non-residents are considerably less restrictive. They may open offshore bank accounts without restriction and deposit their funds offshore. Non-resident legal entities may purchase foreign currency on the domestic foreign currency market for routine currency operations and in other cases stipulated by legislative acts.

Kazakhstan does not have a system of mandatory conversion into local currency.


Principal applicable environmental laws

What are the principal environmental laws applicable to the mining industry? What are the principal regulatory bodies that administer those laws?

The most important law in the environmental area is the Environmental Code dated 9 January 2007. The code establishes the authority of state agencies, sets out licensing procedures and requirements, procedures for obtaining ecological permits, conducting ecological monitoring, state expert examination, etc. In addition, it provides requirements for the use of radioactive materials, atomic energy and dangerous chemical and other substances, such as genetically modified products and organisms.

The major regulatory body in this area is the Ministry of Energy, which has in its structure the Committee for Ecological Regulation and Control.

Environmental review and permitting process

What is the environmental review and permitting process for a mining project? How long does it normally take to obtain the necessary permits?

Mining companies are subject to various requirements in the environment protection area. Among other things, such requirements include preparing and approving with the authorities a report on impact on the environment, obtaining permits for emissions, discharges and wastes and obtaining insurance for ecologically dangerous types of activity, etc. In practice, obtaining all required environmental permits and licences can take several months.

Closure and remediation process

What is the closure and remediation process for a mining project? What performance bonds, guarantees and other financial assurances are required?

The Subsoil Law provides that a subsoil user must, after terminating subsoil use operations, liquidate its operations and re-cultivate the relevant land. Liquidation works should be conducted in accordance with a special liquidation programme developed by an entity having a licence for such types of works. Under the Subsoil Law, a mining company has to make annual payments to a special liquidation fund, which will subsequently be used for financing liquidation works.

The Subsoil Code will introduce a number of changes into the regulation applicable to liquidation of subsoil use operations. Among others, the Subsoil Code provides that, for the purposes of ensuring the liquidation, a subsoil user must have security for the liquidation obligation. For uranium operations, such security should be in the form of pledge of a bank deposit. For other minerals, the security can be in the form of pledge of a bank deposit, bank guarantee or insurance policy provided that security in the form of a bank account pledge or bank guarantee must cover:

  • at least 40 per cent of the total security coverage within the first third of the mining period;
  • at least 60 per cent of the total security coverage within the second third of the mining period; and
  • 100 per cent of the total security coverage for the remaining period.

Restrictions on building tailings or waste dams

What are the restrictions for building tailings or waste dams?

A subsoil user is generally entitled to build tailing or waste dams. However, such dams should be included into project documents that are subject to approval by the authorities. Among other things, project documents are subject to state ecological expert examination, industrial safety examination, sanitary-hygienic examination and examination in the area of rational and complex use of the subsoil.

A special licence is necessary to construct a dam. However, a subsoil user does not have to have such licence on its own. If a subsoil user does not have a construction licence, it can subcontract the construction of dams to a licensed subcontractor.

Tailing and waste dams are considered dangerous industrial facilities. In view of this, construction and operation of dams are subject to enhanced safety requirements (eg, permit for use of equipment, devices and technologies, development of a special industrial safety declaration).

The subsoil user is obliged to ensure safety of all facilities it operates. Safety requirements include the fact that employees who operate the relevant facilities must undergo special training, employees involved in the operation of the facilities must have individual protection equipment and clothing, and equipment used in the operations must comply with safety and sanitary-hygienic requirements.

In the event of danger to health and life of population, subsoil users must immediately suspend all operations and ensure that people are evacuated to a safe place.

The Subsoil Code envisages a decrease in number of expert examinations to which project documents will be subject.

Health & safety, and labour issues

Principal health and safety, and labour laws

What are the principal health and safety and labour laws applicable to the mining industry? What are the principal regulatory bodies that administer those laws?

The Law on Civil Protection, dated 11 April 2014, establishes requirements for industrial safety, lists types of hazardous facilities (eg, exploration and production works in the mining industry) and sets out the authority of state agencies responsible for the regulation of industrial safety in the area.

The Labour Code dated 23 November 2015 provides for the general regulation of employment relations, rights and obligations of employers and employees and procedures for executing and terminating employment agreements, etc.

The major regulatory bodies in these areas are the Ministry of Investments and Development and Ministry of Labour and Social Protection of Population.

Management and recycling of mining waste

What are the rules related to management and recycling of mining waste products? Who has title and the right to explore and exploit mining waste products in tailings ponds and waste piles?

Generally, a mining company that generates waste is considered the owner of such waste. Therefore it is obliged to take all measures in connection with the safe storage and recovery of the waste.

Use of domestic and foreign employees

What restrictions and limitations are imposed on the use of domestic and foreign employees in connection with mining activities?

Under the Subsoil Law’s local content provisions, subsoil users must give preference to Kazakh personnel and finance their training and education in accordance with the terms of a contract or a tender.

Subsoil contracts typically contain specific thresholds of local personnel that must be hired by the relevant subsoil user with a breakdown of different categories of employees (eg, top management, mid-level management, specialists). Further, subsoil users must provide equal conditions to Kazakhstan and foreign personnel.

Generally, hiring foreign employees for mining activities is undertaken on the basis of work permits issued by the relevant state agencies. In some cases, for example, if a foreign national is a head of the foreign company branch, a work permit is not required.

Social and community issues

Community engagement and CSR

What are the principal community engagement or CSR laws applicable to the mining industry? What are the principal regulatory bodies that administer those laws?

The Subsoil Law provides that subsoil users must finance activity aimed at social and economic development of the relevant region and its infrastructure. The amount and terms of such financing should be detailed in subsoil use contracts. Compliance with this obligation is monitored by the MID and ME depending on the type of minerals extracted.

The Subsoil Code will provide specific thresholds for expenses in connection with social and economic development for uranium operations (1 per cent of investment in mining activities for the preceding year). The Subsoil Code does not envisage such a threshold for companies producing other minerals. We interpret this to mean that new mining licences will not provide for such financing obligations.

Rights of aboriginal, indigenous or disadvantaged peoples

How do the rights of aboriginal, indigenous or currently or previously disadvantaged peoples affect the acquisition or exercise of mining rights?

Kazakhstan’s laws do not provide recognition and special rights for aboriginal or indigenous people as distinct from others.

International law

What international treaties, conventions or protocols relating to CSR issues are applicable in your jurisdiction?

There is no detailed legislation with regard to corporate social responsibility. As stated, mining companies are obliged to provide financing for the purposes of social and economic development of the region and its infrastructure. In practice, major mining companies enter into memoranda of understanding with local governments where they agree in detail on specific measures that will be taken in the area of social and economic development.

Anti-bribery and corrupt practices

Local legislation

Describe any local legislation governing anti-bribery and corrupt practices.

The main law that provides for general regulation aimed at the prevention of corrupt practices is the Law on Counteraction against Corruption dated 18 November 2015. This law provides for general principles in anti-bribery practices, lists officials who are subject to anti-corruption legislation and sets forth the types of activities that cannot be combined with state functions, etc. The Administrative Code of 5 July 2014 and the Criminal Code dated 3 July 2014 establish administrative and criminal liability for corruption offences. Among other things, the laws provide that both parties that offer and those that obtain bribes are subject to liability.

Foreign legislation

Do companies in your country pay particular attention to any foreign legislation governing anti-bribery and foreign corrupt practices in your jurisdiction?

Currently, companies in Kazakhstan tend to pay more attention to anti-bribery regulation. Foreign companies also follow anti-corruption laws that are applicable to them in their home jurisdictions (such as the US Foreign Corrupt Practices Act and the UK Bribery Act). At the same time, corruption remains an issue that makes the Kazakhstan government take more effort in combating its anti-corruption activity.

Disclosure of payments by resource companies

Has your jurisdiction enacted legislation or adopted international best practices regarding disclosure of payments by resource companies to government entities in accordance with the Extractive Industries Transparency Initiative (EITI) Standard?

Kazakhstan has adopted a memorandum of understanding with respect to the implementation of the EITI in Kazakhstan. Under the Subsoil Law, all mining companies are obliged to follow the requirements of this memorandum. In 2013, Kazakhstan was assigned the status of EITI Follower Country.

Foreign investment

Foreign ownership restrictions

Are there any foreign ownership restrictions in your jurisdiction relevant to the mining industry?

Foreign companies are entitled to engage in the mining industry with the same conditions as local companies.

International treaties

Applicable international treaties

What international treaties apply to the mining industry or an investment in the mining industry?

Kazakhstan is a party to several international treaties relevant to the mining industry, including the Treaty on Cooperation in Study, Exploration and Use of Mineral Resources of 27 March 1997 and the Treaty on Cooperation of Kazakhstan and European Communities and their Member States of 23 January 1995. Kazakhstan has also concluded bilateral investment treaties with more than 40 countries and is a party to a number of multilateral treaties concerning foreign investment.

Update and trends

Update and trends

What were the biggest mining news events over the past year in your jurisdiction and what were the implications? What are the current trends and developments in 2017 in your jurisdiction's mining industry (legislation, major cases, significant transactions)?

On 27 December 2017, Kazakhstan adopted a new Code on Subsoil and Subsoil Use (the Subsoil Code). The Subsoil Code will replace the previous statute regulating oil and gas and mining activities (ie, the Law on Subsoil and Subsoil Use of 24 June 2010. The Subsoil Code will enter into force at the end of June 2018.

The Subsoil Code introduces a number of amendments including the following:

  • different regulation for mining and petroleum industries;
  • new rules on the grant or award of subsoil use rights;
  • reinstatement of the licence as the main title document for mining activity (except for uranium mining, which will remain subject to the contractual system - the same as the oil and gas industry);
  • new allocation of powers between the various state authorities involved in the award, suspension and termination of subsoil use rights, and monitoring compliance with the terms and requirements of relevant contracts and licences; and
  • changes in the regulatory clearance procedures applicable to the transfers of subsoil use rights and assets.

Generally, the Subsoil Code provides that all previously executed contracts and licences will remain in force. At the same time, it provides that a number of its provisions will have a retrospective effect and apply to subsoil use contracts and licences issued or executed prior to its effective date (among other things, the retrospective effect will have provisions containing general principles and definitions, provisions regulating the transfer of subsoil use rights, provisions regulating the liquidation of subsoil use operations, provisions regulating the extension of subsoil use rights, the purchase of goods, works and services by subsoil users, etc).

It is also expected that various new subordinate acts will be adopted in order to implement the provisions of the Subsoil Code.