Mining Investment M&A Practice No. 45: Kyrgyzstan's Mining Investment Environment

Investment evaluation of Chelinrui mining method

• Status of mineral resources exploration and development in Kyrgyzstan

Kyrgyzstan is rich in mineral resources, and frequent geological tectonic activities in history provide favorable conditions for metal minerals, and many metal mineral products are among the best in the world according to reserves, especially gold reserves account for a high proportion of global reserves. Previously, due to limited government funding, the progress of exploration and development of minerals was slowed down. In order to improve the investment environment and attract foreign investment in Kyrgyzstan, Kyrgyzstan promulgated a series of policies for attracting investment to develop and explore mineral resources since 2003.

After 2003, Kyrgyzstan's attraction of Chinese investment rose sharply. After 2008, China's investment flows to Kyrgyzstan exceeded the US$100 million mark in 2009, and in 2013 and 2014, Kyrgyzstan became the largest source of investment. Among the five Central Asian countries, Kyrgyzstan is the second largest investment stock on the mainland. By the end of 2014, the stock of direct investment by Chinese enterprises in Kyrgyzstan reached US$984 million. Comparing with other countries in Central Asia, it can be found that except for Kazakhstan, Kyrgyzstan is the main destination country for Chinese enterprises, and Chinese enterprises started investing in Kyrgyzstan earlier than the other three countries, and the investment flow is relatively high and there is no divestment.

At the same time, the number of Chinese enterprises investing in Kyrgyzstan is rising, most of which are large state-owned enterprises, and the investment of some strong transnational private enterprises in Central Asia has also steadily increased. From the perspective of industry distribution, there is a trend of diversification, mainly including trade, mineral resources exploration and development, engineering contracting, communication services, etc. The main investment companies are China National Gold Group, Zijin Mining, Lingbao Gold, CNMC, China TBEA, China Road and Bridge Company, Shangfeng Cement Company, Huawei, etc. The main investment projects include the Kuru-Tegelek Copper-Gold Mine Project, the Left Bank Gold Mine Project, the Parut Gold Mine Project, the Bishkek Thermal Power Station Project, the North-South Highway Rehabilitation Project, the Kyrgyz Telecommunications Project, and the Kemin Cement Project. Judging from the distribution of the main projects, investment companies, and investment amounts, it is mainly concentrated in the field of mineral resources, such as mine development and other supporting industries in the mining industry (such as resource exploration, pipeline transportation, equipment export, and technical consultation). At present, the investment of Chinese enterprises in Kyrgyzstan has formed a certain scale. With the implementation of the "Silk Road Economic Belt" strategy, China's investment in Kyrgyzstan will continue to increase.

Kyrgyzstan has rich mineral resources. Energy minerals include oil, natural gas, coal, uranium; Metal minerals include iron, manganese, chromium, titanium, vanadium, copper, lead, zinc, aluminum, zinc, magnesium, tungsten, tin, molybdenum, bismuth, mercury, antimony; platinum group metals gold, silver, beryllium, lithium; Non-metallic minerals include magnesite, clay, kaolin, andalusite, fluorite, mica, etc. Among them, gold, mercury, tungsten, antimony, tin, copper and iron are dominant minerals. According to statistics, Kyrgyzstan has a total gold reserve of 2,149 tons, proven reserves of 565.8 tons, and more than 2,000 gold mining points have been discovered in Kyrgyzstan, including nearly 10 minerals with reserves greater than 10 tons and 3 minerals greater than 100 tons. Most of the mining rights of the deposits are owned by Kyrgyzstan Gold Corporation and have not yet been commercially exploited due to lack of funds. In addition, mercury reserves are 40,000 tons, 43 mercury mines and 2 very large mercury mines. The mining capacity is 85 tons, ranking third in the world. The total reserves of tungsten are 190,000 tons, the proven reserves are 117,200 tons, the total reserves of rare earths are 549,000 tons, the proven reserves are 51,500 tons, the total reserves of aluminum are 350 million tons, the proven reserves are 350 million tons, and the proven reserves of molybdenum are 2,523 tons; The proven reserves of antimony are 264,000 tons, the proven reserves of oil are 101.3 million tons, and the proven reserves of natural gas are 7.26 billion cubic meters.

• Mining law and policy in Kyrgyzstan

Kyrgyzstan's laws related to mining investment mainly include the Kyrgyz Republic Investment Law, the Kyrgyz Republic Underground Resources Law, relevant tax laws and environmental protection laws. The Investment Law of the Kyrgyz Republic, promulgated in 2003, sets up safeguard provisions for a series of rights of foreign investors, such as freedom of operation, property protection and free disposal of income, and has achieved good results. Foreign investment has risen steadily since 2004.

The law stipulates that the mining resources of Kyrgyzstan are owned by the state, and mining investment in Kyrgyzstan requires obtaining mining rights from the Ministry of Natural Resources of Kyrgyzstan. The main mining rights are geological research licenses, exploration licenses and mining licenses. The maximum area of the geological research permit does not exceed 1,000 square kilometers, and the other two maximum areas are determined by the Kyrgyzstan National Bureau of Geology and Mineral Resources. The mining license is initially granted for a period of 20 years and can be extended until the resource is exhausted; The other two are initially approved for 2 years, which can be extended to 10 years. At the same time, it stipulates that the Kyrgyzstan government has the right of first refusal to purchase the mineral resources it produces. In 2008, Kyrgyzstan passed a new Mining Law, which stipulates that mineral resources must be processed and produced in Kyrgyzstan, and the products and services required for production must also be procured in Kyrgyzstan. In 2012, Kyrgyzstan passed a bill opposing foreign ownership of gold mines, reflecting the tendency of "focusing on me" in gold mine development.

In order to protect its national interests, the Kyrgyzstan government has also revised the relevant taxes and fees in the mining sector in recent years. In 2008, Kyrgyzstan raised the standard of license fees. Unlike the original standard, which charged a uniform tax of 300 som, the new standard charges different fees for different minerals, and the fee has increased by 3 to 10 times.

Kyrgyzstan attaches great importance to ecological security and environmental protection. The relevant departments of Kyrgyzstan have made representations to Chinese enterprises on environmental protection issues. Local public opinion also often pays attention to the environmental protection of projects of Chinese-funded enterprises. Chinese-funded enterprises must invest corresponding environmental protection funds in mining investment and strictly abide by local environmental protection laws to avoid unnecessary losses. Some enterprises have blindly started construction because they have not gone through the environmental protection approval procedures for projects, or the three wastes have not been treated up to standard, resulting in huge losses or even investment failures in mining projects.

To sum up, like other Central Asian countries, Kyrgyzstan has gradually increased its control over the mineral resources industry, and has set up many new investment barriers for foreign investment to enter the mineral resources industry. At the same time, the tax burden of enterprises in the resource sector has also increased accordingly. In addition, the investment in environmental protection also increases the production cost of enterprises.

(Che Linrui, lawyer, geological engineer, mining rights appraiser, former person in charge of the geological and mineral plate branch of China Nonferrous Metals Association and Geological Society of China.) The proposer of the concept of "mining generalization", the founder of "Geomine Vision" self-media, and published more than 400 articles in the column of "Chelinrui Mining Law Investment Evaluation". It is committed to popularizing geological and mining knowledge to the whole society, so that the public can eliminate misunderstandings, understand the mining industry, care for the mining industry, and promote the development of China's mining rule of law. Representative works: "135 Questions about Encyclopedia of Mining Rights", "100 Questions about Mining Compliance Knowledge", series of articles "Practice of Defense of Illegal Mining Crimes", "Practice of Compensation for Withdrawal of Mining Rights", "Practice of Compensation for Mineral Coating", "Practice of Mining Investment and M&A", "Practice of Mining Administration Management", "Practice of Litigation and Arbitration of Mining Rights", etc. ）