Foreign-related law and practice|Kazakhstan's law and practice in the field of mining
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(i) The general framework of mining law
1.1 Main characteristics of the mining industry
Kazakhstan is home to about 8,000 different deposits of solid minerals, gravel and hydrocarbons. The mining industry plays an important role in the industrial framework of the Republic of Kazakhstan and is currently a global leader in the mining of uranium, chromite, coal, iron, steel, copper, manganese, bauxite, tungsten, silver, lead, titanium, gold and zinc.
The Subsoil and Subsoil Utilization Code (the "Subsoil Code", "Code"), adopted on 27 December 2017 and entered into force on 29 June 2018, clearly separates the regulation of solid minerals from the regulation applicable to hydrocarbons and uranium. The Code regulates matters including access to geological data held by the State, the granting of mineral rights in the form of licences, requirements for licence holders, licence conditions, project documentation, exploration and mining operations, transfer of tenements and licence holders' interests, treatment and disposal of mining wastes (known as technical ore formations), mine closure and reclamation, reporting, etc.
1.2 Legal System and Sources of Mining Law
Kazakhstan has a civil-based legal system. However, the Astana International Financial Centre (AIFC) operates within the common law framework of corporate law, commercial law, dispute resolution, labor regulations, personal data protection, currency regulation, and other related areas, among others.
The main legislative act governing the mining industry is the Subsoil Code, which applies to mineral rights granted by licences issued after the enactment of the Code, as well as subsoil use contracts for exploration, production and joint exploration and production of solid minerals executed prior to the enactment of the Code.
There are also several government resolutions and numerous subsidiary by-laws of the mining authorities that provide for specific issues and procedures in the exploration and mining sector.
Other major legislative acts applicable to exploration and mining activities include:
- January 2, 2021, the Environmental Law;
- Tax Code of December 25, 2017;
- Land Law of 20 June 2003;
- the Commercial Code of 29 October 2015;
- Precious Metals and Stones Act of 14 January 2016;
- Act of 11 April 2014 on the Protection of Citizens (Security Act), etc.
1.3 Ownership of Mineral Resources
The Constitution of Kazakhstan (as amended on June 8, 2022) states that the people of Kazakhstan own the land and its subsoil, water, flora and fauna, and other natural resources. However, the State exercises property rights on behalf of the people of Kazakhstan. The State, represented by the Government, grants mineral rights on the grounds, conditions and scope laid down in the Subsoil Code. The minerals mined and extracted by the users of the subsoil become their private property. However, the government and/or parliament may still introduce any restrictions they deem appropriate.
1.4 The role of the state in mining laws and regulations
Depending on the type of mineral (e.g., solid minerals, aggregates, hydrocarbons, or uranium) and the type of operation, the state is represented by:
- The Ministry of Industry and Construction, MIC, is responsible for formulating national policy for the mining industry other than uranium mining, issuing and revoking exploration and mining licenses, and supervising the compliance of permit holders with the requirements of the licence conditions and the subsoil code.
- The Ministry of Energy, which is responsible for formulating national policy for the uranium and hydrocarbon industry, entering into and terminating contracts for hydrocarbon exploration and/or production and uranium mining, and supervising compliance by subsoil users with the conditions of contract and the requirements of the Subsoil Code.
- The Geological Council, GeoCom, is responsible for the national geological policy, issues geological exploration permits and subsoil use permits, supervises the reporting of mining and geological data, and is generally responsible for the compilation and provision of geological data.
- Local executive bodies (akimats) are responsible for granting land rights, granting and revoking permits for artisanal mining, extraction of feed, and supervising the compliance of such permit holders with the conditions of the permits and the requirements of the subsoil code.
1.5 Nature of the Tenement
As stated in 1.3 Ownership of Mineral Resources, there is a constitutional basis for the right to use subsoil resources, and these rights are granted by national authorities. The right to use underground resources (minerals) has property status.
1.6 Grant of Tenements
Authorized bodies as described in 1.4. There is no problem of overlapping jurisdictions in Kazakhstan. Prospecting and mining rights are granted by central ministries, and aggregate and artisanal mining rights are granted by local jurisdictions.
Prior to June 29, 2018 (the promulgation of the Subsoil Code), mining rights were awarded by contract.
Since 29 June 2018, mining rights have been granted in the form of various types of licences: exploration licences, mining licences, aggregate mining licences, artisanal mining licences and licences for the use of subsoil space (for the disposal of mining waste).
1.7 Security of tenure in mining
Mineral rights are protected by the general provisions of the Civil Code and the specific provisions of the Subsoil Code, the relevant code of Administrative Procedures and Procedures of June 29, 2020, as well as bilateral investment treaties (BITs) ratified by Kazakhstan for foreign investors.
Exploration Licences
An exploration licence has the following characteristics:
- A reclamation bond document is required before the permit can be granted.
- A licensed area is an exclusive area that consists of blocks (which can include parts of a block).
- There is no limit to the number of licenses per person/company. Transferable, subject to national security review.
- The holder has the right to explore for any mineral.
- The license is for a period of six years and can be extended for another five years, subject to the fulfillment of all licensing obligations and the mandatory relinquishment of blocks, if applicable.
- If 10 or more blocks are included, 40% of the blocks must be discarded at the end of the initial license period in order to extend that period further.
- Preferential access to exclusive rights to a mining licence for the duration of the licence (provided that solid mineral deposits are discovered and the resources and reserves are substantiated by a solid mineral resource and reserve assessment report).
Mining License
The mining license has the following characteristics:
- The license term is up to 25 years and can be extended, but not up to the original license term (unlimited times).
- The licensed area is exclusive and must be in the form of a rectangle or quadrilateral, in which at least two opposite sides are parallel or, if this is not possible, a polygon with as few angles as possible. There is no minimum or maximum size.
- Instruments of security for mine closure and reclamation should be provided prior to the commencement of mining activities.
- Gives the holder the right to mine any mineral other than uranium.
- There is no limit to the number of licenses per person/company. Transferable, subject to national security review.
- Retention status can be up to five years and can be extended for a further five years.
After the issuance of a subsoil use license, if the legislation governing the relationship in the area of subsoil use introduces additional conditions for such a license, these conditions do not apply to the license issued before the legislative amendment (except for legislative changes relating to national security, defence capability, environmental safety, health care, taxation and customs control).
The Subsoil Code sets out in detail a number of conditions for the invalidation of a permit, including:
- providing the Ministry of Industry and Construction with information that it knows to be unreliable to influence its decision to issue a license;
- Violation of licensing procedures and resulting in unreasonable decisions due to bad faith agreements between MIC officials and applicants;
- Issuance of permits to persons who are still found to be legally incapacitated on the date of issuance;
- If the Subsoil Code does not provide for or prohibit the issuance of a license.
Then the court has the power to declare the license invalid.
The statute of limitations for a dispute over the invalidation of a license is three months from the date on which the plaintiff knew or should have known of the circumstances constituting the invalidation of the license.
In addition, the Administrative Procedures and Procedures clarify the principle of "protection of the right of reliance", which provides a "guarantee" for the legality and consistency of administrative acts (such as licenses) taken by administrative agencies. An administrative act (permission) is considered lawful and justified until otherwise provided for by an administrative body, a public official or a court in accordance with the legislation of Kazakhstan. Mistakes made by administrative authorities (e.g. the Ministry of Industry and Construction) cannot be passed on to the person concerned (the user of the subsoil).
The Civil Code provides that an individual/legal entity whose rights have been violated may claim full compensation for the losses caused, both actual and profit-induced. Compensation for losses incurred by individuals or legal entities as a result of acts issued by State bodies or other government bodies that are not in accordance with the provisions of the law, as well as by the acts (or omissions) of officials of these bodies, shall be compensated by the units of Kazakhstan or the administrative regions, respectively.
Contracts for the underground use of solid minerals (other than uranium) signed before June 29, 2018
Hunch Exploration Joint
The standard contract term for solid mineral exploration is six years.
If a deposit is discovered, the subsoil user has the right to extend the exploration period to the period required for the assessment.
Under the terms of the subsoil use contract, the user of the subsoil where the solid deposit is discovered has the exclusive right of first refusal to obtain a mining license.
Mining Contracts
The standard contract period for exploration and mining of solid minerals is not more than 25 years, and for large and unique deposits, the contract period is not more than 45 years.
The extension period of the mining contract shall not exceed 25 years (indefinitely).
If a mining contract or a joint contract for exploration and mining (mining period) for solid minerals on the subsoil containing substantial mineral deposits is extended for more than ten years, the Ministry of Industry and Construction may stipulate in such extension terms one of the following obligations of the subsoil user:
- Creation of processing facilities by subsoil users or their subsidiaries or joint ventures;
- modernization or reconstruction of existing production facilities of subsoil users;
- modernization or reconstruction of existing processing facilities;
- supply of mined minerals to processing enterprises (production facilities) located in the territory of the Republic of Kazakhstan;
- Subsoil users, their subsidiaries or joint ventures procure investment projects or projects aimed at promoting the social and economic development of the region in accordance with commercial law.
If the user of the subsoil refuses to extend the contract in accordance with the above terms, the corresponding deposit will be auctioned after the expiration of the contract.
Whether it is an exploration, mining or joint exploration or mining contract, the contract area is exclusive.
"Grandfather Clause"
The subsoil use contract also includes a clause called a "grandfather clause", which is usually stated as follows:
"In accordance with the legislation of the Republic of Kazakhstan, the protection of the rights of users of subsoil is guaranteed. Legislative changes and additions that adversely affect the results of the commercial activities carried out by subsoil users under the contract do not apply to contracts concluded prior to the making of such changes and additions.
The above guarantees do not apply to changes in Kazakhstan's legislation on national security, defence capability, environmental security, health care, taxation and customs control. ”
Transition from a contract system to a licensing system
Subsoil users under subsoil use contracts have the right to apply for conversion of their contracts into relevant subsoil use permits, subject to the decision of the Ministry of Industry and Construction Commission. However, the drafting of the transitional rules was not perfect. Certain issues, such as reasons for refusal, are at the discretion of the Ministry of Industry and Construction Commission.
Note: The above content is not the formal legal advice and recommendation of our firm and is for reference only. If you need our firm to provide legal advice and advice on relevant legal issues, you can contact us directly through the contact details below.
Lawyer Li Hao
Director of the Kazakhstan Cooperation Office of Jingshi Law Firm
Director of Beijing Jingshi (Xi'an) Law Firm
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