QUESTIONS FOR

THE INTERNATIONAL COMPARATIVE LEGAL GUIDE TO:

MINING LAW 2018

Please enter your answers into this template

(The word count should not exceed 4,000 words)

Please note that question 3.1 is new for this year’s edition and the questions in section 3

have been renumbered accordingly. Question 3.5 has been removed. The following

questions have been amended: 3.2; 4.1; 5.2; 6.3; 7.1; 8.2; and 8.4.

Please note that the use of footnotes is not permitted

SUMMARY INFORMATION Please enter the following information:

Law Firm: GRATA International

Country: Republic of Kazakhstan

Firm Address: 104, M. Ospanov Street, Almaty, 050020, Republic of Kazakhstan

Office IP Address: 185.97.113.253

Tel: +7 (727) 2445-777

Fax:

URL: http:// www.gratanet.com

Author 1: Yerbolat Yerkebulanov

Author 1 Email: yyerkebulanov@gratanet.com

Author 2: Mikhail Abdulov

Author 2 Email: mabdulov@gratanet.com

1 Relevant Authorities and Legislation

1.1 What regulates mining law?

1.1.1. General overview

The principal legislative act governing mining activities in the Republic of Kazakhstan (the “State”) until 29 June 2018 is the Law on Subsoil and Subsoil Use dated 24 June 2010 (“Law”) to be replaced on 29 June 2018 (the “Commencement Date”) by the Code on Subsoil and Subsoil Use dated 27 December 2017 (the “Code”), save for certain provisions of 15 Articles of the Law remaining effective for entities which subsoil use contracts (“SUCs”) were concluded before the Commencement Date.

(The English version of the Code is available at www.gratanet.com/up_files/Kazakh_Subsoil_Code_translation_(Rus_Eng)%20final.pdf.)

There are also numerous Decrees of the Government and orders of the Minister of Investment and Development which regulate specific issues in mining sphere.

1.1.2. Regulation under the Law

Mining activities are regulated through the award of a subsoil use right (“SUR”) under SUCs, which are obtained primarily through tender procedures. SURs can also be granted based on direct negotiations for:

(i) certain Kazakhstani so-called national companies;

(ii) holders of the exploration right that made the commercial discovery and assessed it as confirmed by state expertise; or

(iii) exploration right obtained under the simplified procedure for understudied subsoil plots. (Under such procedure any person may choose a certain area from the approved list of subsoil plots (on an electronic map) and file an application with the Ministry of Investment and Development (“MID”). It registers the application and discloses information about them on its website. If within 5 business days there is no other application for the subsoil plots under the first application, the applicant is entitled to direct negotiations. If another application was submitted, the exploration right is obtained through an auction.)

1.1.3. Regulation under the Code

Mining activities are regulated through the award of a SUR under subsoil use licences (“SULs”) by the MID (except for the right for uranium, which is granted to the national uranium company by execution of a uranium production contract by the Ministry of Energy on the basis of direct negotiations).

Territories of SULs can be viewed at http://gis.geology.gov.kz/geo. SULs are issued for:

1) up to 6 years for exploration (with possibility of one-time extension for additional up to 5 years);

2) up to 25 years for production (with possibility to extend the term for the period not exceeding the initial term of the licence. The number of such extensions is unlimited).

(Please note that as the Law and the Code govern both solid minerals and hydrocarbons subsoil users, instead of “mining” the notion “production” is used.)

Holders of exploration or production licences shall comply with the minimum exploration or production expenses set out in Articles 192 and 210 of the Code. They also shall pay rental fees which amount for exploration stage depends on the subsoil use area and the year of exploration (see section 4.2.4.1).

Unlike under the SUCs, the following obligations apply only to holders of production licences:

1) to procure goods, works and services under the procurement rules approved by the MID;

2) to finance social development of relevant region and development of its infrastructure;

3) to finance tuition of the Kazakhstani personnel (starting from the second year); and

4) to finance scientific-research, scientific-technical and/or development works (starting from the second year).

Holders of production licences are entitled to obtain the retention status for five years (with possible extension for five more years) in certain cases, e.g. unprofitability of production, force majeure circumstances, etc. If they plan to invest more than approx. USD 50 million into processing of minerals, they are entitled to certain investment preferences (see section 4.1.2).

1.1.4. Transitional provisions

All SUCs concluded under the Law preserve their force after the Commencement Date. Such subsoil users are entitled either (i) to preserve their SUCs or (ii) at any time before expiration of their SUCs to transition to an exploration or production (mining) licence.

For subsoil users owning SUCs that decided to preserve their contracts and wish to extend them, the extension term is limited depending on the stage (exploration or production), whether the deposit is major or not, whether there was a discovery of a deposit, whether the

extension was permitted by the SUC, etc. (Article 278.14 of the Code). (Major deposits are those which resources exceed the thresholds set out in Article 14.3 of the Code.)

For subsoil users owning SUCs that decided to transition to a SUL, the term of a SUL cannot exceed the term of a relevant SUC. Re-registration of SUR from a SUC to a SUL neither terminates the SUR emerged on the basis of the SUC, nor terminates any encumbrances over SUR valid at the moment of re-registration.

1.1.5. Other issues

Broadly regulation for mining can be categorised by reference to specific minerals as follows:

(i) solid minerals (gold, silver, coal, etc.); and

(ii) commonly occurring minerals (sand, clay, etc.) (“COMs”).

Please note that the Code, in addition to above minerals, also regulates relations related to hydrocarbons and uranium production. Unless otherwise stated, we have not addressed issues of hydrocarbons, uranium and COMs in this chapter.

It should also be noted that the Code regulates the following types of subsoil use operations:

1) geological study of subsoil;

2) exploration of minerals;

3) production of minerals;

4) subsoil space use; and

5) artisanal mining.

Unless otherwise stated, geological study of subsoil, subsoil space use and artisanal mining will not be discussed in this chapter.

1.2 Which Government body/ies administer the mining industry?

Depending on the category of minerals, there are three so-called competent authorities (the “CA”), specifically:

1) the MID regulates solid minerals SUCs and SULs for solid minerals (including exploration of COMs), except for uranium;

2) the Ministry of Energy regulates hydrocarbons and uranium; and

3) the local executive bodies (“Akimats”) of regions/Astana/Almaty until the Commencement Date regulate COMs, after the Commencement Date they regulate production of COMs.

Please note that after the Commencement Date coal SUC/SULs are regulated by the MID while the Ministry of Energy will regulate SUCs for coalbed methane.

The MID also supervises the mining industry through its subordinate, the Committee on Geology and Subsoil Use (the “Geology Committee”). The Geology Committee has regional departments called TsentrKazNedra (for central territories), ZapKazNedra (for western territories), SevKazNedra (for northern territories), VostKazNedra (for eastern territories) and YuzhKazNedra (for southern territories).

The issues of (i) local content in goods, works, services and staff, and (ii) procurement of solid minerals subsoil users are resolved by the MID taking into consideration the view of the National Agency on Development of Local Content JSC.

1.3 Describe any other sources of law affecting the mining industry.

Depending on the sphere of activities, the mining industry is generally affected by the following legislative acts:

1) the Tax Code dated 25 December 2017 (the “Tax Code”) (entered into force on 1

January 2018);

2) the Land Code dated 20 June 2003 (the “Land Code”);

3) the Environmental Code dated 9 January 2007;

4) the Law on Precious Metals and Precious Stones dated 14 January 2016 (the “Precious Metals Law”);

5) the Law on Architecture, Town-Shipping and Construction Activities dated 16 July 2001;

6) the Law on Permits and Notifications dated 16 May 2014 (the “Permits Law”);

7) the Code on Customs regulation in the Republic of Kazakhstan dated 26 December 2017 and the Customs Code of the Eurasian Economic Union; and

8) the Rules of Procurement of Goods, Works and Services at Performance of Subsoil Use Operations approved by the MID under the Code, and so on.

2 Mechanics of Acquisition of Rights

2.1 What rights are required to conduct reconnaissance?

There is no notion of “reconnaissance” in Kazakhstan law; instead the term “exploration” is used, which includes (i) prospecting works, and (ii) assessment of commercial discovery. See section 2.2.

There is also a notion of geological survey, which is made by the authorities either by themselves or through contractors. Please note that even if a contractor performs geological survey at its own expenses and not at the expenses of the state budget, yet such contractor can be provided with a relevant SUR only upon decision of the Government.

2.2 What rights are required to conduct exploration?

2.2.1. SUR and land use right/servitude

First of all, to conduct exploration, an individual or an entity must have a SUR. SURs are deemed to be granted upon the MID’s (i) signing of a relevant SUC under the Law or (ii) issuing a SUL under the Code.

See details regarding land use right/servitude in section 9.1.

2.2.2. Project document and security for liquidation of consequences of subsoil use operations

To commence exploration operations, a subsoil user under SUC/SUL shall have a relevant project document, otherwise no subsoil use operations are permitted. Project documents under SUCs concluded before the Commencement Date preserve their force after the Commencement Date, however any amendments to such project documents shall be made as specified by the Code.

2.2.3. Security for liquidation of consequences of subsoil use operations

Holder of an exploration licence before commencement of exploration works shall provide a security to the MID (a bank guarantee, an insurance agreement or a pledge of bank deposit). The security amount is equal to certain percentage (presumably 10%) of minimum mandatory exploration expenditures per one block for the years of SUL’s validity period multiplied by the number of blocks.

2.2.4. Other licences

To carry out exploration works, depending on the method, the following licences may be required:

(i) a licence on handling explosives;

(ii) a construction licence (for construction of a mine, a processing plant, infrastructure, etc.);

(iii) a licence on the application of chemicals and other agents, etc.

A holder of a SUR can either obtain such licences on its own or hire contractors which have the relevant licences.

2.3 What rights are required to conduct mining?

2.3.1. SUR and land use right

To commence production, an individual or an entity must have a SUR granted by the MID’s (i) signing of a relevant production SUC or amendment (authorising to start production) to a contract on combined exploration and production under the Law or (ii) issuing a production licence under the Code.

The above SUC/SUL execution/issuance is the ground for reserving and subsequent granting the land use right by Akimats according to land legislation. See details regarding land use right in section 9.1.

2.3.2. Project documents

To commence production operations, a subsoil user under SUC/SUL shall have relevant project document(s), otherwise no subsoil use operations are permitted. Holders of production licences in addition to a mining project shall also have a project on liquidation works.

2.3.3. Security for liquidation of consequences of subsoil use operations

Holder of a production licence before commencement of production works shall provide a security to the MID (a bank guarantee, an insurance agreement or a pledge of bank deposit). The security amount is calculated in the project of liquidation works. During the first third period of the licence the security shall be granted for not less than 40% of the total amount of security.

2.3.4. Other licences

To carry out exploration works, depending on the method, the following licences may be required:

1. a licence on exploitation of mining activities;

2. a licence on handling explosives;

3. a construction licence (for construction of a mine, a processing plant, infrastructure, etc.);

4. a licence on the application of chemicals and other agents, etc.

As for licences 2)-4) above, the subsoil user can either obtain such licences on its own or hire contractors which have the relevant licences.

2.4 Are different procedures applicable to different minerals and on different types of land?

The procedures are the same for solid minerals (except for uranium), save for special licences required for carrying out activities with the production, storage or processing of radioactive ores.

Subsoil use operations are prohibited on ten types of lands (including protected natural territories) territories envisaged by Article 25.1 of the Code, save for limited exceptions. For instance, such prohibitions do not apply to subsoil use operations conducted by aero geophysical research or research using space methods of remote sensing of the Earth as well as to subsoil users which SUCs were concluded prior to the Commencement Date.

2.5 Are different procedures applicable to natural oil and gas?

Generally, under the Law the same procedures are applicable to the exploration and production of natural gas and oil.

However, the Code sets out substantial differences. The major difference is that the Code provides for a contractual regime for exploration and production of hydrocarbons and production of uranium, while exploration and production of solid minerals is under a licensing regime.

3 Foreign Ownership and Indigenous Ownership Requirements and

Restrictions

3.1 What types of entity can own reconnaissance, exploration and mining rights?

Any individual or legal entity can own exploration and mining rights, save for limited exceptions discussed in Section 3.4 below.

3.2 Can the entity owning the rights be a foreign entity or owned (directly or indirectly) by a foreign entity and are there special rules for foreign applicants?

Yes, the entity owning the rights can be a foreign entity or owned (directly or indirectly) by a foreign entity, save for limited exceptions discussed in Section 3.4 below. The order of filing applications is the same for national and foreign applicants.

3.3 Are there any change of control restrictions applicable?

3.3.1. Definition of the Objects

The definition of objects linked to SUR (the “Objects”) under the Code is substantially the same as under the Law (save for limited exceptions).

According to the Code the Objects mean:

1) the shares, units and other forms of participatory interest, as well as securities confirming title to shares or securities convertible into shares, units and other forms of participatory interest (the “Shares”) of a subsoil user holding a SUL (though technically the Code does not regulate change of control over SUR under SUCs, we believe it is a typo which will be rectified in the nearest time.);

2) the Shares in legal entities or other organizations which may directly/indirectly determine decisions adopted by the above subsoil user (the “Parent Company(ies)”).

The following forms of participatory interest relating to a SUL are not acknowledged as Objects under the Code:

(i) circulating on Kazakhstani and/or foreign stock exchange(s) shares and other securities, including derivative financial instruments, the underlying asset of which is the Shares (“SE Shares”); and

(ii) shares, participatory interests, units and other forms of participatory interests in legal entities and organizations which directly/indirectly owned the abovementioned Stock Exchange Shares (“Parent Company’s SE Shares”).

Please note, that if a legal entity/organization holds simultaneously both (i) the Objects and (ii) SE Shares and/or Parent Company’s SE Shares, the shares in such a legal entity/organization are acknowledged as the Objects.

3.3.2. Change of control restrictions

According to the Code, transfer of SUR (its share) under a licence for the exploration of solid minerals in the first year of its operation is prohibited. In other cases, the following shall be complied with for any change of control over a SUR:

(i) Obtaining the Consent

Any transfer of a SUR (its part) or Objects is subject to obtaining of the CA’s consent (the “Consent”). The Consent is valid for 1 year.

The Code sets out 14 exceptions when no Consent is required (including, inter alia, transfer of Objects (i) under a transaction where a national company is a party to, (ii) to a person that after the transaction will possess less than 1% of the shares, etc.). Transactions made without the Consent when it was due or after its expiration are void. See also section 15.3.

(ii) Obtaining a refusal (waiver) from the State’s priority right

Under the Law transactions resulting in change of control over so-called fields of strategic significance (the list of such fields approved by the Government refers to some solid minerals deposits as well) were subject to a waiver of the State’s priority right. However, according to the Code a field is considered as strategic if it:

• contains geological reserves of oil in the volume of more than 50 million tons or natural gas of more than 15 billion cubic meters;

• is located in the Kazakhstan sector of the Caspian Sea;

• contains a uranium deposit.

Accordingly, if a transaction over a SUR for solid minerals was concluded after the Commencement Date, then no State’s priority right is applicable.

(iii) Notification to the CA regarding change of control

According to the Code a subsoil user (either holding a SUC or a SUL) shall notify the CA about change of membership of persons/organizations having direct/indirect control over the subsoil user within 30 days from the date of such change.

“Direct control” means compliance with one of the following conditions:

• possession of more than 25% of shares in an organization;

• possession of the right to vote by more than 25% of all votes in the supreme management body of the organization;

• receiving more than 25% of the distributable net income of a subsoil user; and (or)

• possession of the right to determine decisions of another organization according to an agreement or by virtue of law.

“Indirect control” means a right of a person/organization to control another organization through a third organization(s), between which there is a direct control.

3.4 Are there requirements for ownership by indigenous persons or entities?

Both under the Law and the Code SURs for exploration and production of hydrocarbons at sea are granted only under contracts where at least 50% belongs to National Company KazMunaiGas JSC.

Under the Code applying to relations arising after the Commencement Date the SUR for uranium production is (i) provided only to National Atomic Company KazAtomProm JSC and (ii) can be transferred only to a legal entity, in which more than 50 % of shares directly or indirectly belong to KazAtomProm.

Only Kazakhstan citizens can be holders of artisanal mining licences.

3.5 Does the State have free carry rights or options to acquire shareholdings?

See section 3.3 above regarding the State’s priority right.

4 Processing, Refining, Beneficiation and Export

4.1 Are there special regulatory provisions relating to processing, refining and further beneficiation of mined minerals?

4.1.1. Under the Law

The Law differentiates between (i) primary processing (beneficiation) of raw minerals and (ii) processing of raw minerals. The same regime will apply after the Commencement Date only to those subsoil users which had a production (mining) SUC concluded before the Commencement Date. According to Article 278.23 of the Code, under the above SUCs their subsoil use operations also include primary processing (beneficiation). The primary processing (beneficiation) of raw minerals is acknowledged as a type of mining production activity, which comprises gathering on the site, breaking or crushing, separation (sorting),

briquetting, agglomeration and enrichment by physical-chemical methods (without qualitative changes of the mineral forms of useful minerals, their aggregative-phase conditions or crystal-chemical structure). It may also comprise processing technologies which are special types of work related to the production of useful minerals (underground gasification and melting, chemical and bacterial leaching, dredging and hydraulic development of placers.

At that the processing comprise works connected to extraction of minerals from produced raw, as well as works (if primary processing is available) following primary processing.

4.1.2. Under the Code

According to Article 278.27 of the Code, during five years after the Commencement Date holders of production licences producing ore solid minerals with metal content exceeding 30% are obliged to process not less than half of the total produced minerals during a calendar year within Kazakhstan. If it is not possible to perform such processing in the specified volume due to technological grounds, absence or lack of industrial capacity or economic inexpedience, subsoil users are entitled to take such minerals out of Kazakhstan.

Also, if a production licence holder intends to create new, expand or modernise existing facilities for the processing of solid minerals and the amount of investment exceeds 7 million times a monthly calculation index (“MCI”) (1 MCI in 2018 is 2405 tenge. 7 million MCI are equal to approx. USD 51 million), then it is entitled to conclude a special processing agreement which, depending on results of negotiation, may grant the following investment preferences:

(i) corporate income tax – 0% (up to 10 years);

(ii) land tax – 0% (up to 10 years);

(iii) property tax – 0% (up to 8 years);

(iv) investment subsidy (reimbursement of up to 30% of the construction cost and acquisition of equipment, excluding VAT and excise duties);

(v) state in-kind grant;

(vi) simplified procedure for hiring foreign workforce;

(vii) exemption from customs duties and import from VAT.

4.2 Are there restrictions on the export of minerals and levies payable in respect thereof?

In general, there are no restrictions on the export of minerals, except for the below.

First, according to the Precious Metals Law, the owner of mineral raw material containing precious metals (e.g. gold) is obliged to propose to the National Bank (which has the priority right to buy-out fine gold) fine gold refined at foreign gold refining plants. Moreover, a Kazakh subsoil user, before exporting gold from Kazakhstan to a foreign refinery, shall obtain the waiver of local refining plants.

Second, in some cases the authorities may establish temporary limitations (e.g. bans with regard to the export of gold, etc.).

Last, in certain cases, exporters shall preliminarily obtain export licences (e.g. for the export of natural crude stones, non-ferrous metals, precious metals and precious stones and diamonds).

5 Transfer and Encumbrance

5.1 Are there restrictions on the transfer of rights to conduct reconnaissance, exploration and mining?

According to the Law and the Code a SUR (its part) can be transferred in case of its alienation to another person based on civil law transactions.

Please see the restrictions on the transfer of exploration and mining rights in sections 3.3 and

3.4 above.

Additionally, we note that the Code envisages two types of such notion as a “concentration of rights”, specifically:

1) a concentration of SURs stands for the possession by one person (a group of persons) from one state of such aggregate share in SURs and (or) Objects that is capable of creating or threatening the State’s national security;

2) a concentration of rights within a SUC is understood as the amount of the share of one of the joint holders of the SUR under a SUC, which allows such a participant to determine the decisions on the activities of the subsoil user under the contract.

If the CA, when considering an application for the transfer of SUR, decides that the proposed transaction can cause a concentration of rights, it is entitled to reject to issue its Consent.

5.2 Are the rights to conduct reconnaissance, exploration and mining capable of being mortgaged or otherwise secured to raise finance?

Yes, under the Code a SUR is capable of being secured as a pledge. Such pledge becomes effective only after its registration in the CA.

If a transaction on pledge of a SUR is concluded before the Commencement Date, then a separate consent of the CA for such pledge shall be obtained.

6 Dealing in Rights by Means of Transferring Subdivisions, Ceding

Undivided Shares and Mining of Mixed Minerals

6.1 Are rights to conduct reconnaissance, exploration and mining capable of being subdivided?

In certain cases, the Code allows to divide a SUR under a SUL by allocation under two or more SULs.

6.2 Are rights to conduct reconnaissance, exploration and mining capable of being held in undivided shares?

Yes, a SUR can belong not only to a single person, but also to several persons (jointly considered as a single subsoil user), which bear joint and several liability. The SUL shall specify the share of each of such co-subsoil users. Joint holders of a SUR can choose the operator (not being a subsoil user) who would represent them before the CA.

6.3 Is the holder of rights to explore for or mine a primary mineral entitled to explore or mine for secondary minerals?

Under the Law, SUCs may directly allow subsoil users to mine not only primary minerals, but also “associated minerals” which may be economically recovered along with the primary mineral(s). Further, according to Article 10.7 of the Law (remaining effective after the Commencement Date for holders of SUCs concluded before the Commencement Date), production of “associated minerals” simultaneously with the production of minerals specified by a SUC is acknowledged as production within the framework of such a SUC.

Under the Code, an exploration or production SUL is issued for a relevant subsoil plot where subsoil users are entitled to explore for or mine any minerals. At that, for production of COMs a separate licence shall be obtained from the relevant Akimat.

Please note that as mentioned above, there are three CAs governing respectively: (i) solid minerals (including exploration of COMs); (ii) hydrocarbons and uranium; and (iii) production of COMs. Accordingly, if the secondary minerals belong to another category, then the conclusion of a separate SUC with/obtaining a SUL from another CA is required.

6.4 Is the holder of a right to conduct reconnaissance, exploration and mining entitled to exercise rights also over residue deposits on the land concerned?

Article 13 of the Code regulates the relations in respect of technogenic mineral formations (“TMF”) which generally mean accumulations of waste from mining, mining and processing and energy productions that contain useful components and (or) minerals.

TMF located within a subsoil site are an accessory of such a site. Subsoil users which are owners of TMF have the right, to own, use and dispose of TMF that arose as a result of activities on a subsoil plot granted to them for use, and alienate them to third parties.

6.5 Are there any special rules relating to offshore exploration and mining?

Offshore exploration and mining in Kazakhstan are understood only as oil and gas operations. There are specific provisions of the Law/Code, the Environmental Code and other legislative acts extensively regulating offshore operations. From a practical point of view, it is a rather complicated procedure, requiring numerous permits and authorisations.

7 Rights to Use Surface of Land

7.1 Does the holder of a right to conduct reconnaissance, exploration or mining automatically own the right to use the surface of land?

According to Article 42.1 of the Land Code, the right to the land plot, unless otherwise set out by legislative acts, also affects the surface soil layer, closed ponds and plantings within the boundaries of such land plot.

A SUC or SUL only evidences the subsoil user’s rights to use the subsoil plot; however, they do not provide for any land use rights, and the latter should be obtained separately (see section 9.1 for further details).

7.2 What obligations does the holder of a reconnaissance right, exploration right or mining right have vis-à-vis the landowner or lawful occupier?

The holder of an exploration or mining right shall agree with the landowner or lawful occupier the terms of using the land plot for subsoil use purposes as discussed in section 9.1.

7.3 What rights of expropriation exist?

On the one hand, according to Article 84 of the Land Code, a land plot can be expropriated for State’s needs (in exceptional cases when there is no other way of satisfying such needs) by an equivalent reimbursement of property either upon consent of the owner or land user or upon a court decision. The discovery and development of a mineral resources field is one of the grounds for expropriation.

At that, according to Article 90 of the Land Code, expropriation of agricultural land plots is permitted in exceptional cases connected to the discovery of a mineral field under the land plot.

However, on the other hand, the above provisions do not work in practice due to Article 84.5 of the Land Code, whereby expropriation cannot be considered as being for the State’s needs if such expropriation pursues the commercial targets of non-governmental legal entities and aims to satisfy non-governmental interests.

In view of the above-stated, currently there is no mechanism for the expropriation of land plots (for exploration activities a servitude mechanism is implemented from the Commencement Date). Subsoil users directly depend on the will of owners or land users, and must come to an agreement with them in order to use their land plots (see also section 9.1).

8 Environmental

8.1 What environmental authorisations are required in order to conduct reconnaissance, exploration and mining operations?

Ecological grounds for carrying out subsoil use operations are: (1) positive conclusions by State ecological experts with regard to project documents; and (2) the environmental permit (setting out a scope of permitted environmental emissions).

Subsoil users are obliged to submit project documents for State ecological examinations. The documents shall include an assessment of the impact of the proposed activity on the environment and contain an “Environmental Protection” section.

8.2 What provisions need to be made for storage of tailings and other waste products and for the closure of mines?

8.2.1. Under the Law

After the termination of subsoil use operations or the depletion of mineral resources, a subsoil user shall immediately proceed to work on the liquidation or conservation of the subsoil use objects (e.g. mines). If an urgent decision on the termination of production is required, the subsoil user must carry out a set of measures for the conservation of production units before their liquidation or conservation.

The liquidation or conservation works are carried out based on a liquidation or conservation plan that has been (i) elaborated by a licensed project company, (ii) agreed to by authorities in the fields of environmental protection, study and use of subsoil, industrial safety, sanitary-epidemiological service, land resources management, and (iii) approved by the subsoil user.

The operation is financed by the liquidation (abandonment) fund of the subsoil user and, if it is not sufficient, at the expense of the subsoil user itself.

The liquidation or conservation of subsoil use objects is considered complete after the signing of the act of acceptance by the commission established by the CA, which consists of various authorities’ officials.

8.2.2. Under the Code

Generally, the same requirements are set out by the Code except for the following.

A subsoil user under a SUL shall provide a security for the fulfillment of obligations to liquidate the consequences of such operations (“Liquidation Works”) to the CA. (See sections 2.2 and 2.3. regarding the security.)

Liquidation Works at exploration stage are carried out by the reclamation of disturbed lands as set out by the Land Code. Such Liquidation Works shall be finished not later than 6 months after the expiration of an exploration licence. If there were no exploration activities or operations were carried out without disturbing the earth's surface (the bottom of the reservoirs), then no Liquidation Works are required. In such a case an act of inspection of the exploration site (its part) is drawn up, confirming the absence of the need for Liquidation Works.

Liquidation Works at a production stage are carried out in accordance with the liquidation works project elaborated on the basis of the liquidation plan. Timelines for elaboration of the liquidation works project and performance of Liquidation Works are specified in Article 218 of the Code.

Also, according to Article 226 of the Code, in case of temporary cessation of production works, a conservation of a subsoil area must be carried out. The conservation is carried out in order to bring production facilities and other objects into a condition suitable for their operation upon resumption of production operations, as well as reducing the harmful effects of dangerous production factors and preventing emergencies.

8.3 What are the closure obligations of the holder of a reconnaissance right, exploration right or mining right?

See section 8.2 above.

8.4 Are there any zoning or planning requirements applicable to the exercise of a reconnaissance, exploration or mining right?

According to Article 25 of the Code there are ten types of lands where subsoil use operations are prohibited, save for limited exceptions. See also section 2.4.

9 Native Title and Land Rights

9.1 Does the holding of native title or other statutory surface use rights have an impact upon reconnaissance, exploration or mining operations?

There is no concept of native title in Kazakhstan law.

Surface rights (known in Kazakhstan as land use rights) are separate from mining rights.

Under the Law execution of a SUC is an unconditional ground for granting the land use right by Akimats. Such land use right is confirmed by signing a land plot lease agreement with the land authorities.

Starting from the Commencement Date owners of licences for exploration or geological survey 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 start operations on exploration or geological survey unless they have paid the payment for the servitude and reimbursement of losses according to the agreement on private servitude or a court decision (in case of a dispute with owners of land or land users).

Execution of a SUC/SUL for production of solid minerals is the ground for reserving and subsequent granting the land use right by Akimats according to land legislation.

If the land plot where mining operations are conducted is in the State’s property, the relevant Akimat provides such land.

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

We also note that the only constant and free right which individuals and entities have with regard to subsoil use at the land plots owned or leased by them is the mining of COMs for their own needs, not connected to entrepreneurial activity.

Please see also section 7.3.

10 Health and Safety

10.1 What legislation governs health and safety in mining?

There are a number of legal acts directly or indirectly governing health and safety in mining, approved by the orders of the MID.

The regulations set out that each mining company shall have a special person responsible for health and industrial safety. All workers (including workers of contractors, subcontractors) who are directly involved in dangerous fields of work must regularly pass different certifications.

10.2 Are there obligations imposed upon owners, employers, managers and employees in relation to health and safety?

Major requirements for owners, employers, managers and employees in relation to health and safety are set out in Article 115 of the Law and include, inter alia: prohibition or immediate termination of works if they are or become dangerous to the life and health of people; admitting to work only those people that have special qualification; procuring special clothes; having available means of individual and collective protection; using equipment and materials that meet safety and sanitary requirements; constantly monitoring the atmosphere for availability of oxygen and harmful gas and dust, etc.

Substantially the same requirements are set out in Article 53 of the Code.

See also section 10.1.

11 Administrative Aspects

11.1 Is there a central titles registration office?

As stated in section 1.2 above, the MID is the CA for the conclusion and registration of SUCs (according to the Law) and SULs (according to the Code) for solid minerals. The CA is responsible for the registration of a SUR, as well as its transfer or pledge.

11.2 Is there a system of appeals against administrative decisions in terms of the relevant mining legislation?

Normally, subsoil users in Kazakhstan appeal against decisions of the State authorities only in cases related to environmental issues, customs and tax charges, penalties imposed by MID for a failure to comply with contractual obligations and termination of SUCs.

The appeal is made by filing a claim with a State court. There are three stages of court consideration, with the third being the Supreme Court.

The order of appellation is set out in the Civil Procedural Code.

Some disputes related to subsoil users may be acknowledged as so-called investment disputes. Such disputes are subject to a special procedure, involving not specialized inter-district economic court in regions, but the court of Astana city as a court of first instance. If a subsoil user is acknowledged as a major investor (with investment exceeding approx. USD 15 million), then the Supreme Court acts as a court of first instance.

In some SUCs, there is a direct reference to the fact that any disputes are subject to resolution by foreign arbitration.

12 Constitutional Law

12.1 Is there a constitution which has an impact upon rights to conduct reconnaissance, exploration and mining?

According to the Constitution, which is the main law in Kazakhstan, the land and its underground resources, water, flora and fauna, as well as other natural resources are owned by the State.

Article 11 of the Code states that, according to the Constitution, the subsoil is in State ownership. The State may grant the subsoil for use subject to the grounds, conditions and limits envisaged by the Code.

12.2 Are there any State investment treaties which are applicable?

Kazakhstan is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and to ICSID.

Kazakhstan is also a signatory to bilateral investment treaties approx. 50 countries and the Eurasian Economic Union establishing guarantees for the protection of investment activities. Texts of these treaties can differ in terms of defining an investor, an object of investment, protected rights of an investor, and the procedure of investment protection. However, all of the treaties stipulate the right of an investor to apply for international investment arbitration to protect their rights and investment.

13 Taxes and Royalties

13.1 Are there any special rules applicable to taxation of exploration and mining entities?

13.1. General issues

In addition to obligations to pay ordinary taxes and fees (e.g., VAT, corporate and individual income taxes, property tax, land tax, fees for exploitation of radiofrequency band, etc.), all exploration and mining entities are subject to taxation under section 23 (Taxation of Subsoil Users) of the Tax Code, comprising Articles 720–773.

For the period until 1 January 2019 subsoil users shall pay commercial discovery bonus where applicable. It is a one-off payment by the subsoil user for each commercial discovery on the contractual territory. The basis of its calculation (tax base) is the cost of the volume of mineral reserves approved by the authorised state body. The commercial discovery bonus is paid at the rate of 0.1% of the tax base. The commercial discovery bonus will be removed with effect from 1 January 2019.

Subsoil users shall carry out separate accounting related (i) for subsoil use activities, and (ii) for all other non-subsoil use activities (if any).

13.2. Specific taxes for solid minerals subsoil users:

13.2.1. Signature bonus

The signature bonus is a lump-sum payment paid by a subsoil user upon either acquiring a SUR for a particular territory or in case of its increase.

For mineral extraction contracts where reserves have not been approved, the bonus is a fixed amount of 500 MCI (approx. USD 3,500).

For mineral extraction contracts where reserves have been approved, the bonus is calculated by a formula which applies a rate of 0.01% to the price of approved reserves and 0.05% to the provisionally approved reserves but not less than 500 MCI (approx. USD 3,500).

Also, there are additional amounts of signature bonus imposed upon granting of a SUL of 100 MCI (approx. USD 700) for an exploration licence, and of 50 MCI (approx. USD 350) for a production licence.

13.2.2. Payment for compensation of historical costs (“PCHC”)

PCHC is a fixed payment to compensate the state for geological survey and development costs of the contact territory incurred before the SUC is concluded.

The obligation to compensate historical costs arises from the date when the confidentiality agreement determining the amount of PCHC is concluded between the subsoil user and the Geology Committee.

Please note that, under Article 732.2 of the Tax Code, the subsoil users are exempted from PCHC provided that the below conditions are simultaneously met:

1) the licence for exploration or production was granted to subsoil user after 31 December 2017;

2) the territory on which the licence on exploration or production is granted, does not include a territory which was under the SUR before 1 January 2018.

13.2.3. Mineral extraction tax (“MET”)

MET is a volume-based tax applicable to extracted minerals. The taxable base is the value of the whole extracted volume of minerals. The price of minerals is determined based on the information from the London Metal Exchange.

The MET rates are set out in Article 746 of the Tax Code (e.g. 5% for gold, 5,7% for copper, etc.).

13.2.4. Other issues

13.2.4.1. Rental payments

Rental payments for owners of SULs for exploration and mining are: (i) on exploration stage – from 15 to 60 MCI (approx. USD 110-440) depending on the area of subsoil plots; (ii) on production stage – 450 MCI (approx. USD 3,300) per 1 square km.

13.2.4.2. Right to deduct exploration expenses

According to Article 259 of the Tax Code, subsoil users being on exploration stage are entitled to deduct (through depreciation) their expenses incurred from 1 January 2018 under their exploration SUC/SUL(s) from the taxable income under their other mining SUC/SUL(s).

13.2 Are there royalties payable to the State over and above any taxes?

Kazakhstan used to have royalties paid by subsoil users. But, as from 1 January 2009 royalty payment was accordingly replaced by MET. See more details in section 13.1 above.

14 Regional and Local Rules and Laws

14.1 Are there any local provincial or municipal laws that need to be taken account of by a mining company over and above National Legislation?

Kazakhstan law is centralised and consists mostly of codes, laws, Government Decrees and orders of the ministers. Local authorities do not have the right to adopt laws.

We shall, however, note the following two specific cases.

According to Article 576.8 of the Tax Code, a local representative body (so-called “maslikhat”) is entitled to increase the rates set out by this Article for environmental emissions for no more than two times.

According to Article 510.1 of the Tax Code, maslikhats are entitled to lower or increase land tax rates for certain lands by no more than 50% of the basic land tax rates.

14.2 Are there any regional rules, protocols, policies or laws relating to several countries in the particular region that need to be taken account of by an exploration or mining company?

No, there are no such rules for solid minerals companies.

The rules referred to in the question apply to oil and gas exploration and production in the territory of the Caspian Sea, which is not the subject of this chapter.

As for customs issues, the customs legislation of the Customs Union (consisting of Russia, Kazakhstan, Belarus, Kyrgyzstan and Armenia) prevails over Kazakhstan customs legislation.

15 Cancellation, Abandonment and Relinquishment

15.1 Are there any provisions in mining laws entitling the holder of a right to abandon it either totally or partially?

Under Kazakhstan mining legislation SUR is granted under a SUC or SUL for a certain subsoil plot. Holders of SUCs/SULs may terminate their SUR provided they have performed relevant liquidation or conservation works (see section 8 above). They are also entitled to relinquish parts of their subsoil plots, provided that liquidation or conservation works have been performed.

Please note that if the subsoil user has not conducted exploration or production operations on relevant subsoil plots, or performed operations without disturbing the earth’s surface (the bottom of reservoirs), no liquidation works are required.

15.2 Are there obligations upon the holder of an exploration right or a mining right to relinquish a part thereof after a certain period of time?

Yes, under the Law the majority of exploration contracts set out a subsoil user's obligation to relinquish a certain percentage of contract territory after a certain amount of years of exploration. The relinquishment is made after signing of the act on relinquishment with further re-issuance of the geological allotment with exclusion of relinquished areas.

Under the Code if an exploration licence includes ten or more blocks, the extension of its period is allowed provided the subsoil user has relinquished not less than 40% of the blocks calculated from the total number of blocks initially included in the exploration territory, with the deduction of the blocks declared by the subsoil user as the territory for obtaining a licence.

15.3 Are there any entitlements in the law for the State to cancel an exploration or mining right on the basis of failure to comply with conditions?

Under Article 72 of the Law (which remains effective for SUCs concluded before the Commencement Date) the MID is entitled to unilaterally terminate a SUC in case of: (i) a failure to rectify more than two breaches of contractual obligations within the timeline set out by the MID (for physical obligations – 6 months, for financial obligations – 3 months, and 1 month for other obligations); (ii) change of direct/indirect control over the SUC without the Consent where required; (iii) performance of financial obligations for less than 30% during two consecutive years, etc.

Under the Code, a SUL may be revoked by the MID in case of a failure to:

1) obtain the Consent for change of direct/indirect control over the SUL, resulted in a threat to national security; or

2) comply with due payments of (i) signature bonus, (ii) rent fees or (iii) annual minimum expenses for exploration/production.

The MID provides 1 year and 3 months for removal of 1) and 2) above violations accordingly.

If case of a failure to remove the violation, the MID is entitled to revoke a SUL by a 3-month prior notice. No revocation is allowed if the above breaches were caused by force-majeure circumstances.

Furthermore, a SUL may be invalidated by court in the following cases:

(i) determination of a fact of providing the MID with a knowingly untrue information, which affected its decision to issue a SUL;

(ii) violation of the procedure for issuing a SUL, which led to an unjustified decision of the MID to issue a SUL, in consequence of the fact of a malicious agreement between an official of the MID and the applicant;

(iii) if issuance of a SUL is prohibited or not provided by the Code.

LAW FIRM & AUTHOR DETAILS

Please provide the following additional details:

Brief promotional information of law firm / department (approx. 150 words):

GRATA International is an international law firm, founded on April 22, 1992.

GRATA International has been recognized by leading international ratings: The Legal 500, Chambers

Global, Chambers Asia-Pacific, IFLR1000, Who’s Who Legal, Asialaw Profiles.

In addition to rendering legal services across all cities in Kazakhstan, GRATA International has (i)

offices in Azerbaijan, Kyrgyzstan, Tajikistan, Russia (Moscow, Saint-Petersburg, Kazan, Novosibirsk,

Samara, Rostov-on-Don) and Uzbekistan, (ii) country desks in Turkmenistan, Georgia and Mongolia,

and (iii) associated offices in Turkey, Ukraine, Belarus, Czech Republic, Latvia, Poland and Switzerland.

Our competitive advantages include a wide network of offices mostly covering Eurasia, optimal price and quality ratio and understanding of the local mentality of doing business.

The opportunity to utilise resources without regional boundaries enables us to increase the cost-effectiveness and the efficiency of services provided.

In addition to its offices our firm has representatives in Beijing, London, New York and Vancouver.

Author 1 Name: Yerbolat Yerkebulanov

Address: 104, M. Ospanov Street, Almaty, 050020, Republic of Kazakhstan

Tel: +7 (727) 2-445-777 (180)

+7 701 7 600 040

Email: yyerkebulanov@gratanet.com

LinkedIn URL (for online chapter version): https://www.linkedin.com/company/grata?trk=biz-

companies-cym

Firm URL: http://www.gratanet.com

Brief Biography (max.: 150 words): Yerbolat Yerkebulanov is Partner and Head of Subsoil

Use Dept. (Almaty) of GRATA International. He has extensive experience in advising of

international clients on issues related to, Mining, Oil&Gas, M&As, EPC contracts, commercial

agreements, regulated procurements.

He has substantial experience in undertaking and supervising work for a number of oil and gas,

mining and services companies, including, inter alia, Korean National Oil Corporation

(KNOC), Rio Tinto, North Caspian Operating Company, Polymetal, NordGold, Sinopec,

Baker Hughes, Eurochem, Repsol, Pertamina, ENRC, CGNPC, Mubadala, MOL, JBIC,

Tethys, MIE Holding, Severstal; or with regard to such companies as Karachaganak Petroleum

Operating B.V., Maersk, Maten Petroleum, etc.

Yerbolat has a number of publications in the sphere of Mining and Oil & Gas with regard to

local content, subsoil users’ procurements, issues of termination of subsoil use contract, ways

of acquisition of subsoil use right. He speaks Kazakh, Russian, English and German.

Author 2 Name: Mikhail Abdulov

Address: 104, M. Ospanov Street, Almaty, 050020, Republic of Kazakhstan

Tel: +7 776 000 3636

Email: mabdulov@gratanet.com

LinkedIn URL (for online chapter version):

Firm URL:gratanet.com

Brief Biography (max.: 150 words): Mikhail Abdulov is a Lawyer in Subsoil Use Department

(Almaty) of GRATA International. He has experience in advising of international clients on

issues related to subsoil use, transactions on acquisition of subsoil use assets in Kazakhstan,

commercial agreements and regulated procurements.

He has participated in projects related to Mining, Oil&Gas and services companies, including

Korean National Oil Corporation (KNOC), China General Nuclear Power Corporation

(CGNPC), KazStroyService (KSS), RioTinto, Geo-Jade Petroleum Corporation, Kazphosphate

LLP, AMC Consultants, Praxair Surface Technologies, Inc. and others. He speaks Russian and

English.

Significant Clients (list up to 10 clients – for online chapter version):

• Rio Tinto Exploration and Mining;

• Polyus Gold International;

• Nord Gold N.V.;

• Polymetal International plc;

• Sandvik Mining and Construction;

• Kazakhmys Corporation;

• Uranium One;

• Cameco Corporation;

• Eurasian Natural Resources Corporation;

• China General Nuclear Power Group.