Mining 2024 Comparisons

Mining holds an important role in Republic of Kazakhstan’s (RoK) industrial framework, making a substantial contribution of 13.5% to the country’s GDP during the period of January to September 2023.

The country has approximately 8,000 different deposits of solid minerals, aggregates and hydrocarbons, according to the state’s records. Kazakhstan is a prominent producer of diverse minerals and currently holds the top position globally in the mining of uranium, chromite, coal, iron, steel, copper, manganese, bauxite, tungsten, silver, lead, titan, gold and zinc.

The largest mining companies operating in Kazakhstan include Eurasian Resources Group, Kazakhmys, Kazzinc, Kaz Minerals, Kazatomprom, QARMET (previously known as ArcelorMittal), Rio Tinto, Central Asia Metals, Fortescue Metals Group, etc.

The Code On Subsoil and Subsoil Use (the “SSU Code”), which was adopted on 27 December 2017, and became effective on 29 June 2018, distinctly segregates the regulatory provisions for solid minerals from those applicable to hydrocarbons and uranium.

The SSU Code regulates matters such as access to geological data in the state’s possession, granting mineral titles in the form of licences, requirements to licence holders, licence conditions, project documents, exploration and mining operations, transfer of mineral titles and interests in licence holders, treatment and disposal of mining waste (called as technical mineral formations), mine closure and reclamation, reporting, etc.

Based on the regulatory approach of the Western Australian Mining Act and Canadian mining laws, the SSU Code for the first time introduced the “first come – first served” licence allocation mechanism in Kazakhstan.

Moreover, the SSU Code introduced recognition of resource and reserves reports prepared under the national instrument KAZRC (based on CRIRSCO template) by the state. However, a temporary transition period initially has been provided until January 2024 to allow reporting on resources and reserves under soviet-era standards of the State Commission for Reserves (GKZ standards) under the Geology Committee (GeoCom) of the Ministry of Industry and Construction (MIC).

In December 2023, the following amendments to the SSU Code were adopted:

• extension of the transition period for reporting on resources and reserves under the GKZ standards by an additional two years;
• mandate for the GeoCom to consider and reject KAZRC reports on resources and reserves before registering them at state mineral records; and
• mandate for the GeoCom empowering to adopt minimal exploration requirements to the scope of works conducted under explorations licences.

Kazakhstan has a civil-based legal system. However, the Astana International Financial Centre (AIFC) operates under a common law framework, in areas such as corporate law, commercial law, dispute resolution, labour regulations, personal data protection, currency regulation, and other related domains.

The main legislative act governing the mining industry is SSU Code. The SSU Code applies to mineral titles granted both under licences issued following enactment of the SSU Code as well as the subsoil use contracts for exploration, production and combined exploration and production of solid minerals executed prior to the SSU Code.

There are also several government resolutions and an extensive list of subordinated by-laws of the mining authority (currently the MIC) which regulate specific issues and procedures in the exploration and mining sector.

Other main legislative acts applicable to the exploration and mining activity include:

• the Environmental Code of 2 January 2021 (the “Environmental Code”);
• the Tax Code of 25 December 2017 (the “Tax Code”);
• the Land Code of 20 June 2003;
• the Business Code of 29 October 2015 (the “Business Code”);
• the Law on Precious Metals and Precious Stones of 14 January 2016; and
• the Law on Civil Protection (safety law) of 11 April 2014.

The RoK Constitution mandates (as amended on 8 June 2022), that the land and its subsoil, water, flora and fauna, and other natural resources are owned by the people of Kazakhstan. However, the property right on behalf of the people of Kazakhstan is exercised by the state.

The state, represented by the government, grants mineral titles on the grounds, conditions and to the extent provided by the SSU Code.

Minerals mined and extracted by subsoil users become their private property.

However, the government and/or the parliament may introduce any restrictions they consider appropriate. For instance, please refer to 6.1 Two-Year Forecast for the Mining Sector regarding expected amendments to the Industrial Policy Law of 27 December 2021 (the “Industrial Law”).

Depending on the type of mineral (eg, solid minerals, aggregates, hydrocarbons or uranium) and the type of operation, the state is represented by the following authorities.

• MIC, which is responsible for state policy in the mining sector other than mining uranium, granting and revoking exploration and mining licences, and overseeing compliance by the licence holder with the conditions of the licence and requirements of the SSU Code.
• Ministry of Energy, which is responsible for the state policy in the uranium and hydrocarbon industries, concluding and terminating exploration and/or production contracts for hydrocarbons and contracts on mining uranium, and overseeing subsoil user’s compliance with the conditions of their contracts and requirements of the SSU Code.
• GeoCom, which is responsible for the state policy in geology; granting licences for geological survey and licences for the use of subsoil space, overseeing reporting on mining and geological data, and is generally responsible for the aggregation and provision of access to geological data.
• Local executive bodies (akimats), which are responsible for granting rights to land, granting and revoking licences for artisanal mining, mining aggregates, and overseeing compliance with the licence conditions and requirements of the SSU Code by holders of such licences.

Please also refer to 5.2 Foreign Investment Restrictions and Approvals in the Exploration and Mining Sectors regarding a mining right to uranium deposits.

As noted in 1.3 Ownership of Mineral Resources, subsoil use right has a constitutional basis and these rights are issued by state authorities. Subsoil use (minerals) rights hold the status of property.

The granting authorities are described in 1.4 Role of the State in Mining Law and Regulations.

There are no overlaps of jurisdictions in Kazakhstan. Exploration and mining rights are granted at the central ministerial level and mining rights for aggregates and artisanal mining are granted at local jurisdiction.

Before 29 June 2018, a date of enactment of the SSU Code, mineral rights were granted through contracts.

From 29 June 2018, mineral rights are granted by acts in the form of various types of licences: exploration licence, mining licence, aggregates mining licence, artisanal mining licences and licence for use of subsoil space (for disposal of mining wastes).

Mineral rights are protected by the general provisions of the Civil Code, specific provisions of the SSU Code, Administrative Procedural and Process-Related Code of 29 June 2020 (APPC) and additionally by bilateral investment treaties (BITs) ratified by Kazakhstan and applicable to foreign investments.

Regarding BITs, please refer to 5.3. International Treaties Related to Exploration and Mining.

Exploration Licence

An exploration licence has the following features.

• A reclamation security instrument to be furnished before the licence grant.
• Licence area is exclusive and formed by blocks (a part of a block can be included).
• No limit on the number of licences per person/company. Transferable, subject to national security review.
• Entitles holder to explore any minerals.
• Granted for six years plus potential extension for five years subject to fulfilment of all licence obligations and mandatory surrender of blocks (if applicable).
• If it includes ten or more blocks, 40% of blocks must be surrendered at the end of the initial licence term to allow further extension of the term.
• Exclusive right to obtain a mining licence on priority basis within the term of the licence (subject to the discovery of a deposit of solid minerals, with confirmed resources and reserves substantiated by a report assessing the resources and reserves of such solid minerals).

Mining Licence

A mining licence has the following features.

• Granted for up to 25 years plus possible extensions for a period not exceeding the original term of the licence (unlimited times).
• Licence area is exclusive and must be in the form of a rectangle or quadrangle where at least two opposite sides are parallel or, if impossible, a polygon with the least possible number of angles. No minimum or maximum size.
• A security instrument for mine closure and reclamation to be furnished before commencing mining activities.
• Entitles holder to mine any minerals, except for uranium deposits.
• No limit on the number of licences per person/company. Transferable, subject to national security review.
• Retention status for up to five years with potential extension for further five years.

After the issuance of a subsoil use licence, if the RoK legislation, governing relations in the field of subsoil use, introduces additional conditions for such licences, these conditions shall not be applicable to licences issued prior to the legislative amendment (except for changes of the legislation concerning national security, defence capability, environmental safety, healthcare, taxation, and customs regulation).

The SSU Code delineates an exhaustive set of conditions under which a licence can be invalidated, specifically:

• providing the MIC with knowingly unreliable information that influenced its decision to issue a licence;
• violations of the licence issuance procedure that led to an unjustified decision, as a result of a malicious agreement between an official of the MIC and the applicant;
• issuing a licence to a person recognised as legally incompetent, and who was such on the day of issue; and
• if the issuance of a licence is not provided for or prohibited by the SSU Code.

The authority to invalidate a licence rests with the court.

The statute of limitations for disputes related to the invalidity of a licence is three months from the day when the plaintiff learned or should have learned about the circumstances that constitute the basis for declaring the licence invalid.

Also note that APPC specifies the principle of “Protection of the Right to Trust”, which serves as a “guarantee” for the administrative authority that the adopted administrative act (such as a licence) is lawful and consistent. An administrative act (licence) is considered lawful and justified until the administrative authority, public official, or court establishes otherwise in accordance with the RoK legislation.

An error committed by the administrative authority (such as the MIC) cannot be turned against the party (subsoil user).

At that, a subsoil user cannot invoke such a principle except in cases specified in Article 84.6 of the APPC (eg, when there is established deliberate falseness of a document or information provided by a subsoil user).

The Civil Code specifies that an individual/legal entity whose rights are violated may demand full compensation for the losses incurred, including actual damages and lost profits.

Losses incurred by an individual or legal entity as a result of the issuance of an act by a state authority or another government body that does not comply with the legislation, as well as the actions (or inaction) of the officials of these bodies, shall be compensated by the Republic of Kazakhstan or, respectively, by the administrative-territorial unit.

Subsoil Use Contracts for Solid Minerals (Except for Uranium) Concluded Before 29 June 2018

Exploration contract

A standard contract for exploration of solid minerals could be concluded for a period of six years.

In the event of a deposit discovery, the subsoil user had the right to extend the exploration period for the duration necessary for appraisal.

The subsoil user who discovers a deposit of solid minerals, as outlined in the subsoil use contract, has the exclusive right to obtain a mining licence on a priority basis.

Mining contract

A standard contract for exploration mining of solid minerals could be concluded for a period no more than 25 years, and for deposits with large and unique mineral reserves – no more than 45 years.

A mining contract can be extended for no more than 25 years (unlimited times).

In case of extension of a mining contract or combined exploration and mining contract (mining period) of solid minerals on a subsoil site containing a large deposit for a period exceeding ten years, the MIC may include in the terms of such extension one of the following obligations of the subsoil user:

• creation by a subsoil user or its subsidiary or a joint venture of processing facilities;
• modernisation or reconstruction of the subsoil user’s existing production facilities;
• modernisation or reconstruction of existing processing facilities;
• supply of mined minerals to processing enterprises (production facilities) located in the territory of the Republic of Kazakhstan; and
• procurement by a subsoil user, its subsidiary or a joint venture of an investment project in accordance with the Business Code or a project aimed at the social and economic development of the region.

If the subsoil user declines to extend the contract under the above terms, the corresponding deposit will be put up for auction upon the contract’s expiration.

Contract area is exclusive both under the exploration, mining or combined exploration or mining contract.

Grandfather clause

Subsoil use contracts also include a provision known as the “grandfather clause”, commonly expressed as follows:

“The subsoil user is guaranteed protection of their rights in accordance with the legislation of the Republic of Kazakhstan. Changes and additions to the legislation that adversely affect the results of a subsoil user’s business activities under contracts do not apply to contracts concluded before these changes and additions were made.

The above-mentioned guarantees do not apply to changes in the legislation of the Republic of Kazakhstan related to national security, defence capability, environmental safety, healthcare, taxation, and customs regulation.”

Transition from contractual to licensing regime

Subsoil users under the subsoil use contract are entitled to apply for the transition of their contracts to the relevant subsoil use licence, subject to the decision of the MIC’s commission. However, the transitioning rules are not well drafted. Some issues, such as grounds for rejection, are at the discretion of the MIC’s commission.

The main legal act regulating environmental protection is the Environmental Code. It covers a wide range of environmental issues, including air and water quality, waste management, biodiversity conservation, and environmental impact assessment.

Some of the key distinguishing novelties of the Environmental Code are the best available technologies at environmental management, environmental monitoring and control and “polluter pays” principle. According to interpretation of this principle in Kazakhstan, a polluter is financially responsible for the environmental damage they cause and are required to take measures to mitigate the damage.

Certain activities with potential environmental impacts, such as mining activities, require an environmental permit. The Environmental Code contains the lists of activities and quantitative criteria, according to which a facility is allocated to Category I, II or III (ie, facilities that have either a significant, or moderate, or insignificant negative impact on the environment, respectively). Obtaining an environmental permit is mandatory for construction and/or operating Category I or II facilities. In contrast, Category III facilities can be constructed and operated by submitting a notification to the relevant permitting authority.

Generally, exploration activities under the exploration licences fall under Category IV (objects that have a minimal negative impact on the environment) that do not require obtaining an environmental permit.

There are two types of environmental permits:

• integrated environmental permit; and
• environmental impact permit.

The environmental permits for Category I facilities are issued by the Committee for Environmental Regulation and Control, the subordinate entity of the Ministry of Environment and Natural Resources or its territorial departments (for Category II – by local executive authorities) in electronic form through the e-government web portal.

In order to secure a permit, a legal entity needs to apply to the relevant permitting authority along with supporting documents. These documents should include project documentation for the construction and/or operation of facilities, draft emission limits, a draft waste management programme, a draft programme of industrial environmental control and other documents.

In general, the effectiveness of environmental authorities in Kazakhstan displays a combination of positive and negative aspects. While there has been progress in developing a legal framework and institutions, significant challenges arise from the lack of enforcement capacity and reaching the institutional development ceiling in terms of government management, as well as economic dependence on oil production and mining.

Kazakhstan features environmental preserved zones with a cumulative area of approximately 29.3 million hectares dedicated to safeguarding its natural landscapes. The main protected areas are the following:

• 14 state national natural parks;
• ten state nature (wildlife) reserves;
• seven natural reserves, with plans to create an additional reserve in 2024; and
• five state-protected areas.

Furthermore, subsoil use activities are prohibited within the territories of environmental preserved zones, with certain exceptions. Such exceptions include exploration activities at state-protected areas subject to approval of the authorised state body, and mining is allowed subject to approval of the RoK government.

Moreover, Article 25 of the SSU Code lists the areas where exploration and mining operations are prohibited, such as water fund lands, areas of groundwater of potable quality, lands designated for the needs of defence and national security, lands of townsites, roads, railways and airports.

The SSU Code mandates the establishment of conditions that facilitate the active involvement of the concerned public community, local executive bodies, and territorial environmental authorities throughout the entire Environmental Impact Assessment (EIA) process.

Prior to seeking approval from environmental authorities, subsoil users are obligated to conduct public hearings. In preparation for these hearings, they must proactively inform the community where subsoil use activities are slated to take place, providing details such as the date, time and location of the impending hearings. Additionally, they are required to outline the procedure for interested parties to access pertinent materials related to the EIA of the project.

Generally, for exploration activities, an EIA is not required, and accordingly, public hearings are not necessary. However, the subsoil user will need to conduct public hearings in case of transitioning to mining.

The public hearings entail creating a record of the proceedings, encompassing the remarks and objections voiced by the public community throughout the hearing. This record is documented in written form and subsequently made available on the website of the local executive body (akimat).

According to the SSU Code, there is no explicit obligation to consider the results of consultations when designing and operating the mine. Instructions for formulating liquidation plans only mandate taking public opinion into account when defining elimination tasks.

At the same time, Kazakhstan legislation does not provide for a concept of social impact assessment.

There are no requirements for mandatory consultation, except for public hearings. Please refer to 2.3 Impact of Community Relations on Mining Projects.

In Kazakhstan there are no specially protected communities, such as indigenous people.

The SSU Code imposes mandatory obligations for community development agreements in the case of territorial borders of settlements. The execution of an agreement on socio-economic development of the region is required if a requested area of exploration or underground mining wholly or partially belongs to the lands of townsites and adjacent territories within a distance of one thousand meters.

Also, the rental fees paid by holder of exploration and mining licences are allocated directly to the local budget (city, village, etc) where the licence areas are located.

Moreover, subsoil use contracts concluded before the enactment of the SSU Code usually include commitments for contributing to the socio-economic development of the region. These commitments are expressed as a percentage and usually amount to 1% of annual exploration or mining costs or a fixed cost agreed upon with the competent authority.

ESG guidelines in Kazakhstan differ from their representation in other regions. Kazakhstan’s legislative framework addresses ESG requirements through separate channels for environmental aspects, social aspects and governmental aspects, thereby lacking a unified structure to consolidate them.

Specifically, the Environmental Code and associated regulations set out requirements concerning environmental protection, including standards for emissions, waste management, water usage, and biodiversity protection. Companies, especially those in sectors with significant environmental footprints, must comply with these regulations.

Labour and employment laws in Kazakhstan address several social issues, such as workers’ rights, safety standards, and non-discrimination. Additionally, there are laws and programmes aimed at promoting social welfare, health, and community development.

Governance in the ESG context typically refers to the system of rules, practices and processes by which a company is directed and controlled. Kazakhstan’s corporate law outlines basic governance structures for businesses operating in the country. These include rules about shareholder meetings, board compositions, audit requirements, and disclosure norms.

Positive outcomes resulting from mining activities in local communities are often linked to the initiation of social initiatives by subsoil users in the cities and villages surrounding mining areas. These initiatives encompass the construction of essential infrastructures, such as roads, parks, and sports complexes, as well as providing financial and technical assistance to local businesses and entrepreneurs, thereby contributing to the well-being of local residents. Additionally, comprehensive environmental management programmes are implemented, featuring reforestation projects and measures to control pollution. For instance, Eurasian Resources Group, Kazzinc and other major mining companies have demonstrated their commitment by investing in the establishment of schools, hospitals, and various other infrastructure projects within communities near their mine sites.

Examples of negative impacts are typically linked to pollution or the damage of natural resources, resulting in environmental degradation and adverse effects on the health and livelihoods of local residents. In addition, unsatisfactory labour practices, such as low wages and lack of safety compliance, contribute to these negative impacts.

General provisions regarding climate change are contained in the Environmental Code. Additionally, in response to the tangible threats of climate change, the President of Kazakhstan has signed Strategy for Achieving Hydrocarbon Neutrality in the Republic of Kazakhstan by 2060.

Kazakhstan has also ratified the following international treaties in climate change:

• the Paris Climate Agreement;
• the Convention on Long-Range Transboundary Air Pollution;
• the Vienna Convention for the Protection of the Ozone Layer; and
• the Kyoto Protocol to the United Nations Framework Convention on Climate Change.

By 31 December 2030, Kazakhstan aims to reduce its carbon balance by at least 15% from the 1990 level and committed to achieving hydrocarbon neutrality by 2060.

In addition, in order to reduce greenhouse gas emissions, the Environmental Code establishes carbon quotas for carbon dioxide emissions. In simple terms, hydrocarbon quotas mean the volume of free carbon units distributed by the Ministry of Environment and Natural Resources based on the benchmarking methodology. Installations in the sectors of electricity, oil and gas, mining, metallurgical and chemical industries, as well as manufacturing industries in terms of the production of cement, lime, gypsum and bricks are subject to carbon quotas if they emit more than 20,000 tons of carbon dioxide per year.

There are no specific climate change programmes or requirements for mining sector.

Please refer to 3.1 Climate Change Effects.

In 2013, the President of Kazakhstan adopted the concept of the country’s transition to the Green Economy (“the Concept”) in order to ensure the sustainable development of the country and that it becomes one of the 30 most developed countries in the world by 2050. It assumes that the transition will require annual investments of about 1% of Kazakhstan’s GDP (or USD3‒4 billion).

The priority tasks of the Concept are:

• improving the efficiency of resource use;
• modernisation of existing infrastructure and construction of new infrastructure;
• improving the well-being of the population and the quality of the environment through cost-effective measures to reduce pressure on the environment; and
• improving national security, including water security.

The threat of water scarcity and the inefficient management of water resources can be major obstacles to sustainable economic growth and social development in Kazakhstan. According to the Concept, the following projects are necessary in order to achieve national security:

• the construction of reservoirs and reservoirs to capture water run-off during floods;
• the repair and reconstruction of main irrigation channels and large irrigation infrastructure;
• the construction of wastewater treatment plants and water desalination units to treat brackish water; and
• the construction and/or modernisation of treatment facilities in the 20 largest cities in Kazakhstan.

Please also refer to 3.1 Climate Change Effects regarding the Strategy for Achieving Hydrocarbon Neutrality in the Republic of Kazakhstan by 2060.

Kazakhstan produces approximately 18 of the 34 essential raw materials identified by the EU as crucial for batteries, electric vehicles, solar panels, and other components in the renewable energy sector. These materials encompass bismuth, gallium, rare earth elements, silicon, vanadium, tungsten, lithium, indium, cobalt, etc.

Despite this significant resource, there are currently no specific governmental or legislative initiatives related to “energy-transition minerals”.

Meanwhile, in the State of the Nation Address in September 2023 (the “Address 2023”), President of Kazakhstan Kassym-Jomart Tokayev gave instructions to develop a comprehensive plan for the energy-transition minerals industry. Currently, MIC is in the process of developing a Comprehensive Plan for the Development of the Rare and Rare Earth Metals Industry for 2024–2028.

The comprehensive plan provides for the expansion of the resource base and the introduction of technologies for the complex extraction of rare metals, the modernisation of existing production facilities, the development of standards regulating the industry and the lifting of the secrecy regime for certain metals.

Mining companies operating in Kazakhstan are obligated to adhere to the standard taxes and duties applicable to all legal entities, including:

• corporate income tax is currently set at a rate of 20%. The government is considering raising it to 25–30% for the basic materials industry, financial sector, and gambling industry;
• value-added tax is currently set at a rate of 12%. The government is considering raising it to 16% starting from 2025);
• property tax (1,5%); and
• land tax (the rates vary),

as well as specific subsoil use taxes and duties. In this regard, the mining companies shall maintain separate tax accounting for the activity under a subsoil use licence/contract and its non-subsoil use-related activity. Both companies and joint ventures registered in Kazakhstan are regarded as residents for tax purposes.

The specific taxes and other payments of a fiscal nature for mining companies are as follows.

• Signature bonus – a one-off payment made by a subsoil user upon either acquiring a subsoil use right for a particular territory or in case of its enlargement. The signature bonus for an exploration licence equates to 100 MCIs (approximately USD803); for a mining licence it is 200 MCIs (approximately USD1,605).
• Mineral extraction tax (MET) – 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.
1. MET is paid separately at specific MET rates for each type of extracted mineral, ranging from 0% to 21.06%.
2. Under the previous tax legislation, Kazakhstan used the system of royalties paid by subsoil users, however this system was abolished and replaced by the MET system on 1 January 2009.
• Rental fees – paid as a licence obligation under exploration and mining licences. The amounts are as follows: for an exploration licence, between 15 and 60 MCIs (approximately USD121 to USD485) for one block, depending on the year of exploration; for a mining licence, 450 MCIs (approximately USD3,641) per square kilometre of the licence area.
• Payment for compensation of historical costs – a fixed payment made in instalments to compensate the state for the costs of a geological survey and exploration conducted on a subsoil area that were incurred before the execution of a subsoil use contract.

The tax legislation in Kazakhstan does not distinguish between national and foreign investors.

Generally, subsoil users carrying out operations for the exploration and/or mining of mineral resources are not allowed to enjoy tax or other preferences.

Investment preferences (including tax preferences) for subsoil users may be provided by conclusion of the following.

• Agreement for investment project. The investment project is a set of measures providing for investments in establishing new, as well as upgrading and modernising current manufacturing facilities in eligible regions. Such agreement would grant certain benefits such as exemption from import VAT for certain specified products during five consecutive years.
• Agreement on investment commitments. Agreement on investment commitments is an agreement concluded between the RoK government and a legal entity, outlining the commitments of the legal entity regarding the financing of capitalised subsequent expenditures and/or expenditures for the acquisition, production, and construction of new fixed assets. It also covers the financing of other costs that increase the value of fixed assets in accordance with international financial reporting standards and/or the requirements of the RoK legislation of the Republic of Kazakhstan on accounting and financial reporting.
1. These commitments extend over a period of eight years, including the year in which the application for the conclusion of such an agreement is submitted, and the total amount should be no less than 75,000,000 MCIs (approximately USD601,956,521).
2. In the event of concluding an Agreement on Investment Commitments with a legal entity engaged in the mining and/or processing of solid minerals, such agreement is exclusively for activities in the field of mining and/or processing solid minerals.
3. Investment commitment agreement provides tax stabilisation for ten years (except for VAT, emissions and certain other taxes).
• Agreement on the processing of solid minerals. If the mining licence holder intends to create new facilities for the processing of solid minerals, or to expand or modernise existing ones, and the amount of investment exceeds 7,000,000 MCIs (approximately USD56,182,609), then it is entitled to conclude a special processing agreement which, depending on the results of a negotiation, provides for investment preferences (including tax preferences).
• Conclusion of an intergovernmental agreement. In practice, subsoil users may obtain preferences outlined in intergovernmental agreements. These preferences, encompassing various aspects, including tax stabilisation, are contingent upon negotiations.

The transaction involving the sale of subsoil use rights is liable to a 12% value-added tax. In practice, parties to such transactions prefer to use “share deal” structures, since the sale of shares in local companies is exempted from value-added tax.

Despite possessing a substantial quantity of mineral resources, Kazakhstan secured the 65th position out of 84 in the Fraser Institute’s Annual Survey of Mining Companies in 2021, indicating a relatively lower attractiveness among mining regions. The reason for this is low investor perception of the political environment and understated geological potential.

Nevertheless, Kazakhstan is actively working to attract direct foreign investment, particularly in the mining sector. To achieve these objectives, Kazakhstan implemented the SSU Code, thereby opening up the state territory for exploration on a “first come, first served” basis.

This proactive approach is part of Kazakhstan’s broader strategy to enhance transparency and simplify regulatory processes in the mining industry. The SSU Code introduced reforms aimed at streamlining administrative procedures, reducing bureaucratic hurdles, and promoting a more investor-friendly environment. By adopting this SSU Code, Kazakhstan aims to boost investor confidence and create a competitive edge in the global mining landscape.

Beyond regulatory changes, Kazakhstan has undertaken strategic efforts to improve its investment climate. The country has embraced common law principles under the AIFC reinforcing legal frameworks and providing additional incentives for investors.

One of the primary issues surrounding investment in the mining sector in Kazakhstan revolves around frequent alterations to tax legislation, leading to inconsistent application and interpretation. Companies argue that the unexpected and frequent shifts in the tax regime have resulted in delays in making investments.

There are no general restrictions on foreign companies holding mining rights. Any individual and legal entity (whether national or foreign) can hold exploration or mining rights, provided they comply with the requirements of the SSU Code (eg, availability of financial, professional, and technical capabilities). The procedure of obtaining licences is the same for national and foreign investors.

However, the MIC retains the right to refuse an application for exploration or mining licence due to national security issues.

Mining rights to a uranium deposit may only be granted to the National Atomic Company Kazatomprom JSC (KAP) and can be subsequently transferred to an investor or joint venture, by which no less than 50% of direct or indirect interest must remain for KAP.

In addition, a mandatory condition for granting the subsoil use right for hydrocarbons at Caspian and Aral Sea is that the National Company KazMunayGas JSC (national hydrocarbon company) must have a minimum 50% of share participation as a subsoil user under the contract in the field of hydrocarbons.

Kazakhstan is a party to actual BITs with approximately 50 countries, 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. Nevertheless, all treaties stipulate the right of an investor to resolve an international investment arbitration, to protect their rights and investment.

Additionally, Kazakhstan is a signatory to:

• the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards;
• the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States;
• the Energy Charter Treaty, and;
• the Agreement on Promotion and Reciprocal Protection of Investments in the Member States of the Eurasian Economic Community.

In Kazakhstan, at the exploration stage, the main financial resources come from either the funds of subsoil users themselves using the capital contribution or involving joint venture transactions. In the context of joint ventures, a smaller company, overseeing a set of exploration licences, provides an option to a senior company. This is done in exchange for the latter expending funds on exploration according to a mutually agreed schedule. Also, in practice, exploration financing is carried out through loans from both third companies and banks and IPOs.

As for the mining stage, loans from parent companies, investors, as well as banks and financial institutions, along with project financing, off-take agreements are expected to become more accessible.

Please refer to 5.5 Role of Domestic and International Securities Markets in the Financing of Exploration, Development and Mining regarding financing from Securities Markets.

Securities Market

Currently, there are two securities markets functioning in Kazakhstan: the Kazakhstan Stock Exchange (KASE) and the Astana International Exchange (AIX). Despite their existence, both local and foreign companies usually raise funds on the global stage in Hong Kong, London, Toronto and Sidney financial centres.

Kazakhstan issuers offering their securities (including derivatives) outside of Kazakhstan must offer not less than 20% of the total number of securities or derivatives offered abroad on KASE or AIX and notify the Agency of the Republic of Kazakhstan for Regulation and Development of Financial Market on the outcome of the placement of such securities or derivatives abroad.

In the Address 2023, President of Kazakhstan Kassym-Jomart Tokayev demanded the merger of KASE and AIX.

Issuing Securities in Securities Markets

The SSU Code provides for the definition of objects related to the subsoil use right (the “Objects”), encompassing various forms of equity participation such as shares, participatory interests, and securities verifying ownership rights or convertible into any type of equity participation in either a subsoil user or a legal entity or another organisation with the ability to directly and/or indirectly influence decisions made by the subsoil user.

The SSU Code requires obtaining prior approval of the MIC for an IPO or SPO of Objects on either domestic or international securities markets.

Mineral rights (or a share in them) may be pledged under the conditions provided by SSU Code or encumbered in other ways.

However, a pledge of an exploration licence during the first year of the term of the licence is prohibited.

Other than other types of encumbrances, a pledge of mineral rights or a share thereof requires registration with the MIC, and it becomes valid from the moment of registration.

Related assets such as equipment and machinery may be pledged, within the limits and conditions envisaged by the RoK Civil Code.

Kazakhstan is in the process of formulating a new water code aimed at safeguarding and conserving water resources. The implementation of new water standards, driven by concerns over water scarcity in Central Asia, has the potential to impact the mining industry.

Presently, the ongoing reforms initiated as part of the transition to the SSU Code are very slowly progressing. Anticipated developments include the accessibility of all regions in the country for exploration activities, a complete transition to the online issuance of licences through the MIC’s web portal, and the enforcement of environmental standards for polluting entities.

However, legislative amendments continue to be enacted without the active involvement of industry representatives. With recent changes in legislation, the GKZ standards that were to be abolished after 1 January 2024, have been left for use in parallel with CRIRSCO reporting standards introduced by the reform of 2018. In addition, mineral resource reserves, validated according to CRIRSCO standards, will further undergo on-top evaluation by the GeoCom/GKZ before resources are recorded in the unified cadastral of the state subsoil fund to be available for further mining. The government restored to the Soviet-era requirement for exploration operations regulating minimal scope and methods of works. These requirements were previously abolished by the reform of 2018, while adopting the SSU Code.

Moreover, in December 2023, the President called for a reasonable mechanism that secured a steady supply of primary metals for domestic manufacturers. The parliament and the government are actively pursuing amendments to the Industrial Law that go beyond merely ensuring the supply of primary metals for domestic manufacturers.

These proposed amendments entail a potential prohibition on the export of raw materials, obliging all producers to sell these materials in the local market at prices defined under special competitive pricing. It is important to note that these amendments currently lack a precise definition of raw materials, leaving this determination to be outlined by the MIC through by-law regulations (potentially, MIC can specify any raw materials or mineral concentrate). Additionally, there is a lack of clarity regarding the mechanism for counting special competitive pricing.

Producers of raw materials will have the opportunity to secure an export licence for such materials, contingent upon their fulfilment of the obligation to supply raw materials to domestic manufacturing enterprises.