Introduction

Kazakhstan is fast emerging as a major global presence in the mining industry, and has resources
of over seventy metals and minerals, twenty five of which are mined commercially. With the
mining industry accounting for 27 per cent of its GDP, Kazakhstan has world leading reserves of
chromite, zinc, copper, gold and manganese, and holds 28 per cent of the global supply of
uranium.

1. State ownership of minerals/metals

All minerals existing on, in or below the surface in Kazakhstan are and remain the property of
the state. Minerals brought to the surface belong to a subsurface user (i.e. a mining company)
unless otherwise provided for by contract. The subsurface use rights for the exploration or
production of minerals are granted by means of a contract entered into with the Ministry of
Industry and New Technologies (MINT).

2. Mining legislation

The principal legislation governing subsurface exploration and mining activity in Kazakhstan is
the Subsurface Use Law dated 24 June 2010, which took effect on 7 July 2010 (the Subsurface
Law). The Subsurface Law replaced the Law on the Subsurface and Subsurface Use, dated 27
January 1996, as amended.

3. Mining licences

Major mining activities under the Subsurface Law include:

exploration
production and joint exploration
production

Contracts for these activities are typically granted following competitive tender.

The term of an exploration contract is six years with the right to extend its term in case of a
commercial discovery for the period necessary to evaluate the extent of such discovery. A
commercial discovery under an exploration contract gives the exclusive right to a subsurface
user to enter into a production contract on terms and conditions agreed with MINT.

A production contract may be entered into for any period until depletion of the deposits but
cannot be for more than for 25 years except for large and unique deposits where the contract
term may be up to 45 years. A contract for joint exploration and production is granted by the
state only for strategic fields or fields having complex geological structure.

4. Rights of foreign investors

There is no distinction between the mining rights that may be acquired by a domestic or a foreign
investor. A foreign investor can either use a Kazakhstan incorporated company (typically in the
form of a limited liability partnership or a joint stock company), or a company incorporated
outside Kazakhstan to hold subsurface use rights. There are no requirements of minimum state or
domestic ownership of mining companies.

5. Protection of nationals

All subsurface users must give preference to local personnel and finance the professional training
and development of such local personnel. In addition all subsurface users must give preference to
local producers, provided the goods and services comply with applicable standards. Generally a
subsurface user will have its specific social obligations set out in its mining contract.

6. Government interest in the project

Subject to a few exemptions (e.g. for intra-group transfers) the state has a pre-emptive right
where a subsurface user transfers its subsurface rights or direct or indirect ownership interest in a
mining company to a third party. The state is entitled to acquire such rights/interests on terms no
worse than those offered to other buyers. Transactions related to mining rights are subject to
approval of MINT, which includes amongst others granting security over the subsurface rights,
or over direct or indirect ownership interest in a subsurface user.

The state also has the right, in priority to third parties, to acquire minerals owned by a subsurface
user at prices not exceeding the prices applied on the date of a transaction, in comparison with
other similar transactions (however, at prices exclusive of transportation and sales costs).

7. Fees, taxes, duties and royalties and tax incentives

There are specific taxes and payments applicable to activities of a subsurface user, including:

a mineral extraction tax

an excess profits tax
historical costs
subscription and commercial discovery bonuses

The mineral extraction tax is payable on the value of the mineral resources produced and based
on the average exchange price of the extracted minerals at the London Metal Exchange or at the
London Precious Metal Exchange. Depending on the type of mineral, such tax ranges from 0.25
per cent to 18.5 per cent.

8. Financial capacity of the investor

An investors financial capacity (including ability to finance mining operations) is an important

consideration taken into account by MINT in determining the grant of mining rights. The
bidders/investors proposals and applications must contain proof of financial capacity and
commercial activities for the previous three years and such proof must be in line with the extent
of the financing required under relevant work programmes and project documentation for mining
activities.

Further, the Subsurface Law provides that technical competence of the acquirer must be
demonstrated as part of the application, but does not specify how. In practice, the acquirer
provides data related to its financial, technical and administrative capabilities as part of the
application.

9. Protection of the environment

Environmental regulation in Kazakhstan is contained in the Ecological Code, dated 9 January

2007. The Subsurface Law also contains environmental provisions governing the mining sector.
As part of the application process there is an obligation on the investor to undertake an
Environmental Impact Assessment as part of the pre-project environmental protection, and for
the project documentation.

All subsurface users must perform mining operations in strict compliance with such provisions
and plan to mitigate any negative impact of its operations, including amongst others, by forming
a liquidation (rehabilitation) fund and relevant program for the rehabilitation of after-effects.

10. Enforcement regime

Kazakhstan is a signatory to the New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards. This establishes a framework for enforcement of foreign arbitral
awards; though the enforcement process is a matter of local law. Kazakhstan has ratified the
ICSID Washington Convention. Kazakhstan has bilateral investment treaties (BITs) in force
with more than 44 countries, including the USA, the United Kingdom, Germany and France.
Investors from countries with which Kazakhstan has concluded BITs are advised to check the
relevant treaty to see whether it provides for ICSID arbitration.