Thriving mining industry in Kazakhstan
Michael Schwartz reports on a country, which has been fully, and successfully exploiting its resources and infrastructure.
Kazakhstan is the world’s ninth largest country. Imagine the journey from London to Istanbul – that is the width of Kazakhstan. After Soviet rule, Kazakhstan implemented structural reforms, which made it the first former Soviet country to obtain an investment-grade credit rating.
At the time of writing, statistics for Kazakhstan’s mining output in 2016 are not available. However, just how important the mining sector is in Kazakhstan can be judged from an Australian trade mission brochure, Austrade, which advised potential investors that Kazakhstan is one of the ten leading countries for mineral resources, with mining contributing 9% of GDP and 25% of industrial output for 2015. More specifically, the country is the world’s leading producer of uranium, while possessing 30% of global chrome ore reserves, 25% of manganese ore, 10% of iron ore and 13% of zinc. Kazakhstan exports 80% of its mineral production, accounting for 20% of its total exports.
Central Asia Metals PLC (CAML) was contacted by Materials World, and Chief Financial Officer Nigel Robinson replied on the significance of mining, ‘There has always been an active mining industry in Kazakhstan thanks to its vast resources, skilled workforce and location next to key markets. This is still the case today and the mining industry makes a large contribution to the country's economy. The Government is very supportive of the mining industry.’
A high-growth copper mining company, KAZ Minerals, acknowledges not just the mineral wealth of Kazakhstan but also its excellent transport links and substantial foreign direct investment. The latter totals more than US$200 billion since 1993. KAZ Minerals employs 13,000 staff and is progressing with two major copper developments in the country. The two projects, Bozshakol and Aktogay, are highly significant for Kazakhstan, which is located between Europe, the world’s second-largest market for copper, and China, the largest market with 49% of global copper consumption. KAZ Minerals is aiming to produce 80% of its copper ore income through low-cost, open-pit copper mining from its two new mines. Its 2018 target is to produce 300,000 tonnes of copper in concentrate – an annual production growth of 55%.
CAML owns the Kounrad solvent extraction and electro-winning copper facility near Balkhash in central Kazakhstan. The facility recovers copper waste from local dumps, this waste having originated from the Kounrad opencast copper mine, where oxides and low-grade sulphides comprised a significant tonnage. Copper cathode is produced at the plant and transported by rail and sea to end customers, predominantly in Turkey. CAML used an IPO of US$60 million in September 2010 to build the Kounrad recovery plant, where the contained copper resource totals 600,000t. Copper production commenced in April 2012, and production has increased to 14,020t/y as of 2016. Gross revenue for that period was US$69.3m.
CAML announced in November 2016 that it had signed a framework agreement to acquire 80% of the Shuak copper exploration property in Akmola oblast, 300km north of the capital, Astana. This 197km2 property has two forms of mineralisation of interest to CAML. The first is saprolite-hosted oxide with enriched copper and gold and some molybdenum. The second offers the same three minerals in mineralisation of a porphyry nature.
Robinson sums up his company’s success, ‘We have built our business around our successful copper production facilities at Kounrad and are very comfortable operating in Kazakhstan. We have been operating in Kazakhstan since 2005 and have established a very good working relationship with our surrounding communities and both the local and national governments, and as a result, our business has been able to flourish.’
One of the more diversified companies operating in Kazakhstan, ArcelorMittal, produces steel, predominantly for export and extracts iron ore and coal. More specifically, the company’s Orken iron ore division produces, processes and concentrates ore for delivery to the Temirtau steel plant from its Lisakoviy, Orken-Asasu, Orken-Kentobe, and Orken-Atansor Mines.
ArcelorMittal’s coal operations centre on the Lenin Mine, which commenced operations in 1964 (affiliated to the Temirtau Coal Division since 1996) and the Abaiskaya Mine, organised in 1998 after the consolidation of two mines, Kalinin and Abaiskaya, also affiliated to Temirtau. ArcelorMittal Kazakhstan’s spokesperson describes the mining environment in the country, ‘Since independence, Kazakhstan has achieved significant results in its efforts to attract foreign investment, mostly in the natural resources sector. The Government is still interested in improving the investment climate in Kazakhstan, while considerable efforts have been made to remove bureaucratic obstacles.
Kazakhstan has also established institutions to promote investment, for example KazNexInvest and the Foreign Investors’ Council, as well as an ombudsman to help foreign investors address their concerns to the right institution and ultimately ensure a more favourable investment climate.’
One factor stressed by ArcelorMittal, Kazakhstan, is the country’s adoption of the Western Australian Mining Code. According to a statement from the Ministry of Industrial Development, introducing the Western Australian code will, through its simplified order, provide the chance to attract tens or even hundreds of small junior companies. The latter, under the country’s reporting system, will promote the subsequent involvement of larger mining companies.
In addition, maintaining inventories of subsurface usage will provide transparency and clarity when contracts are concluded and also enable the execution of contractual obligations. What is more, interactive maps for registration of subsoil user applications, coupled with online access to geological information and established regulations will fully function.
Corporate social responsibility (CSR)
All three companies interviewed are dedicated to CSR. KAZ Minerals describes CSR as being at the core of the company’s strategy, with employees, investors, local communities, governments and other stakeholders expecting KAZ Minerals to develop mineral wealth for the benefit of wider society in Kazakhstan, while minimising the impact of its activities. ‘We have supported many local worthy causes such as improving and modernising nearby schools and aiding the elderly. Since 2012, we have spent around US$1.2 million on social funding. Furthermore, we pride ourselves on employing local workers and contribute to our communities by supporting worthy local causes. We have a strong focus on training our staff and currently 99% of our workforce is recruited locally,’ said Robinson.
Kazakhstan is also highly supportive when it comes to transporting minerals. KAZ Minerals points out that there is an excellent rail network. There are links to China and Russia by rail and goods can be exported from the seaport of Novorossiysk. Robinson outlines the transportation process, ‘The majority of our product, pure cathode copper, is transported outside of Kazakhstan by our off-take partners. We have an off-take agreement in place with Traxys, which provides financial and logistical solutions to the ferroalloy, metal, mineral, mining and energy industries, for a minimum of 90% of our production.
‘Generally, Kazakhstan is well served with good infrastructure. As part of our initial capex we didn't need to spend much on rail or electricity, simply just connections to the main infrastructure. We have over the past two years built a water pipeline (18km) to the nearby lake to enhance water supply – but that is all we have had to do, which is fairly light compared to some mining projects.’
ArcelorMittal’s spokesperson was asked about markets and replied that its iron ore and coal concentrates are used for the company’s own needs for steel production. Its metal products are sold locally and to 70 countries. The metallurgical plant run by ArcelorMittal Temirtau is located within the interior of the country, a considerable distance from the seaports. Products are mainly transported via the railway network provided by the Kazakhstan Government.
Fiscally, Kazakhstan offers an encouraging taxation environment, which strengthens investment. ‘Since we commenced copper production at our Kounrad operation around five years ago, we have paid tax of nearly US$82 million in Kazakhstan. The current tax regime relating to mining in Kazakhstan has been in place since 2009,’ said Robinson. ArcelorMittal Kazakhstan replied that the taxation system comprises an established framework for taxation, whether for individuals or for investors. There are no tax exemptions for ArcelorMittal Kazakhstan.
Kazakhstan has emerged as a mining giant, attracting major investment. In addition to its massive resources, Kazakhstan’s transportation infrastructure and code of practice will help ensure its continued success.