sign in sign up
<<
Home , Abay (town), Aktobe Region, Arkalyk, Balkhash (city), Ekibastuz, Energy in Kazakhstan

2016 Production - Equipment - Services - Chemicals Production Power - Mining - Mining Code - Mono-Cities - Exploration MINING, POWER & CHEMICALS POWER MINING,

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 Dear Readers,

Our team at Global Business Reports is delighted to present the following cross-industry analysis of Kazakhstan’s mining, power, and chemical sectors. After months on the ground in , Astana, and Ust Kamenogorsk, we have heard from the country’s most prominent executives, officials and thought leaders across three distinct but interlinked value chains.

The Central Asian state is endowed with a rich store of natural resources, including oil and a host of metals and minerals. Strategically located at the frontiers of and China, and bearing healthy relations with trade partners across the world including the United States and Western Europe, Kazakhstan has relied on raw material exports to fuel its economy for decades. Yet a fall in oil prices coupled with slowing global growth and geopolitical uncertainty has prompted the state to invest in alternative sources of income and pursue economic diversification. According to the World Bank, the country is likely to grow at an estimated 1.3% this year, down from 4.3% in 2014, highlighting the need for strong policy directives.

The state has articulated its commitment to reform, outlining steps to achieve large- scale development and modernization through two programs of accelerated industrial and innovative development. Furthermore, the Kazakh economic policy, known as Nurly Zhol, outlines plans to stimulate the economy through targeted investments in domestic transport, energy, and industrial and social infrastructure. Following through on these objectives will be key in overcoming the downturn in oil prices and increasing the country’s visibility in the global arena. The upcoming Expo 2017, to be hosted in Kazakhstan’s of Astana, will be a timely test of the country’s commitment to change, as well as an opportunity to showcase the country’s non-oil sectorial potential.

Kazakhstan Mining, Power & Chemicals 2016 Industry Explorations strives to provide insights into Kazakhstan’s largely undiscovered potential, specifically within the mining, power, and chemical sectors. We hope that investors and policymakers alike will gain insights from our research on the country’s ongoing exploration, its commitment to the adoption of renewable energy, and its burgeoning chemical production within newly established special economic zones. Kazakhstan’s primary goal to rank among the world’s 30 most developed nations by the year 2050 hinges on the success of all three of these key sectors.

We would like to heartily thank all of our interviewees, as well as the companies, associations and individuals that we have met with for their support and insights.

Sincerely,

Katya Koryakovtseva, Project Director Lubo Novak, Journalist Neha Ghanshamdas, Journalist

KK LN NG CONTENT Exclusive Interviews Introducing Kazakhstan and its Mining, Kazakhstan's Equipment and Service Government officials, association heads, and Power & Chemical Industries Supply Chain industry executives discuss their organizations’ strategies and provide insight into the Kazakhstani 8. Canny Kazakhstan: A Brief Political and 70. Seeking Quality and Infrastructure economy and heralded mining sector. Economic Overview 73. Interview with Atlas Copco 10. Interview with Ministry of Investment and 75. Interview with Borusan Makina Kazakhstan 16, 17, 24, 25, 38, and many more Development, Republic of Kazakhstan 76. Interview with Sandvik Mining and 11. Interview with Ministry of Energy, Republic Construction Kazakhstan of Kazakhstan 77. Interview with Kazzincmash 13. -by-Steppe: Can Minerals Help 78. Interview with Thrane Teknikk Kazakhstan Diversify Away from Oil and 79. Interview with AK Machinery Gas? 80. Interview with Volvo Group Kazakhstan 15. Expert Opinion Article by Michael Wilson & 81. Interview with Metso Kazakhstan Partners, Ltd. 82. Innovative Service Solutions for Miners in Editorial 18. Interview with Association of Mining and Kazakhstan Metallurgical Enterprises (AGMP) 85. Interview with National Center on Complex Content Processing of Mineral Raw Materials, Republic of Kazakhstan Global Business Reports’ journalists provide is King: Kazakhstan’s Power Industry 86. Interview with KazGeotech unique insights into all aspects of the power, 88. Interview with SGS Kazakhstan and Caspian mining, and chemical industries in Kazakhstan by 22. Tackling Tariffs: Kazakhstan's Slowly Sub- working on the ground for months. Evolving 89. Interview with KPSP 24. Interview with AES Corp., Kazakhstan 90. Interview with RJC Group 12, 22, 32, 40, 48, 56, 70, 82, 96, 108 25. Interview with Central-Asian Electric Power 91. Interview with Orica Kazakhstan Corporation (CAEPCO) 92. Interview with MICROMINE & Interview 26. Interview with Batys Transit with GeoMineProject (GMP) 27. Interview with PwC Mining and Power 93. Interview with Leica Geosystems and Specialists, Assurance Dept. Hexagon Mining Division

RANK 28. Interview with Det Norske Veritas Kazakhstan 12 KAZAKHSTAN'S WORLD RANKING FOR 8 NATURAL RESOURCES RESERVES Source: 29. Interview with ILF Consulting Engineers 12 2 Quantitative Oil 14 31. Interview with KB Enterprises A Rough Road to Diversification: Coal 11 Iron Ore 1 Kazakhstan's Chemical Industry Uranium 7 Bauxite 10 Data and Maps Molybdenum 5 Chrome 13 Zinc Shaping the Contours of Kazakhstan's 96. Kazakhstan Invests in its Chemical Sector 11 Quantitative data and maps help readers to Silver Mining Industry 98. Interview with Kazakhstan Petrochemical Copper better understand the underlying trends across Lead Industries (KPI) Inc. all levels of the value chain in Kazakhstan’s 18 KAZAKHSTAN'S WORLD RANKING FOR NATURAL RESOURCES RESERVES 10 34. Transitioning to Privatization, Maintaining 99. Interview with Corrocoat Caspian Source: Government of Kazakhstan power, mining, and chemical industries. 13 1 100. Interview with Evonik Chimia Oil Historical Assets 11 Coal 12 102. Interview with Chemie & Technology Iron Ore 37. Interview with Eurasian Resources Group 3 Uranium 9 103. Interview with Linde Gas Kazakhstan LLP 8, 9, 12, 13, 22,Bauxite 23, 56 18 (ERG) Molybdenum 12 Chrome 104. Interview with BASF Central Asia 11 38. Interview with Government of Karaganda Zinc 10 105. Interview with 3M Kazakhstan & Interview Gold Region Silver Copper 39. Interview with ArcelorMittal with Dow Kazakhstan Lead 40. Interview with Kazakhmys Corp. 42. Overhauling Kazakhstan’s Subsoil Regulations Into the Future 44. Interview with Michael Wilson & Partners, Expert Ltd. 108. The Way Forward for Kazakhstan and the 45. Interview with Geomark Global Mining Industry Opinion 46. Interview with Colibri Law 109. Interview with Eurasia Russia 47. Interview with Iluka Resources Business Association (CERBA) Market actors provide deeper insight into the 112. Final Thoughts most important topic facing the mining sector: 114. Company Index the revision of the mining code. The Big Dig: Exploration 115. Credits

50. Slowly Attracting International Players: 15 Mineral Exploration in Kazakhstan 52. Interview with Altay Polymetals 53. Interview with Rio Tinto 54. Interview with Syrymbet 55. Interview with SRK Consulting Kazakhstan

Spanning the Periodic Table: Production Future This research has been conducted by Katya Koryakovtseva, Lubo Novak, and Neha Ghanshamdas.

58. Take Your Pick: Mineral Production in Edited by John V. Bowlus Outlook Kazakhstan Graphic design by Gonzalo Da Cunha 62. Interview with KATCO JV Kazakhstan’s variety and depth of mineral A Global Business Reports Publication 63. Interview with Betpak Dala For updated industry news from our on-the-ground teams reserves makes it one of the most important 64. Interview with EuroChem-Karatau around the world, please visit our website at gbreports.com, jurisdictions on the planet. Companies share their subscribe to our newsletter by signing up to our VIP list 65. Interview with Kazphosphate through our website, follow us on Twitter: @GBReports visions for the future of the industry. 66. Interview with YILMADEN Holding 67. Interview with Deloitte 112, 113

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 4 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 GBR • Industry Explorations • KAZAKHSTAN INTRODUCING KAZAKHSTAN AND ITS MINING, POWER, AND CHEMICAL INDUSTRIES

“2015 will be a difficult year for the mining industry and the Kazakh economy in general. The current difficulties will reveal those companies who are properly prepared to withstand the challenges presented by the global economy. Amendments to the Subsoil Law and development of a mining code will be crucial for the development of the mining industry in Kazakhstan.”

- Albert Rau, Vice Minister, Ministry of Investment and Development, Republic of Kazakhstan Image: Lubo Novak EDITORIAL Global Business Reports Global Business Reports EDITORIAL

Kazakhstan is no stranger to international attention for its raw ranks second among former Soviet republics after Russia, and its signed to make Kazakhstan one of the world’s 30 largest econo- CANNY materials, and it knows how to play the game. This massive coun- oil production ranks 18th in the world. mies, continues. A key pillar of this strategy is identifying new try at the heart of Asia is not only replete with natural resources, Having become a major oil and gas-exporting country has given sectors for the country to develop and attract foreign investment including oil and gas and, as this report highlights, minerals, but Kazakhstan weight in global energy markets and attracted the in- and new partnerships for Kazakhstan to grow its exports. Then, in KAZAKHSTAN it also has vast experience of trading and working with outsid- terest of world powers in search of energy security. China and 2014, Nazarbayev introduced "Nurly Zhol" (Bright Path), a new A Brief Political and ers. Moreover, Kazakhstan has already demonstrated that it can Western Europe are excellent markets for consuming Kazakh economic policy that envisions massive state investment in infra- produce healthy economic growth without depending on its vast hydrocarbon exports; Russia also seeks to cooperate and collabo- structure over the next several years. The top-down approach has Economic Overview subterranean wealth. In 2014, GDP growth was 4.3%, despite the rate with Kazakhstan on energy. Transnational oil pipelines allow yielded success in managing the economy in the past, and casting plunge in world oil prices. Growth is expected to slow to 1.5% in Kazakh oil to reach China, Russia, and the Black Sea, and trans- reforms over such a long period of time could either be the right 2015, but the World Bank and International Monetary Fund both national gas pipelines link Kazakh gas to Russia, and ultimately approach to foster gradual reform, or devolve into inaction. Only predict recovery in 2016 and 2017. Now, Kazakhstan is embark- , as well as and Turkmenistan. Plans to build time will tell. ing on a strategy to further diversify its economy from raw mate- additional gas pipelines to China and are still in the proposal In its trade relations, Kazakhstan is also building outward. In May rials into other value-added industries. stages, but speak to the country’s ambitions as well as the global 2014, it joined the Eurasian Economic Union (EEU) with Belarus Yet oil and gas will still constitute the bulwark of Kazakhstan’s thirst for energy. Most forecasts predict that world demand for and Russia, with and Kyrgyzstan acceding to the union economy in the medium term. Kazakhstan first began producing natural gas will continue to rise, and, if these plans come to frui- in 2015. The EEU represents a single, integrated market of 183 oil in 1911, when it was part of the , but produc- tion, Kazakhstan will be better positioned to compete for market million people and has provisions to expand from a trading bloc tion mostly stagnated for the next several decades, barely eclips- share than more expensive liquefied natural gas coming from Qa- into a monetary union in the future. Kazakhstan is already a mem- ing the 500,000-barrels per day (bpd) mark. The dissolution of tar, Australia, or the United States. ber of the Commonwealth of Independent States, the Economic Astana the in 1991, however, refocused the attention of in- Kazakhstan has experienced political stability since indepen- Cooperation Organization, and the Shanghai Cooperation Orga- ternational oil companies (IOCs) on the newly independent states dence, which has been a key ingredient in its two-decade rise nization. in Central Asia, including Kazakhstan, in the hopes of gaining a and will be critical to executing its strategy to foster economic The same shrewd and patient decisionmaking and alliance build- foothold in the forthcoming bonanza of oil and gas production. In competitiveness in other spheres. In office since 1991, President ing that has characterized the country’s first 25 years is likely to 1992, Kazakhstan produced 443,000 barrels per day (bpd) of oil was reelected in April 2015 with nearly continue for the foreseeable future and help Kazakhstan to contin- but by 2015, this figure had climbed 1.7 million bpd. During the 98% of the vote. The continuity of leadership will ensure that ue to increase its production of raw materials, bolster its ancillary same period, gas production rose from 286 billion cubic feet (bcf) Nazabayev’s Kazakhstan 2050 Strategy, a series of economic, services, and develop entirely new homegrown industries. In one to 720 bcf. Kazakhstan’s 30 billion proved barrels of oil reserves social, and political reforms that were launched in 2012 and de- of the oldest parts of the world, time is on Kazakhstan’s side. •

ENERGY CONSUMTION BY FUEL (2012) CRUDE OIL EXPORTS BY DESTINATION KAZAKHSTAN AT A GLANCE Source: U.S. Energy Information Administration Source: U.S. Energy Information Administration Source: CIA World Factbook

Population: 18,157,122 (July 2015 est.) Land Area: 2,724,900 sq km Official Language: Kazakh Billion Barrels Capital: Astana PROVED OIL RESERVES Chief of State: President Nursultan Nazarbayev (since 1991) 2015 Head of Government: Prime Minister Karim Masimov (since 2 April 2014) GDP (PPP): $418.5 billion (2014 est.) Growth Rate: 4.3% (2014 est.) GDP per Capita: $24,000 (2014 est.) GDP PER CAPITA % % GDP Composition by Sector: 4.9% agriculture, 29.5% industry, 65.6% services (2014 est.) 2014 Exports: $87.25 billion (2014 est.): oil and oil products, natural gas, ferrous metals, chemicals, machinery, Source: CIA World Factbook Trillion Cubic Feet Coal 63 Europe 76 grain, wool, meat, coal PROVED NATURAL GAS RESERVES Oil 18 Asia & Oceania 17 Imports: $47.56 billion (2014 est.): machinery and equipment, metal products, foodstuffs 2015 Natural Gas 16 Americas 4 Major Trade Partners: Russia, China, , France, Italy, Greece, Romania Source: U.S. EIA. Hydro 3 Other 2

KAZAKHSTAN GROWTH VS. INFLATION (2007 TO 2016) KAZAKHSTAN OIL AND GAS PRODUCTION (1992 TO 2014) Source: International Monetary Fund Source: U.S. EIA.

GROWTH % INFLATION % OIL PRODUCTION (THOUSAND BARRELS PER DAY) GAS PRODUCTION (BILLION CUBIC FEET)

18 18 1900 1100

17 17 1800 1050

16 16 1700 1000

15 15 1600 900

14 14 1500 850

13 13 1400 800

12 12 1300 750

11 11 1200 700

10 10 1100 650

9 9 1000 600

8 8 900 550

7 7 800 500

6 6 700 450

5 5 600 400

4 4 500 350

3 3 400 300

2 2 300 250

1 1 200 200 FORECAST

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 8 - Industry Explorations Industry Explorations - 9 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

and the government has prioritized their de- and with so many international guests. Ka- What actions are being taken to promote the member states. All of these factors cre- velopment, as well as the mining facilities, zakhstan remains largely undervalued by the energy efficiency in the country? ate premises to increase Kazakhstan’s ex- over the past couple of years. The develop- international mining community, which is Kazakhstan has sufficient energy sources to port potential within the common market. ment of these cities relates directly to the de- why such events help to increase the coun- meet domestic demand and does not need velopment of a competitive mining industry. try’s visibility and recognition. to import power. Electricity is generated by 76 power plants, with a total capacity Kazakhstan is the world largest urani- The government amended the Law on the Mining companies globally have difficul- of 16.9 gigawatts. However, it is necessary um producer and has recently approved Subsoil and Subsoil Use in January 2015. ties finding qualified staff. How do the to ensure stable power supply during peak plans for construction of a nuclear power What specific problems did the amend- government and local universities ad- electricity load hours, which is done by si- plant this past May. What role will nu- ments address and why were they made dress this problem? multaneous operation of Kazakhstani, Rus- clear power play in Kazakhstan’s energy at this time? It is a challenge to find the right talent, and sian and Central Asian energy systems. As mix in the long run? In January 2015, new changes were indeed within the Exploration and Mining of 2014, the total amount of imported pow- The country’s large uranium deposits in- implemented to the Law on the Subsoil Works Program 2015-2019, we emphasized er reached 644.2 million (kilowatt hours) spire great potential for the development of and Subsoil Use. These changes sought to the importance of staff issues, training, at- kWh, while exported power totaled 2,918.5 nuclear power generation. Furthermore, the strengthen the legislation governing the tracting young people to work in mining, million kWh. It is necessary to mention that drive for the development of nuclear sci- mining industry, improve the investment improving the image of mining professions, Kazakhstan’s power sector has export po- ence and high technologies, as well as the climate, and attract foreign direct investment and increasing the competitive advantage tential. projected positive impact on the environ- in the mining sector. The main new feature of Kazakhstan in the international arena for Existing power plants are being revamped, ment that is associated with a reduction in Albert of the law is the simplified process of engineering talent. In this regard, we work Bakytzhan and construction of new power plants is hazardous emissions, all make it necessary granting rights, based on the Australian closely with the Ministry of Education and soon to begin. The national power grid is to build a nuclear power station in Kazakh- Rau method, for unexplored pieces of land (not Science of the Republic of Kazakhstan. In Dzhaksaliyev also being revamped, along with regional stan. more than two square kilometers per one the new school year, the ministry will start power grids. In line with the national Nurly block). We expect to see the first contracts new master’s programs in geology, hydroge- Zhol program, new transmission lines will The government of Kazakhstan has set a based on this scheme in the second and third ology and geophysics. be built to ensure consistent power supply 3% renewables target by the year 2030. quarter of 2015 and to auction at least 100 We identified 10 institutes and universities and connect , and Ust-Ka- Given that coal-fired plants generate Vice Minister Vice Minister areas in total this year. for technical industrialization and are plan- menogorsk and Semey, Aktogay, Taldykor- approximately 65% of the power in the MINISTRY OF ENERGY, MINISTRY OF INVESTMENT The law will also simplify access to ning to have 532 graduates from bachelor’s gan and Almaty. At the same time, the gov- country currently, what measures are in REPUBLIC OF KAZAKHSTAN AND DEVELOPMENT, geological data. We managed to dramatically programs in geology, including 21 “Bolas- ernment continues to support individuals place to promote the transition to renew- REPUBLIC OF KAZAKHSTAN decrease the time required to obtain such hak” graduates. We always try to attract stu- living in remote areas without access to the able energy? information from 240 days to one day. dents from mono-cities to these programs country’s power grid by reimbursing 50% Kazakhstan’s government has set a num- Moreover, we simplified the procedure for because they will be the ones who will come of their expenses on renewable power pro- ber of targets to drive the development of granting exploration contracts and small back to the mining towns and continue to duced in Kazakhstan. a renewable energy segment, which calls deposits, to remove extra administrative work in the industry. for implementing measures to realize them. barriers. Together with the assistance of Ministry of What is the estimated amount of foreign However, given that these energy sources Overall, the new law will increase Investment and Development, the Associa- direct investment in the reconstruction rely heavily on weather conditions and are The mining industry in Kazakhstan is transparency in decisionmaking and remove tion of Mining Companies and Association What is the role of the Department of and modernization of power generating not reliable, their use requires a sensible ap- governed by the Ministry of Investment administrative barriers on all levels. These of Petroleum Geologists created a corporate Electric Energy within the Ministry of facilities? proach. and Development. What does this say changes should boost the development of fund called Zhas Geolog. This fund will in- Energy? As of today, such foreign investment is not about the importance of this sector for the junior companies and simplify procedures crease awareness about geology as a career The Department of Electric Energy is one substantial. Kazakhstan creates mecha- How do you think the power sector will country’s economy? for all mining companies. field and will attract more young school of the key departments within the Ministry nisms to attract domestic investment to re- develop in the coming three to five years? The Ministry of Investment and Develop- Another revolutionary change was the children and student to study geology. of Energy of Kazakhstan. The main aim of vamp existing power plants and construct In 2014, Kazakhstan adopted the 2030 ment has governed the mining industry for introduction of a mining code, which Also in 2015, 60 specialists from Kazgeol- the department is to define and implement new facilities. Fuel and Energy Sector Vision. Accord- the past five years. It continuously supports will reflect the specificity of minerals ogy will go through a training process at Rio the government’s policy in the electric en- ing to this vision, further modernization of the industry and provides a resource base more clearly. The code will also create an Tinto, 10 employees will train with Geotech, ergy sector. Functions of the department What role will Kazakhstan play in de- the power market will ensure sustainable and energy resources, works on lowering impetus to switch to international resource- and 16 employees will train with Iluka Re- include: ensuring definition and implemen- veloping the greater CIS region’s power development of the sector. The vision’s tariffs for railway transportation, and pro- estimation standards. sources. tation of government policy in the electric sector? power market model will ensure transpar- vides other incentives for further develop- energy sector; developing legal regulations Kazakhstan has enormous export potential. ent and adequate tariffs in the long run and ment of the mining sector. Moreover, the What does Kazakhstan need to do to at- What changes to the mining industry do regarding the implementation of govern- The treaty forming the Eurasian Economic will improve the sector’s attractiveness ministry is continuously improving legisla- tract international investment? you expect in the next three years? ment policy in the electric energy sec- Union was signed in May 2014, and a com- to investors. Power plants and the overall tion, so that it can reduce unnecessary ad- We work on several events to attract inter- 2015 will be a difficult year for the- min tor; implementing strategic programs to mon power market is scheduled to be cre- grid will be further revamped, new power ministrative barriers. national investors and companies to work in ing industry and the Kazakh economy in achieve goals in the electric energy sector; ated in 2019. To achieve this, a conception plants launched, ties between northern and Historically, the mining industry has played Kazakhstan. For the last six years, we have general. The current difficulties will reveal and developing program documents within on the common power market was adopted southern Kazakhstan strengthened, and lo- a special role in the social life of Kazakh- organized the international “Astana Mining those companies who are properly prepared the department’s competence. in May 2015, and a program for the cre- cal talent and good practices further devel- stan. Many mining facilities and process- & Metallurgy” (AMM) Congress. Recently, to withstand the challenges presented by the ation of a common power market will be oped. In line with the ministry’s estimates, ing plants are located in mono-cities, which Kazakhstan received the right to host In- global economy. Amendments to the Subsoil Today Kazakhstan generates enough developed by July 1, 2016. Parties to the it is necessary to attract significant capital were built around mining deposits, and to- ternational Mining Congress in 2018. After Law and development of a mining code will power to meet its domestic demand, but treaty have decided to provide each other to the sector over the period from 2016 to day are fully dependent on the mining indus- EXPO 2017, we will have the infrastructure be crucial for the development of mining in- continues to import electricity to off- with free access to power grids until 2019 2020, as demand for power is expected to try. There are 60 mono-cities in Kazakhstan, in place to host an event of such multitude dustry in Kazakhstan. • set supply gaps and regulate frequency. in order to ensure transmission between all increase by 2030. •

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 10 - Industry Explorations Industry Explorations - 11 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 Global Business Reports EDITORIAL EXPLORE. STRIKE. STEPPE-BY- MINING STEPPE PROFIT. Can Minerals Help Kazakhstan INVESTMENT Diversify Away from Oil and Gas? 13 - 15 APRIL Kazakhstan, the largest land-locked country in the world, is sparse- KAZAKHSTAN'S WORLD RANKING FOR Marina Bay Sands, NATURAL RESOURCES RESERVES ly populated and mostly covered by flat steppe. Yet in the last two ASIA 2016 Source: Government of Kazakhstan decades, the country has come to play an outsized role in the global RANK SOUTH EAST ASIA’S ONLY GLOBAL FORUM FOR MINING economy due to its abundant reserves of oil and gas. Unsatisfied to languish as a petrol-state, Kazakhstan is now looking to grow and Oil 12 EXPLORATION, INVESTMENT, TECHNOLOGY & diversify its economy and escape the middle-income trap and the Coal 8 mining, power, and chemical industries offer strong opportunities PRODUCTION PROFESSIONALS for the government to achieve this goal. Of these three, the min- Iron Ore 12 ing industry offers the strongest prospects and is the focus of this Uranium 2 KEYNOTE SPEAKERS Silver Sponsor report, but power and chemicals should not be overlooked in their own right, not least because they are intertwined with Kazakhstan’s Bauxite 14 mining and oil and gas industries. Molybdenum 11 Robin Griffiths There are sound reasons to believe that Kazakhstan will succeed, Chief Technical Strategist as the country has demonstrated a steady arc of economic growth Chrome 1 and development over the past two decades. In 2002, Kazakhstan ECU Group, UK Zinc 7 became the first CIS country to be labeled investment-grade by a major credit rating agency. Its GDP currently stands at about $200 Gold 10 billion making it the largest in Central Asia. Kazakhstan pursues Silver 5 James Turk Associate Sponsor a multi-vector foreign policy approach, meaning that it aims to Founder & Director develop friendly relations with all of the world’s powers. China Copper 13 accounts for 22.7% of exports with Russia and Germany at 8% Lead 11 GoldMoney Inc, Canada each. On January 1, 2015 the Treaty on the Eurasian Economic Union (EEU) came into force. The EEU has an integrated single market of 183 million people and a GDP of over $4 trillion. The union introduces the free movement of goods, capital, services, and KAZAKHSTAN'S WORLD RANKING FOR Dr. Keith Weiner Project Spotlight Sponsors people and provides for common transport, agriculture, and energy NATURAL RESOURCES RESERVES CEO policies. Kazakhstan also finalized negotiations to join the World Source: Government of Kazakhstan Monetary Metals, USA Trade Organization and has become a full-fledged member on July 27, 2015. In 2017, its capital, Astana, will host the International Oil 18 Exposition, EXPO 2017, helping to further increase the country’s Coal 10 Nick Giambruno image on the world stage. Senior Editor Iron Ore 13 Casey Research, USA Looking Underneath Uranium 1 Limited Speaking & Sponsorship Bauxite 11 Opportunities are Available Kazakhstan has long been overlooked as a major mining destina- tion, but with vast, untapped riches, it seems destined to become Molybdenum 12 Prof. Ian Plimer Daniel Radziszewski the next mining hotspot. The mining and metals sector already Chrome 3 Director contributes around 20% to the country’s GDP and represents about [email protected] Hancock Prospecting, Australia 19% of its overall exports. It is the fourth largest copper producer Zinc 9 +65 6717 6018 / 9649 1062 with 40 million metric tons (mt) in proven reserves and has the Gold 18 world’s ninth largest proven gold reserves and substantial reserves of zinc. Almost all gold mining companies and properties have Silver 12 been fully privatized in Kazakhstan. The country is estimated to Copper 11 www.mininginvestmentasia.com contain 30% of the world’s reserves of chrome, 25% of manga- nese, 10% of iron ore, 10% of copper and 13% of lead and zinc. Lead 10 Spire Events Industry Explorations - 13 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 EDITORIAL Global Business Reports Global Business Reports EDITORIAL

Kazakhstan is also the largest producer of uranium as of 2009, and nation’s riches and plans to award 50 to 100 exploration licenses in opens doors to dealing directly with the government that can cer- was responsible for 38% of global production in 2013. To top all tainly help speed up a new entrant’s approval process. 2015. White & Case law firm reports: “Kazakhstan will continue this, Kazakhstan's substantial mineral resources include the world's In 2014, the share of export to China was about 80% of the Kazakhstan is mainly focused on the extraction and export of its to roll out reforms at an ambitious pace. Several state authorities largest vanadium, bismuth and fluorine deposits, while the country total volume. Today, this share has decreased to 64%, and raw materials, with higher value-added processing done abroad, have already begun preliminary hearings to consider approvals for is also richly endowed with chromium, bauxite, coal, phosphate, we see that the situation has changed in China mainly due but this has been slowly changing. Although Russia has been Ka- a draft code scheduled for the end of 2015 and a new framework titanium and tungsten. to be implemented in early 2016. If the reforms pass as envisioned, to internal politics and external factors. In this light, we are zakhstan’s main partner historically, China is currently the main Despite these prodigious resources, Kazakhstan has seen little ex- they will enable international arbitration as a mechanism for dis- looking for new off-take markets. off-take market for its mining exports, despite the recent minor ploration in the last 30 years, with the last large-scale exploration slowdown in China, which is causing some uncertainty among Ka- pute resolution, adopt international standards for calculating and happening in the 1950s. The Soviet-era data is still available and, zakh companies. “In 2014, the share of export to China was about reporting reserves, introduce retention rights, bring in simplified although of excellent quality, is not always complete. The govern- 80% of the total volume. Today, this share has decreased to 64%, state-control procedures and modify the tendering process, increase ment has recognized that Kazakhstan, already harnessing its oil and and we see that the situation has changed in China mainly due to access to information including geological data, cut expert review gas resources, can become a major mining destination that could internal politics and external factors. In this light, we are looking requirements and approval times further and implement a compre- - Bakhtiyar Krykpyshev, rival countries such as Canada, Australia and Russia; however, new for new off-take markets,” said Bakhtiyar Krykpyshev, general di- hensive field development plan.” exploration projects and substantial changes to its mining laws as General Director, rector of Kazakhmys Corp. Kazakhstan’s mining industry is set to grow in value, reaching $30 well as the investment environment are needed. “Investors do not Kazakhmys Corp. As mentioned previously, Kazakhstan has been working on details billion by 2017, even when accounting for the decline in commodi- want to know that reputedly all the elements of the periodic table of a new mining law that will make it easier for foreigners to tap the ty prices. Coal, copper and gold are expected to be the main drivers can be found in Kazakhstan, but rather what the investor benefits of growth, but Kazakhstan will need substantial foreign investment are, and most importantly what is the differentiator that would to make this a reality; capital, as well as technology and technical make Kazakhstan a more appealing investment target than another ment commits to further improve the investment climate for the know-how, will be necessary to bring about these developments. destination,” said Tony Thornton, general director of SRK Consult- mining industry, more international players can be expected to en- Inadequate infrastructure is another reason why Kazakhstan lags ing. ter and re-enter the market, which is Kazakhstan’s ultimate goal. behind other mining destinations. The country is well developed in Overall, the lack of new exploration is the biggest problem facing The Kazakh government has allocated close to $1 billion to aid ex- its urban centers, but, as many new deposits are located in remote Kazakhstan’s mining industry. One recent announcement, however, ploration before 2019 and is looking to develop mining laws simi- areas, a comprehensive infrastructure plan must be put in place. may encourage others to enter the country. Rio Tinto and Kazgeol- lar to those found in Australia and Canada. Additionally, Kazakh Transport routes, both road and rail, will be needed as well as ogy are investing $6 million in the exploration of copper porphyry national companies will invest another $3.3 billion in geological sources of power and water. “It is very difficult to work in remote ore in the Korgantas area in the Karaganda province. While other exploration in areas with good potential. Tau-Ken Samruk, which areas very far from the cities. To overcome this challenge, Kazdrill- mining majors have left Kazakhstan after encountering significant consolidates all of the state-owned mining holdings with the goal ing is trying to work closer to the three main cities where we have challenges, Rio Tinto has decided to stay and continues to conduct of increasing efficiency and investment in exploration, will be re- our branches and to provide services not further than 500 km from exploration activities. If this is successful and the Kazakh govern- sponsible for much of this expenditure. Partnering with Tau-Ken these three cities. Often the limitations of infrastructure increase the price of the services that we can provide,” said Yernat Sergazinov, CEO of Kazdrilling, an Almaty-based blasting-services provider. As Kazakhstan prepares to undertake changes to its legislation, new explorers are expected to enter the country and in combination with its natural riches, Kazakhstan is on the road to great prosperity.

Again, the [new mining code] has not been approved and signed into law as yet, so we are still in the waiting phase of this evolution process. However, in preparation for its enactment, we are seeing more and more interest in the country’s potential with people coming to town for preliminary discussions. People assume that what is coming next is going to be an improvement and they are imagining what their presence here might look like. This is a positive trend for Kazakhstan.

- Terrance Powell, Almaty Advisory Board Chairman, Canada Eurasia Russia Business Association (CERBA)

Image: Atlas Copco

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 14 - Industry Explorations Industry Explorations - 15 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 Global Business Reports EDITORIAL

More to Come Once the mining code is implemented, Kazakhstan will keep creat- ing more opportunities. “Again, the legislation has not been ap- Kazakhstan is holding a number of events, such as the Astana Min- proved and signed into law as yet, so we are still in the waiting ing and Metallurgy Congress in June 2015, Mining World Central phase of this evolution process. However, in preparation for its Asia in September 2015, and Minex Central Asia in April 2016 to enactment, we are seeing more and more interest in the country’s increase its visibility on the world stage. Significant work remains potential with people coming to town for preliminary discussions. to be done to transform the country into a booming mining destina- People assume that what is coming next is going to be an improve- tion, ranging from legislative and regulatory framework to ensur- ment and they are imagining what their presence here might look ing continued political stability in the foreseeable future, as well as like. This is a positive trend for Kazakhstan,” explained Terrance the development of infrastructure in the more remote . The Powell, Almaty advisory board chairman of the Canada Eurasia Kazakh government is taking positive steps toward change and is Russia Business Association (CERBA). Kazakhstan is open for working hard to present itself as an investment-friendly destina- business and , for their part, are hoping the message is get- tion. Once an upturn in the prices of commodities occurs hopefully ting out there. It is of crucial importance to bring back the majors in the not-too-distant future, Kazakhstan is looking to greatly ben- as well as the juniors. When the time is right, Kazakhstan will be efit from an improved investment climate, as a result of its govern- ready to claim its rightful spot among the world’s foremost mining ment’s hard work. jurisdictions. •

cost of production. However, not all equipment is local, implying THE AUGUST 2015 that there is an impact on imported goods and materials, which we are expecting to see very soon.” DEVALUATION Previously, Kazakh industry suffered from a weaker Russian ruble and a decrease in demand for locally produced goods, as production in Russia became significantly cheaper. Evidently, devaluation of tenge will bring more balance into this equation and more demand back to Kazakhstan. According to Alexandra Tuzhilina, finance The summer of 2015 will be remembered in Kazakhstan for its un- manager of Linde Gas Kazakhstan, “Our market is now competi- bearably high temperatures; the mysterious deaths of the country’s tive with Russia again, meaning that our local consumers will shift most beloved animals, the saigaks; and Thursday August 20, the from Russian products to local products. This is beneficial, because day that the Kazakh tenge lost 26.2% of its value against the U.S. some of our customers were buying products from Russia. We also dollar overnight, falling to 255.26. Such was the response to the expect more activities from export-oriented local producers.” Central Bank’s decision to no longer control the currency and let it Mining and exploration companies’ balance sheet will be affected, float freely in currency markets, which it justified as increasing the but perhaps not as strongly as one might anticipate. With the major- competitiveness of Kazakh exports and thus helping to grow the ity of the profits denominated in tenge, and major investment in overall economy. U.S. dollars, the income will essentially remain unchanged, mean- This devaluation was not at all unexpected, and speculation had ing imports will not become more expensive for these companies. slowed production rates and decreased investor confidence in re- What will change, however, are labor costs, which have become cent month. In addition, Kazakhstan’s two largest trading partners significantly cheaper, and will need to be adjusted in due course. experienced financial problems of their own—the Russian ruble One of the biggest issues in Kazakhstan prior to the devaluation has tumbled over the past several months and the Chinese yuan was the incredibly high cost of transportation due to the country’s was devalued in August. Perhaps it was only natural for the tenge vast territory and lack of a well-developed infrastructure. “For now, to follow. costs have remained the same. The government will try to keep The long-term impact of the devaluation is unknown, but the short- prices at the current level, but we know this is temporary. In one or term effects are fairly obvious. Kazakhstan’s export goods became two months transportation costs will increase, especially given the significantly cheaper on foreign markets. Given that mining and free floating cost of fuel,” said Aikyn Urkimbaev, managing direc- metallurgical products account for about 20% of country’s total ex- tor of Agility Kazakhstan. U.S. dollar-denominated petrol became ports, the industry will profit, and some companies have already less expensive, but most of Kazakhstan’s petrol is imported from raised their share prices. Kaz Minerals, for example, showed a Russia, hence the new price will depend on the ruble’s behavior in 13.9% rise on the day of devaluation. The euphoria was short-lived, the medium-term. This will create more pressure for local produc- however, as the share price fell to 77.75 by September 29. ers and the price advantage created by devaluation might just as Naturally, cheaper exports are only one side of the story. For a coun- well disappear thanks to the higher transportation cost. try like Kazakhstan, which imports most of the equipment used in The economics of the 2015 devaluation are not as unfavorable to mining, the cost-pressure will be felt very soon. Gerard Fries, gen- the mining industry as the 2014 devaluation, and the currency crisis eral director of Kazakh-French JV KATCO confirms: “As far as may serve as a catalyst to improve efficiency and achieve greater devaluation is concerned, there are two sides. Given that KATCO cost optimization in the mining sector. Kazakh mining practices are is selling a commodity at price in U.S. dollars and costs are mainly often described as too labor-intensive, and automation might be the denominated in tenge, devaluation mathematically improves our next big step for local companies. •

Industry Explorations - 17 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports EXPERT OPINION

President Nazarbayev renewed his term it will become the operator to handle all ap- - a “first come, first served” basis to apply for the right to explore, and introduced a new program where he provals and licenses for investors. LEGAL REFORMS develop and mine currently vacant and unallocated territory (mostly outlines five institutional tasks, one of Kazakhstan’s investment attractiveness unexplored); which is concerned with the improvement will also increase after the country enters - guaranteeing the right of investors to carry out subsequent opera- of the mining sector. In the framework of the World Trade Organization (WTO). IN KAZAKHSTAN'S tions, i.e. the actual exploration rights which are to be granted once this program, a new subsoil code will be WTO membership will show potential in- the preliminary exploration phase is over and, most importantly, the created based on Australia’s, which will vestors that it is possible to work in Ka- MINING SECTOR grant of mining and development rights, once the exploration phase simplify the process of acquiring explora- zakhstan, and that it adheres to internation- is complete; tion licenses, clarify tax regime, and make al standards. By Michael E. Wilson, Director, - economic incentives: land and property tax exemption, the ap- Kazakhstan more attractive for internation- and Yermek K. Aubakirov, Senior plication of international accounting standards for tax purposes, no al investors. One of the key challenges is the lack of signing and commercial discovery bonuses, royalty exemptions, qualified professionals. What is the gov- Lawyer etc. How would you assess the willingness ernment doing to change this? - licensing (as applied to contracts) for most mining operations, of international companies to enter Ka- For a long time, it was not considered pres- with subsoil use contracts only needed for oil and gas operations zakhstan? tigious to work in the mining industry, and and strategic resources (a list and details of which are to be ex- Currently, the government is reviewing the today there is a serious lack of specialists. pressly specified in the Code); subsoil legislation and we are looking to The government understands how crucial - third-party arbitration agreements; ensure that it is in accordance with interna- it is to develop talent across many spheres, On January 17, 2014, the President of the Republic of Kazakhstan, - open access to all available geological data and information; Nikolay tional standards. We are drastically chang- including mining, processing and services. Mr. Nursultan Abishuly Nazarbayev outlined his program “Kazakh- - the State will only have pre-emptive rights with respect to strategic ing the situation with the right of priority We are working hard to change the percep- stan’s Way – 2050: One Goal, One Interest, One Future,”1 which resources; Radostovets which the government has when it comes tion of the mining industry and to show Ka- called for major reforms in various fields and industries. One of the - retention rights for subsoil users, with respect to explored terri- to geological exploration. Previously, the zakhs that working for a mining company major areas of concern was an insufficient level of foreign invest- tories; government had the right to refuse the right is a prestigious career. ment into the subsoil use sector, and the program pointed out the - prospecting provisions; to explore to a company, but now the gov- Many companies in Kazakhstan often hire major directions in which the state should embark and the areas in - other changes allowing for a simpler, more sound and open pro- ernment cannot do that. non-Kazakhs for highly qualified positions. which it should undertake reforms, namely to: increase the effec- cedures and regulations (i.e. new reporting standards based on Chairman The government needs to invest in educat- tiveness of the traditional mining sector; adopt new approaches to CRIRSCO, JORC, CNI and other). ASSOCIATION OF MINING What steps should be taken to attract in- ing and training specialists so that it will be the management, production and processing of hydrocarbons; maxi- As was also mentioned in the Concept, exploration is one of the AND METALLURGICAL vestment in geological exploration, apart easier for both local and international com- mize the export potential of the energy sector; make decisions on most important, but still underdeveloped sectors in terms of appli- ENTERPRISES (AGMP) from the new subsoil code? panies. This will also help attract additional possible future scenarios for oil and gas production; increase the de- cable laws and regulations4. Accordingly, the Code pushes forward Geological exploration remains one of the investment. The ministry is closely work- velopment of rare earth metals; enter the world market for geologi- reforms to open Kazakhstan’s exploration market to foreign inves- least developed sectors in Kazakhstan. ing with universities, which prepare mining cal exploration; and subsequently attract investments from foreign tors. Incentives for them to bring finance and technology would The government and industry accept the specialists and metallurgists. mining and exploration companies by simplifying the legislation, include: fact that Kazakhstan is an underexplored procedures and practices. - providing for the right to own geological data and information country. In the past 20 years, companies How do you see the mining industry de- Therefore, during 2014, a joint committee of the relevant Kazakh- that they obtain, in the course of their work, and to dispose of it at have relied on Soviet geological informa- veloping in the next five years? stan ministries (the Ministry for Investments and Development, the their will; How has Kazakhstan’s mining sector tion, which, though of high quality, is not We remain optimistic about the future of Ministry of Energy, and others) prepared a draft Concept of a new - supporting investors at local levels: providing land use rights and changed over the past five years? enough to unlock the country’s true min- the mining industry in Kazakhstan, thanks Subsoil Use Code (the “Concept”). It was planned that the Concept delivering all necessary data and information. Due to lower metals prices, companies eral potential. After the collapse of the to the numerous changes. The government would be approved by the government by mid-2015, and that the In summary and in overview, it can be seen that the key purpose of have reduced their production output, and Soviet Union, there was no exploration in is actively working to make investors feel draft Subsoil Use Code (the “Code”) itself would then be prepared the reforms is to substantially improve the existing laws and pro- there is also less demand from China and Kazakhstan, as companies were more in- more comfortable. For example, if previ- and referred to the Parliament by 2016, so that the Code would take cedures. Russia. We are facing some difficult times, terested in developing other industries and ously it was normal to assume that interna- effect during 2016. The Code is planned to incorporate and to provide for the best world and while we thought that this was caused technologies. Luckily now, the situation tional investors have to be responsible for Starting from 2014 the state has already introduced some of the pro- practices in the mining sector. Foreign investors like Iluka, Rio by a temporary reduction in prices, but now has changed. First of all, the government infrastructure in adjacent towns, now local posed key changes (that could be quickly and easily made) to the Tinto, and Geotech have already started joint-exploration projects we realize that this situation will persist created Kazgeology, an organization re- officials understand that investors are not existing mining legislation. Accordingly, the existing Law on the with JSC Kazgeology (the state-owned exploration company) to well into 2015 and 2016. The government sponsible for geological exploration in the obliged to pay for everything. Subsoil and Subsoil Use was amended in 2014, with effect from explore some of the processing territories in Kazakhstan for copper, understands that many mining companies country. Secondly, a special state organiza- Besides, we see that production efficiency 2015, to implement certain new things and to amend existing defini- minerals and etc., so that the early signs are promising. • will not be able to handle this pressure and tion was created, and now the government is also improving. This is happening thanks tions, namely (but not limited to): mostly unexplored territories, and will require assistance. In this light, the spends money on geological exploration. to integration of new technology and train- subsoil use rights associated therewith; auction procedures; sample government introduced a number of mea- These changes make it easier for private ing of personnel. Because of the lower pric- exploration contracts; technological mineral formations and strate- Michael Wilson & Partners, Ltd. (MWP) is a full service law firm that is closely 2 involved in these legislative reforms of the mining sector in Kazakhstan. MWP is a sures to help such companies, for example enterprises to take part in geological explo- es for metals, mining companies are forced gic resources. member of the two working groups for the Code managed by both the Ministry for zero rate on severance tax at underperform- ration, and, at the same time, gain rights to to lower the cost of production to maintain For example, auction regulations were introduced as simplified pro- Investments and Development and the OECD Panel. MWP has been carrying on ing deposits of ERG, Kazakhmys, Kazzinc, those deposits that they are exploring. We profitability. Those companies that work in cedures to enable the choice of an investor with proposal as to the business since July 1998, now more than 17 years, and has offices in both Kazakh- stan and Azerbaijan, and is also active throughout the Region. etc. Because of lower de- are looking to change the whole relation- Kazakhstan can maintain competitive ad- highest signing bonus, provided that the same met all other auction mand in China and Russia, Kazakh compa- ship system between investors and the gov- vantage compared to other countries. Ka- prequalifying obligations. Other provisions are designed to simplify 1 The Address to the Nation by the President of the Republic of Kazakhstan Mr. Nursultan nies are also forced to look for new off-take ernment. The Ministry of Investment and zakhstan will play a more important role in the existing procedures and regulations, and to make the applicable Abishuly Nazarbayev “Kazakhstan’s Way – 2050: One Goal, One Interest, One Future” definitions clearer. of 17 January 2015. markets, while the government is helping Development plays a key role in these rela- the global mining industry going forward. • 2 Law on Subsoil and Subsoil Use of the Republic of Kazakhstan N 291-IV of 24.06.2010. these companies by developing new corri- tions. This year, the Ministry is supposed to Further changes, as drafted in the Concept, include, but are not lim- 3 Draft Concept of the Subsoil Use Code. 4 Draft Concept of the Subsoil Use Code. dors for transportation. receive money from the budget, and ideally ited to, the following3:

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 18 - Industry Explorations Industry Explorations - 19 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 KAZAKHSTAN MINING, POWER & CHEMICALS 2016 GBR • Industry Explorations • KAZAKHSTAN

COAL IS KING: KAZAKHSTAN’S POWER INDUSTRY

“Building new gas-fired combined-cycle power plants would be environmentally very sound. The only problem is the price of gas, which is a social issue. Power generated from natural gas as opposed to coal has generally had a higher price, making it a major issue for the government, as this differential somehow has to be paid for or subsidized. Various interest groups will lobby against the transition to gas, but, from our standpoint, renewable energy and gas-fired energy are options of the future.”

- Stephen Tomczak, Managing Director, ILF Consulting Engineers Image: CAEPCO EDITORIAL Global Business Reports Global Business Reports EDITORIAL

KASAKHSTAN’S POWER SECTOR 2010-2014 TACKLING Source: Ministry of Energy of the Republic of Kazakhstan

TARIFFS LEGISLATION PASSED INVESTMENT INCREASED UNPLANNED SHUTDOWNS REDUCED Kazakhstan's Slowly Evolving Energy Mix

50 acts Roughly 700 billion tenge, 131 in 2008, For decades Kazakhstan has fueled its energy-intensive economy COAL CONSUMPTION AND PRODUCTION IN KAZAKHSTAN 200 decrees a fivefold rise in to 39 in 2013 with coal-fired power. The country’s immense coal deposits and (2008 TO 2012) Source: U.S. Energy Information Administration investment volume large coal-fired power plants are located in the north and power the majority of its economy concentrated in the south. Today, accord- CONSUMPTION PRODUCTION ing to the Central Asian Electric Power Corporation (CAEPCO), Thousand Short Tons EXISTING CAPACITY MODERNIZED NEW CAPACITY ADDED PRODUCTION COST LOWERED 64% of Kazakhstan’s power is generated from coal. The remaining 145,000 16.1% is fueled by gas and mazut, 12% by hydropower, 7.4% by 140,000 gas, and 0.5% by renewables. 135,000 Kazakhstan’s major coal-fired power plants, including Ekibastuz 130,000 CHP-1, Ekibastuz CHP-2 and the Eurasian Energy Corporation’s 125,000 120,000 $ Aksu Power Plant, are located in the northern region of Pavlo- 115,000 $ dar. Historically, Kazakhstan’s northern region has been home to $ 110,000 the bulk of the country’s , and, according to 105,000

CAEPCO, hosts 70.4% of generation facilities today. Within this 100,000 area, 43% of electricity is generated in . Major players 95,000 5,000 MW 1,700 MW added $700 per kwH such as state-owned Samruk Energy and CAEPCO occupy 30% 90,000 to reach 3,300 MW compared to $2,200-$2,500 and 6.47% of total market share, respectively. 85,000 modernized by 2015 per kwH if new plant Currently, coal remains the most important source of electricity, 80,000 primarily due to its low cost. With an abundance of coal reserves, 75,000 70,000 a strong lobby, and longstanding coal-fired power plants, there are tion mix. Yet the Central Asian state has made it clear that it is its operations from the capital, in order to manage an upcoming 65,000 few incentives for Kazakhstan to adopt alternative forms of energy. 60,000 committed to the development of a green economy, evidenced by 2-MW solar power plant project near Kapshagai reservoir in Al-

The second largest source of power, gas and mazut, is generated 55,000 the nation’s 2050 strategy and the decision to host the World Expo maty region. primarily from deposits in the northwestern Mangistau region of 50,000 2017, which will be centered around renewable energy. Kazakhstan’s current energy mix, however, remains far from the Kazakhstan. This region remains largely isolated from the main 45,000 Stagnation in this sector can largely be attributed to unstable tar- targets that the government outlined in its 2050 Strategy. Attract- Soviet-era grid, which runs from the north to the south, and is 40,000 iffs. The recent devaluation has also made returns in the sector ing and securing private investment in Kazakhstan’s power sector home to the country’s colossal oil and gas reserves. Utilizing its 2008 2009 2010 2011 2012 much less attractive, so that many projects have been cancelled are heavily dependent on legislation. With ambitious goals of 3% gas reserves would not only promote a cleaner source of energy, or put on hold while investors wait for new tariffs to be ratified. renewable generation by the year 2030, and 50% by the year 2050, but also capitalize on Kazakhstan’s existing resources. A recent law While there are challenges associated with cost and infrastructure However, strides have been made to further the green economy, the state needs to make concerted efforts to reach them. • on the restriction of gas flaring was passed to ensure sustainable development, turning to existing gas reserves seems to be more most notably by AECOM. The American giant has launched a use of associated gas, and Temirtau CHP-1 has commissioned a worthwhile than opting for alternative sources of energy such wind farm concept-design project, in partnership with Kazatom- new 60-megawatts (MW) Kalamkas gas turbine power plant in the as nuclear power. Kazakhstan’s immense uranium reserves have prom and Toshiba, which it plans to sell as a completed design region. prompted the government to propose plans to construct the coun- package with financing from the EBRD. AECOM’s entrance into “There is a significant amount of natural gas in Kazakhstan, a fair try’s first nuclear power plant by the year 2025. the market may be just what Kazakhstan needs to attract additional Focusing on gas and using the country’s gas resources is amount of which is associated with production of oil. However “Focusing on gas and using the country’s gas resources is a more foreign investors into the country. “Kazakhstan is investing time a more productive objective than trying to develop a very there is also freestanding gas, albeit far north near the Russian bor- productive objective than trying to develop a very expensive nu- and money to develop this type of energy in the country and has expensive nuclear capacity that begs heavy reliance on der. Building new gas-fired combined-cycle power plants would clear capacity that begs heavy reliance on overseas partners,” said the perfect natural conditions for renewables,” said country man- overseas partners. be environmentally very sound. The only problem is the price of partner at Deloitte, Anthony Nicholas Mahon. ager at AECOM, Marina Kostanian. gas, which is a social issue. Power generated from natural gas as The country’s third largest source of electricity, hydropower, is Other players are also attracted by the country’s natural conditions opposed to coal has generally had a higher price, making it a major harvested mainly along the river, which flows from China and have taken steps towards project implementation. An Indian - Anthony Nicholas Mahon, issue for the government, as this differential somehow has to be through and Kazakhstan. Local hydropower plants include firm has plans to construct a 50-MW solar power plant in Partner, paid for or subsidized. Various interest groups will lobby against AES’ Shulbinskaya and Ust-Kamenogorsk hydroelectric power and another 100-MW plant in . Locally registered Ger- Deloitte the transition to gas, but, from our standpoint, renewable energy plants (HPPs), Bukhtarma HPP, Shardary HPP, and Moinak HPP. man firm KB Enterprises has finalized its approvals for the con- and gas-fired energy are options of the future,” said managing di- Lastly, renewable sources of energy including wind and solar struction of a 100-MW solar power plant 35 kilometers from the rector of ILF Consulting Engineers, Stephen Tomczak. power comprise a small fraction of Kazakhstan’s power genera- capital city of Astana. Samruk Green Energy has recently moved

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 22 - Industry Explorations Industry Explorations - 23 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

During Soviet times, no one was motivated center in Ust-Kamenogorsk is not only increased by 30%. The ‘Tariff in exchange has combined power plants, which produce Serhiy to think about savings, because everything used for our employees, but also for the for investment’ program was designed for heat in addition to electricity. As we mainly was largely free. Presently the system is development of people from the university 2008-2015, and as of January 1st 2016, we work in northern re-gions, where homes are Zuyev different and tariffs are higher than they and external parties in the required areas, were supposed to adopt new legislation, or centrally heated for almost seven months a used to be, which is a strong motivation such as safety. the so-called Electricity Market, to help de- year, it is important to consider production for consumers to pay attention to energy AES’ activities in this area have already re- velop new generation capacity and create of heat. Second, we will be reducing the savings. This trend will continue given the ceived international recognition. This year, new power plants. However, in recent years, amount of electricity lost during distribution. replacement of old assets with new assets we won first place in the HR Brand compe- the growth of energy consumption has sig- Our compa-ny is vertically integrated and Vice President that are much more expensive. The reality tition for the training of young specialists. nificantly slowed, and the government post- operates in three regions, covering over 50 AES CORP., KAZAKHSTAN is that the general population will continue Our target is to have the best people, and poned the introduction of the legislation thousand square kilometers of the grid from to pay more, since the only way to decrease we train our staff right from their very first for another three years. Thus, the tariffs for 110 kilowatts and lower, which makes us the impact on disposable income is to con- day in the company. All managers have in 2016-2018 will be fixed at the same level as the largest transmission and distribution sume less energy. their personal key performance indicators those of 2015. company in Kazakhstan in terms of grid In addition, the experience of other coun- the development of young people, to help With regards to CAEPCO, in 2007 we began capacity. The third pillar of our investment tries can show that the stimulation of in- them advance as soon as possible. Those working with the European Bank for Recon- program is focused on the envi-ronment. dividual renewable production and the who demonstrate skills and a desire to struction and Development (EBRD). EBRD When we acquired our assets during the installation of individual solar panels by learn have chances to grow and develop. became a large shareholder, owning 24% of privatization period, they were harmful installing and selling energy produced to For example, at our regional headquarters CAEPCO’s shares in 2009. Working with towards the environment. However, we the grid can be supported by legislation in Amsterdam, one of the main languages Yerkyn such a large institutional investor allowed managed to significantly decrease harmful and fiscal incentives. This would be an ef- spoken is Russian, mainly due to the high us to implement an investment program to waste and currently we are one of the leading fective mechanism to improve energy ef- number of staff who was transferred from Amirkhanov modernize our assets. companies in terms of environmentally ficiency by reducing transmission losses. Kazakhstan. It is a great example for any friendly production. In terms of increasing awareness among the young specialist or student that comes to How attractive are current tariffs for in- general audience, we started a project with see that people quickly went from being a ternational investors? Is CAEPCO planning to export electricity the United States Agency for International student to a high-quality specialist to direc- Tariffs are calculated based on operational in the near future? President Development (USAID), collaborating with tor or manager. costs. Every player in the market signs an Thanks to our access to retailers, CAEPCO local universities in Ust-Kamenogorsk. We CENTRAL-ASIAN ELECTRIC investment agreement with the Ministry of is able to sell everything it produces. At the signed a memorandum with the local gov- AES Kazakhstan is approaching its 20th POWER CORP. (CAEPCO) Energy that specifies an amount that will be same time, we are one of the few players ernment of Ust-Kamenogorsk and USAID anniversary. What are your strategic produced and the amount that will be sold, on the Kazakh power market that has the to help local authorities to develop an en- priorities for the upcoming five years? as well as the level of investment. In the fol- technological capacity to export to Russia, ergy efficiency program for the region, and We are aiming to achieve a zero lost-time lowing three years, the investment compo- avoiding the national grid operator. Howev- to perform energy audits for companies to incident target for all of our businesses nent of the tariff will be gradually reduced er, because of the devaluation of the Russian understand practical solutions that can be for at least the next five years. All -inci taking into consideration the level of infla- ruble, at this moment it is not economical to implemented. These initiatives provide dents can be avoided by having an efficient tion. export to Russia. students with basic skills of conducting safety management system. AES’ priorities CAPECO is satisfied with the current- tar AES is a global company with a long- energy audits in communal buildings and include the improvement of the quality of What changes have you observed in the iffs. We are expecting the wear-and-tear rate How will the power sector evolve over the standing presence in Kazakhstan. What all types of municipal buildings, as well operations of our power assets. We have a power sector over the past couple of of equipment will be reduced from 80% in next three to five years in Kazakhstan? did the company enter the market in as helping to create the energy efficiency program targeted at continuous improve- years? 2008 to 39% in 2018. In the coming three Kazakhstan has huge reserves of extreme- 1996? program for eastern Kazakhstan. The latter ment and every year we develop more Kazakhstan’s power sector has been evolv- years, we will continue to improve this rate. ly cheap coal, which will remain the key AES is a global company with representa- program is split into several parts begin- than 100 projects in this area. All goals are ing significantly. In the 2000s, the country’s In the past years, our operational costs were source of power. New technological solu- tion in 18 countries across four continents. ning with municipal and communal build- linked to AES’ vision that we have of im- economy showcased a good growth rate, growing at the same rate as inflation, and the tions are effective enough, and therefore we Kazakhstan is well-developed in terms of ings and will gradually progress into trans- proving the lives of people in every market which also resulted in an annual growth of investment component was growing much aim to use the most advanced technology in its industrial sector, especially in the oil port, heating, and lighting. Projects of this where we operate. We have been in Ka- 5% to 7% in energy consumption. At that faster, which is why our rate of investment the field of coal-power generation. Green and gas and mining and metals sectors. kind are a priority for AES Kazakhstan. zakhstan for many years and believe that time, it was becoming apparent that there in 2015 is significant enough to finish our energy will also develop, but its implemen- Naturally, all of the companies in those There is a tremendous opportunity for sav- we can continue to contribute to the im- was a deficit of power production in the development plans. tation will depend on both market and po- sectors consume a great deal of electricity; ings. For example, we recently held an in- provement of peoples’ lives by providing country. Additionally, most power was be- litical factors. In western Kazakhstan, gas- therefore, it is crucial to provide a reliable ternational conference, where it was noted safe, reliable, and sustainable energy solu- ing generated using outdated equipment. Please tell us more about CAEPCO’s in- powered stations will play an important role. and uninterrupted supply of electricity. To- that the potential for a single household in tions in every market we serve. • To solve this problem, the government in- vestment program. day, AES has four businesses in Kazakh- Kazakhstan would be about 40% savings, troduced a program called ‘Tariff in ex- During the process of developing our Where do you envision CAEPCO in three stan: two combined heat and power plants which is incredible compared to Europe, change for investment’ in 2008. Within this investment program with the EBRD, to five years? that we own and two hydropower plants where you can get 2%-3% savings. program’s framework, all power companies CAEPCO focused on modernizing its CAEPCO will continue to work towards operated under concession. were divided into 13 groups, each of which production capacity, which currently decreasing its operational costs and improv- Sustainable development is not possible received a fixed tariff for the following sev- amounts to 940 megawatts. Our program has ing productivity. Currently, we are focusing As one of the largest producers of energy without trained a workforce. Please tell en years. The annual tariff increase was 18% three key directions. First, we will replace on several development projects, as well as in the country, do you believe that there us more about your training center in to 20%. The program provided strong incen- our generators (our newest power station is increasing our generation and transmission are enough incentives for the consumer Ust-Kamenogorsk. tives for the introduction of new generation 40 years old). We dismantled old equipment capacity. In the coming years, we will try to to be more energy efficient in Kazakh- We are proud of our people and our devel- capacity and the modernization of existing and installed new equipment, which allowed maintain and strengthen our position as the stan? opment initiatives. The corporate training equipment. As a result, production capacity us to lower our operational costs. CAEPCO largest private operator in Kazakhstan. •

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 24 - Industry Explorations Industry Explorations - 25 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

awarded the contract), and 20% to Kazakh- Could you tell about the projects that Bat- What steps are being taken to promote them have significant debts denominated in stan Electricity Grid Operating Company ys Transit is working on? energy efficiency in Kazakhstan today? U.S. dollars. At a certain point labor costs (KEGOC) JSC. We are expecting to see up to 420 mega- KB: KEGOC, the national grid company, will also catch up, so there is pressure on December 28, 2005 Batys Transit JSC and watts (MW) of power transmitted through constructed two power transmission lines the government to take the social aspect Kazakhstan's government represented by the the North Kazakhstan- region inter- from the north to the south of Kazakh- into account. Overall costs of production

Ministry of energy and mineral resources regional power transmission line (hereafter BB SK stan, and is currently constructing a third and transmission will be affected by cur- signed a Concession agreement for con- PTL-500 kV) once the smelting facility No.4 line, after which the south of Kazakhstan rency devaluation, while revenues are not struction and operation of a 500-kW North of a branch of Aktobe’s ferroalloy plant of will secure supply of electricity from main as flexible. Kazakhstan- interregional TNC Kazchrome JSC reaches its full capac- power plants located in Ekibastuz. Addi- transmission line. The concession will be ity in 2015. Although PTL-500 kV has the tionally, due to an amendment to the law How do you predict that the sector will operating till the end of 2022, by which time capacity to transport 640 MW, the transmis- on oil flaring, associated gas from oil wells evolve in the next five years? the transmission line will be fully operation- sion is limited to 380 MW by the system ad- was prohibited, therefore almost all oil KB: The main goal of the power sector is al, profitable, and will have been passed to ministrator to ensure reliability and maintain KB companies had to build gas turbine stations to provide reliable electricity to consum- the state. the static stability of the Aktobe power cen- and provide electricity to the local popu- ers. Driving power sector growth hence Initially, it was planned that the construc- ter. This is because the flow in the 220-500 lation, or otherwise utilize associated gas are other industries including mining, met- tion would be funded through infrastructural kV transmission line between Aktobe region Baurzhan from wells. Thanks to new gas turbine sta- als and general consumption. We hope that bonds, which was a new practice for Kazakh- of Kazakhstan and region og Rus- tions, west Kazakhstan is becoming largely there will be some growth, especially with stan's financial market. Infrastructural bonds sian Federation is limited to 500 MW. Burkhanbekov, energy independent. In 2009, a special pro- government plans for the adoption of re- Kurmangazy worth 830 million tenge ($125 million) were To cover the expected power deficit on PTL- gram was put forth to rehabilitate existing newable energy. purchased mainly by institutional investors, 500 kV and increase the load of the grid, Salavat Kalibekov power plants. The government introduced BB: The power sector is the engine of Ibragimov including pension funds, insurance compa- it is necessary to build new or revamp one investment tariffs, which meant that power the economy. However, without demand nies, and second tier banks. The rest of the or several of the old international 220-kV & plants had a sufficient margin on tariffs to it is difficult to do business, especially in funds, $30.5 million, were borrowed from transmission lines that connect the Aktobe reinvest in reconstruction. Currently, be- the power sector, which requires constant the Eurasian Development Bank. Project de- region with the energy system of the Rus- Kumarbek cause of a drop in commodity prices along maintenance and high fixed costs. The sign started in 2006, construction was com- sian Urals. To ensure steady power supply with the general economic situation in question is about the overall economy and Chairman, Board of Directors pleted at the end of 2009, and the facility be- and cut down on the expenses of purchas- Berdikulov Russia and Kazakhstan, power plants have how other industries are developing. If BATYS TRANSIT came operational in February 2009. The total ing power to cover technological losses, the overcapacity. other industries are healthy, then the pow- cost of construction exceeded $160 million. company is planning to erect its own power er sector will have a good base to grow. If BB: Partner The economic downturn in 2007, however, plant and received a $744,000 grant from the SK: Director How is the government addressing the not, as you already see, there will be extra negatively affected the economic develop- U.S. Trade and Development Agency for a KB: Director problem that 15% of electricity is lost capacity in terms of power. However, you ment of Aktobe region: power consumption feasibility study. PWC MINING AND POWER in transmission due to worn out equip- cannot just stop producing power, so there decreased, as well as the amount of power SPECIALISTS, ASSURANCE ment? need to be ways to deliver to the market. transmitted through our power grid. As a How will the power sector develop in the DEPT. KB: Losses of 15% are huge compared The economic situation in Russia, our clos- result, by December 31, 2001 accumulat- next three to five years? to other countries, but can be attributed est neighbor and potential market for pow- ed losses of Batys Transit JSC exceeded 1 One of the large projects that will be com- in part due to long distances and the poor er export, is not good, so exporting power Could you tell about the development of billion tenge ($7.2 million). From 2012 to pleted in the coming three years is construc- condition of networks. However, grid loss- to Russia will be difficult. Exporting to the company since its inception? 2013, to increase the amount of the power tion of the power transmission line East- es have decreased from 18% in 2010 to developing western China could be an al- The majority of generation capacity of Ka- transmitted and improve the financial state ern Transit. In line with the new economic How significant is the energy, utilities & 15% in 2015, and are continuing to dimin- ternative, but will require some investment zakhstan's unified power grid (SDPP-1, of the company, Batys Transit realized a policy Nurly Zhol (Bright Path), KEGOC mining division to your overall practice ish. Transmission companies have tariffs and the construction of new power lines in SDPP-2, Aksu SDPP) is located in north Ka- new project, two 220-kV power transmis- JSC is implementing an infrastructure proj- in Kazakhstan? through which they are committed to in- China itself. Even though China is not ex- zakhstan and covers power deficit in south sion lines to connect a new large power con- ect, the consrtuction of the 500-kV Ekibas- BB: It is quite significant. PwC is a leading vest in rehabilitation and replacing existing periencing double-digit growth as it did in and west Kazakhstan almost entirely. sumer, smelting facility No.4 of a branch of tuz-Shulbinsk HPP-Ust-Kamenogorsk in- consultancy firm globally with huge expe- networks, but the level of investment is not the past, the base is huge and 4% to 5% The core business of our company is located Aktobe’s ferroalloy plant of Transnational terregional power transmission line. This rience of working with companies in En- sufficient yet. In our largest region, Almaty, growth still generates quite significant de- in west Kazakhstan in Aktobe region. His- company Kazchrome JSC (JSC TNC Kaz- 705-km, 45-billion tenge line will unite the ergy, Utilities and Mining sectors. Back in local transmission companies are investing mand. torically, after the breakdown of the Soviet chrome). power grids of north, east and southeast Ka- 1994 PwC came to Kazakhstan to support a significant amount to replace old network KB: For the past five years, both the gov- Union, Kazakhstan was cut off from the The power transmission line was launched zakhstan and is scheduled to be completed its multinational clients primarily in the cables, construct new stations and have ernment and industry had a different agen- power systems of neighboring countries. The in May 2013, but, because of the accidents in 2018. country’s growing energy sector. With de- ambitious plans to introduce smart meter- da. The agenda was growth, including power deficit in Aktobe region was covered in two of the stoves of smelting facility Another important future project will unite velopment of local businesses PwC started ing systems to decrease losses and better installation of increased production and ca- by expensive power that was imported from No.4, full operational capacity has not been the power grid of west Kazakhstan ( actively working with domestic companies control the network. pacity, along with ambitious plans to adopt Russia. That is why on October 7, 2005, the reached. However, over the past three years region) with Kazakhstan’s united power as well. Not surprisingly, our clients’ port- renewable energy and construct new power government approved decree No.1008, the the amount of the power transmitted through grid, planned in line with KEGOC’s long- folio reflects the pattern of the country’s What are some other challenges to sec- and nuclear power plants. The current situ- action plan on implementation of the North our network has considerably increased due term development strategy for 2025. This economy, i.e. energy, utilities and mining tor growth and development in Kazakh- ation has changed dramatically, and the Kazakhstan-Aktobe region interregional to the project mentioned above. Thus, Batys project will provide future consumers and sectors are the major contributors to the stan? government and industry need time to di- transmission project. Transit managed to become self-sufficient fi- producers of with access to country’s GDP so the companies in these KB: The main issue now is currency de- gest and draft a new agenda for the next In pursuance of the project mentioned above, nancially, and complete the past three years Kazakhstan’s united power grid. • sectors represent major part of our clients’ valuation, because while Kazakhstan does five years. • a joint stock company Batys Transit was cre- with net profit (716 million tenge in 2012, portfolio by value. The proportion of these produce some equipment, most is import- ated November 22, 2005. 80% of the shares 324 million tenge in 2013, and 1.032 billion sectors comprises about 70% of our prac- ed. Revenues of all players are denomi- belonged to MekhEnergoStroi LLP (was tenge in 2014). tice in Kazakhstan as a whole. nated in local currency, while a majority of

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 26 - Industry Explorations Industry Explorations - 27 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

ditions, we were convinced that we could ment’s priorities and overall less interest in ate on coal, with burners below grade and KEGOC and its subsidiary, KOREM, who provide valuable support in handling the renewable energy. Hence, all private inves- in need of replacement. ILF has expressed is responsible for wholesale power sales significant risks and developing Kashagan tors are waiting to see what will happen. interest to Samruk Energy in becoming in- agreements. But the problem is that elec- in a safe and environmentally friendly way. State-owned companies will eventually volved in that project, to build a new power tricity tariffs for renewable energy have An increasing concern over safety and en- implement their renewable projects, but plant next to the existing one and eventu- been changed twice, and because of deval-

JH vironmental aspects, as well as a greener timing is uncertain. ST ally switch from the old to the new plant. uation most companies’ technical econom- approach, is maturing among our local cus- In Southern Kazakhstan, there is high de- ic substantiation should be changed. Play- tomers, and we hope that we can progress DNV GL is known for promotion of mand for electricity, and hence always a ers are currently waiting on the next tariff also in other directions than oil and gas. safety across all industries. How do you host of potential technical solutions. Some- revision because according to Kazakhstan promote a safer attitude in doing busi- times however they run up against financial law, they the tariffs should be ratified. The DNV GL works within other sectors. ness, and more efficient operations here and commercial issues. On transmission World Bank granted KEGOC a consultan- How do you see your Kazakhstan office in Kazakhstan? projects, ILF participated in the Eskene cy project, and the national grid operator DM developing in the future with regards to JH: There has to be several approaches to KK Kuryk oil pipeline with the design and sur- is currently developing a framework out- other business lines? this. Firstly, it begins with the individual; vey work of an electrical transmission sys- lining the ways in which renewable energy JH: Our services are still focused on off- by raising personal awareness of safety, tem for the pipeline going from Kashagan companies can integrate onto the national shore oil and gas activities. Following the you can change peoples’ attitudes. With- to Kuryk, south of Aktau. Within distribu- grid. Jo Hulbaekdal mergers with KEMA (in 2011) and GL (in in the industry in Kazakhstan as a whole, Stephen Tomczak tion, ILF has been active in the context of 2013) DNV GL has gained additional re- there is no tradition for performing risk as- substations and power lines and distribu- What is your assessment of Kazakh- & Dana sources and competence as a global energy sessments to prevent accidents from hap- & Kairat tions systems. We have bid for a significant stan’s potential for gas-powered electric- Medukhanova consultancy. We were involved in writing pening. DNV GL is advocating a proac- Kinzhebayev amount of conventional energy work, and ity generation? the Grid Code for Kazakhstan and since tive risk management approach, where we been in contact with KEGOC, the nation- ST: ILF supports transitioning to gas as a 2013 we have been working with the Gov- would like to assess risks and prevent acci- al grid operator. On the renewable energy fuel, for example through the conversion of ernment of Kazakhstan to set up a renew- dents from happening rather than mitigate front ILF has been actively bidding to com- Samruk Energy’s HPP-2 power plant. We able energy legislative framework coopera- consequences after they have happened. panies such as Samruk Green Energy, who could assist the client in surveying, design- tively with the World Bank and EBRD. We DNV GL is currently working on a project had a 2-megawatts (MW) solar plant proj- ing and managing a project to build such a JH: Country Manager, Kazakhstan ST: Managing Director see a significant potential for developing with key oil-industry partners and authori- ect near Kapshagai reservoir along with an new generation facility. There is a signifi- DM: Engineer KK: Lead Electrical Engineer DET NORSKE VERITAS renewable energy sources in Kazakhstan, ties in Kazakhstan to modernize the tech- Project Engineer expansion project 50MW + 50MW solar cant amount of natural gas in Kazakhstan, in particular wind and solar power, and we nical regulatory regime for the offshore photovoltaic plant. ILF proposed to con- much of which is associated with oil pro- KAZAKHSTAN ILF CONSULTING ENGINEERS have substantial competence and capabili- sector. There is widespread acknowledge- duct the technical economic substantiation duction but there is also freestanding gas, ties to support these developments. ment that the current technical legislation feasibility study for this project. albeit far north near the Russian border. in Kazakhstan, developed partly during So- Building new gas-fired combined-cycle With Expo 2017 around the corner and viet times and mainly for onshore applica- Are there any additional prospects for power plants would be environmentally the government's 3% target for renew- tion, is not appropriate for developing oil ILF’s involvement in renewable energy sound. The only problem is that the power ables by 2020, and 10% by 2030, in and gas resources offshore. The environ- projects? generated from natural gas as opposed to place, how do you see renewable energy mentally vulnerable and its ST: ILF recently responded to an Indian coal generally has had a higher price. How has DNV GL evolved in Kazakh- developing in Kazakhstan? harsh environmental conditions combined Please introduce us to ILF Consulting client who had two solar power plant proj- stan over the past three years since we DM: Having passed a Law on Renewable with high risk factors—such as toxic gases Engineers’ presence in Kazakhstan, and ects one 50-MW plant in Aktau and another Where do you see ILF in the next three met with you last? Energy (RE) in 20131, which established and high reservoir temperatures and pres- its role in the country’s power sector. 100-MW plant in Shymkent. ILF Kazakh- to five years in Kazakhstan? JH: DNV GL has expanded its staff quite the basic RE support framework, the gov- sures—pose a great risk. In the ongoing ST: ILF is a family of companies that pro- stan offered to conduct an adaptation of the ST: ILF is a service provider and able to significantly. To build a sustainable -busi ernment, together with the investor com- feasibility study we compare the current vide engineering, design, consulting and design to Kazakhstan design standards and work with equipment suppliers or con- ness here, you need competent, local re- munity and other stakeholders are engaged Kazakh regulatory regime with those of the project management consultancy services norms, and to carry out survey work relat- struction companies to assemble an EPC sources. Traditionally, there was a lack of in putting this framework into practice. In UK and Norway, which is widely regarded (PMC) in different markets. About 50% of ed to the site at both locations. Currently, package. Alternatively we can sell our de- local competence in our core services ar- August 2014 favorable feed-in-tariffs (FT) as best industry practice. • the company’s revenue is oil and gas, while however, the most recent devaluation of the sign engineering, project management and eas, like risk management, so we had to were established2. However, while the RE 50% of the company’s turnover is gener- tenge made previously approved electrical consultancy services to define a project and develop them ourselves. All our local en- support system is in principle designed in ated from infrastructure projects. Histori- tariffs no longer valid. There should be a prepare the terms of reference. ILF is en- gineers have completed a two-year, on- line with international experience and de- cally ILF has been active in power proj- link between the U.S. dollar and the tenge, gaged with EBRD, who has been quite ac- the–job assignment in Norway or the UK spite the FT being in place for nearly 12 ects, which comprises the three main areas: otherwise investors might not be prepared tive in trying to finance some of these ven- before being repatriated to Kazakhstan. months, no large international RE devel- generation, transmission, and distribution, to get involved. The project was supposed tures, and ILF can fill part of that market The main reason behind DNV GL’s en- oper has reached financial closure for any 1The Governmental Decree of the Republic of both in conventional and renewable ener- to be a build-own-operate-transfer project, for power plant-related services. We hope trance into Kazakhstan was to contribute significant project. The main reasons are Kazakhstan “On approval of the action plan on gy. In Kazakhstan, ILF has pursued various and now has become complicated because that we can become involved with renew- development of RE in Kazakhstan within 2013- to the development of the offshore oil and substantial problems in practical imple- 2020”, from January 25, 2013 #43, as amended opportunities in conventional energy, but power was supposed to be purchased by a able energy projects, which is in line with gas resources. While Kazakhstan is an ex- mentation of the existing RE legal frame- on 28.07.2014 often investment has not been sufficient to subsidiary of KEGOC. the political program of Expo 2017. • perienced oil and gas country in terms of work and the overall macro-economic situ- 2The approved Fixed Tariffs (the RK Government build new capacity. ILF has been following KK: This division of KEGOC, or Calcu- exploration onshore, it is taking the first ation, such as low oil prices and a recent Resolution No. 644 and 645 from June 12, 2014 power-generation prospects, as the major- lating Financial Center, is responsible for steps offshore developing the Kashagan sharp devaluation of the national currency as amended by Resolution No. 148 on March 19, ity of capacity is quite old. Samruk Ener- buying electricity from renewable energy 2015 ) 3 field. Given the in-depth experience that tenge. Even the focus of the Expo 2017 3Kazakhstan: Nazarbayev Signals U-Turn on gy’s heat and power plant (HPP)-1 in Al- sources and dispatching renewable power our company has in developing oil and program has changed as a result of eco- Alternative Energy, 17 October 2014 maty has been converted to gas, but HPP-2 transmission from generation companies gas resources offshore and in arctic con- nomic conditions, change of the govern- http://www.eurasianet.org/node/70501 is over 40 years old and continues to oper- to consumers. They work together with

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 28 - Industry Explorations Industry Explorations - 29 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 Global Business Reports INTERVIEW

addition to securing the finance towards the potential markets border Kazakhstan such project. These are the basic necessities for as China, Russia and India, and Kazakh- entering Kazakhstan, and are often lacking. stan boasts 2.5 billion square km of unused Thanks to the of the Theselinograd land. Both water and energy are required to region and the mayor of Akmola province turn land into habitable and agricultural ar- for their unprecedented support for en- eas, and hence solar is absolutely necessary abling our project to get approved and our in the short and long term. Solar power has Ministry of Energy for their vision on re- the advantage of being able to be gener- newable energy in Kazakhstan. ated quickly. You do not have to wait for the grid, which takes ages with a high bill You are currently working on your first attached to, while we can literally execute a 100-megawatts (MW) solar power plant 10-MW solar power plant to be constructed in the in Astana. Could in one year. you talk us through the technicalities of this project? Is KB Enterprises planning to work on Our project is a 100-MW photovoltaic additional projects in the region and in solar power plant located 35 kilometers other parts of Kazakhstan? (km) from the city of Astana, in Kaban- In our pipeline we would like to launch Taylan bai , whose size will be about projects in the Karaganda, Almaty, , four square km and we will create jobs for Shymkent, and Kyzlorda regions. KB En- Karamanli about 100 local people and supply power terprises has already put a system together to Astana. and is optimistic about local network ca- To start with, we had to secure the land. pabilities. We will be working closely with And then, Siemens provided technical de- the Ministry of Energy as well as local mu- tails of our project, which we needed, for nicipalities. Managing Director local grid operator in order to have our There is a highly influential project that we KB ENTERPRISES project adapted to rules and regulations of are planning to implement in Zhetisai, a Kazakhstan, which provided us authoriza- small city south of Shymkent near the Uz- tion to connect to the grid. The last stage bekistan border. Ideally we would like to was acceptance to energy to be provided by power this city using 100% renewable en- KB to local grid. I would say it has been ergy sources, a combination of solar, wind, a long process. Nevertheless, it has been a and biomass. The city’s mayor approached learning curve for us and next project will us with a vision for the city, which is ex- be a lot smoother to execute. tremely sunny and small, to be Central The second stage of our project will in- Asia’s first green city. In order to do so, Please introduce KB Enterprises to our volve BioMass based on city waste man- we would like to install a separate smart readers. What was the reason behind agement, which is absolutely vital. Resi- grid, and I hope we can get enough support the company’s entrance into the Kazakh dential and Industrial Waste are important from the central government for this proj- market? source of energy while helping a clean ect. When this project is finalized as pilot KB Enterprises registered as a local com- environment. Although, Recycling is not project, we will be able to implement the pany in 2013 to build solar power plants in known in depth here in Kazakhstan, it is same structure to various cities in Kazakh- Kazakhstan. We have offices in , our duty to inform society about the vital- stan, which will have a positive impact on Germany, where we organize and manag- ity of renewable energy sources. KB Enter- the state budget. er all our operations. Management of our prises has also plants to install number of In a few years KB Enterprises aims to be company has extensive knowledge on In- windmills on the side. the leading renewable company in Kazakh- ternational Supply Chain Management and Astana is a pilot project for us and under stan; we are confident that we can achieve Corporate Finance with minimum of 25 normal circumstances, we are expecting this target. We believe in Kazakhstan. • years of experience in European And North our project to be completed about the end American markets. of 2016 nine months later. Our 100-MW Kazakhstan is one of the most important photovoltaic project is vital for the region emerging markets to western institutions to attract new investments and energy for where there is major appetite for govern- new industries. The plant will probably be ment-supported projects. Having said that, a tourist site for those who visit Astana for we seized the opportunity and have gath- Expo 2017. ered all components in order to be able to Solar power, however, is the first step for execute our projects. Therefore, KB Enter- KB Enterprises. Our ultimate goal is in- prises has signed an agreement with Sie- deed development of agriculture in Ka- mens as an EPC contractor exclusively, in zakhstan. Highly populated countries and

Industry Explorations - 31 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 KAZAKHSTAN MINING, POWER & CHEMICALS 2016 GBR • Industry Explorations • KAZAKHSTAN

SHAPING THE CONTOURS OF KAZAKHSTAN'S MINING INDUSTRY

“The development of a regulatory regime that is stable, transparent, and takes full advantage of the experience and expertise of companies with global reach represents an important step in attracting the type of foreign investment that the President and Prime Minister have prioritized for Kazakhstan. Achieving the right policy and regulatory settings will help ensure the long-term development of Kazakhstan’s highly prospective minerals sector.”

- Alison Morley, Country Manager, Iluka Resources Image: Atlas Copco Central Asia EDITORIAL Global Business Reports Global Business Reports EDITORIAL

TRANSITIONING TO PRIVATIZATION, MAINTAINING HISTORICAL ASSETS Kazakhstan aims to harness its Soviet ties and legacy in creating an optimal mining jurisdiction

Market Structure rently a lot of attention is allocated to tactical strategy and opera- tions management. Apart from that, the company moved away from The state of the mining industry in Kazakhstan can be character- one, two and five year planning. There is instead a special program ized as a privatized version of previously state-owned enterprises developed in ERG that allows for modeling various market situa- from the Soviet era. The main companies on the market are Kazzinc tions and measuring the impact of fluctuations in commodity prices Holdings, now 70% owned by Glencore and 30% by Samruk-Ka- on the entire company's operations,” said Azamat Bektybayev, zyna, Kazakhstan’s sovereign wealth fun; Kazakhmys Corp.; KAZ ERG’s vice president for production. Minerals; Eurasian Resources Group (ERG), previously ENRC; Besides these large players, there are a number of other significant and Kazatomprom, the national uranium mining company. These companies present in the mining sector in Kazakhstan. Some of players, although still manpower intensive in their operations, these include international names such as ArcelorMittal and Cam- have been continuously investing in their production processes to eco, which are already producing, and Rio Tinto, which is currently increase efficiency, particularly in light of the ongoing slump in exploring. In addition to international players, there are a number world commodity prices. of local Kazakh companies that have an equally important role to They are also restructuring to increase performance. “In 2014, we play. Some names in this category include Bogatyr Coal, Kazakhal- witnessed a restructuring, as a result of which Kazakhmys was split tyn, and Kazphosphate. Just as in other mining jurisdictions, there into two companies, a public company, KAZ Minerals, and a pri- are also a number of exploration companies present. These include Image: Yildirim Group vate company, Kazakhmys Corp. The biggest change brought about a mix of both domestic and international players such as Kazax by this split was the projects that each company is working on. Minerals, Orsu Metals, Frontier Mining, Altay Polymetals, Euro- ern equipment suppliers, given the right flexibility in the financ- rather slowly. One remnant of its Soviet past has been the once KAZ Minerals is now working on several projects in the east, and is Chem, but also established international players looking to set up ing solutions that they provide, can count on Kazakhstan to be a prosperous small towns that today require significant investment. also developing the Bozshakol and Aktogay deposits in Kazakhstan their presence in Kazakhstan, such as Iluka Resources of Australia significant source of business for them. These providers include Mining deposits around the world are often found in remote sites and Bozymchak in Kyrgyzstan. Kazakhmys Corp. is working on and Kores, a Korean government-owned entity. Atlas Copco, Borusan Makina, AK Machinery, Tamoz Machin- and communities of miners and their families subsequently spring projects in Zhezkazgan, and Karaganda regions. Zhezka- On the services and equipment supply side, Kazakhstan is continu- ery, and Sandvik, amongst others. As the interest grows in using up around these locations. zgan area is the most important one for the company, as it accounts ing to attract new companies seeing good future prospects in the more efficient equipment that requires less maintenance and with In Kazakhstan, the government wants to focus its search for miner- for 75% of the total volume of production. Restructuring of the country. Already long present in Kazakhstan, companies like Ka- significantly longer durability, Kazakhstan presents an interesting als around single-industry cities, so-called mono-cities. Towns like company has not changed the quality of the work environment and zgiprotsvetmet, Iskander, Gornoe Buro and Antal are complement- opportunity for international equipment suppliers not yet present , however, are becoming uninhabitable due to depleting human resources approach. The main goal of Kazakhmys Corp. ed by the interest of other EPCM service companies, like TOMS in this country. reserves of bauxite and the possibility of companies like ERG leav- now is increasing the profitability of non-core projects and working of Russia, who are keen to expand within Kazakhstan’s mining ing the area. Yet a billion metric tons of iron ore was discovered on new projects,” said Bakhtiyar Krykpyshev, general director of regions such as Karaganda. north of Arkalyk, in a town called Yesil, and now the state mining Kazakhmys Corp. Kazakh companies, especially the smaller players, are still rather Mono-Cities and Interconnectedness with Russia company Tau-Ken Samruk is looking to develop the deposit and Similarly, ERG has undergone its own reorganization. “In terms of concerned with price as opposed to quality when it comes to the possibly bring the 1,500 workers working in bauxite mines to the internal processes, the company is now going through a transforma- equipment they use. This causes a continued interest in equipment As previously mentioned, mining in Kazakhstan is still labor-inten- new location over a period of eight years, the time when bauxite is tion. We adopted a different approach to corporate governance; cur- from Russia and China, but a recent trend has emerged that West- sive, but due to the low cost of labor, this fact has been changing supposed to run out.

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 34 - Industry Explorations Industry Explorations - 35 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 EDITORIAL Global Business Reports Global Business Reports INTERVIEW

dustry. ERG’s major assets in Kazakhstan ration works during 2012 and 2013 resulted include Kazchrome, SSGPO, Aluminium in the growth of the iron ore reserves at of Kazakhstan, Kazakhstan Aluminium the Sokolovsky open pit by 70 million mt. In 2012, President Nazarbayev instructed companies can make a significant impact for the removal of household waste. More Smelter (KAS), Eurasian Energy Corpora- ERG was awarded a contract for the explo- the government to develop similar pro- on the communities in which they operate. new jobs for residents of the village and the tion (EEC), Shubarkol Komir, and a trans- ration of South-Kempirsai ore field, where grams for the development of mono-cities “People are our greatest asset, and we have surrounding area are constantly being cre- port company, Transcom. it is most likely to discover commercially elsewhere. 27 such towns were selected to invest not just into training our staff, but ated,” said Ruslan Yun, chairman of the su- Kazchrome represents the ferroalloys divi- significant amounts/reserves of chrome with a combined total population of over also in improving the quality of their lives. pervisory board of Altay Polymetals. sion, which comprises four mining objects ore. ERG also runs exploration at bauxite 500,000 people. The largest ones to par- Unlike most of the mining projects in the Russia’s presence in Kazakhstan should and two metallurgic plants. Chrome ore objects. We are currently ascertaining the ticipate are Temirtau, Balkhash and Zhez- country, we employ only local people. So not come as a surprise to anybody as Ka- extraction is carried out in two mines, ‘10 reserves of the Taunsor field. Once the geo- kazgan in , Ekibastuz in we do not have to fly-in and fly-out workers zakhstan and Russia are long-term partners years of Kazakhstan’s independence’ and logical exploration is completed, we will , Rudniy in Kostanai region, to do basic jobs. Our workers come from the dating back many decades. Furthermore, ‘Molodezhnaya’ and ‘Yuzhny’ pits. Manga- decide about production. in Mangistau region. These nearby Terekty village. We invested $34.5 Kazakhstan looks to benefit tremendously nese ore is extracted in ‘Tur’ mine. Aktobe towns will receive significant support and million in electrification of the village, from being a part of the Eurasian Economic ferroalloys plant completed construction of How have export markets changed over investment to help their economies. “There where we have constructed and reconstruct- Union along with Russia, Belarus, and Ar- fourth smelting shop, which is also known the last one or two years? are 60 mono-cities in Kazakhstan, and sup- ed multiple power-supply facilities. We menia, a region with a population of 176 as new Aktobe ferroalloys plant. The cost of One of the major changes for our company port and promotion of these cities, as well constructed more than 6,000 square meters million. In fact, a lot of Russian compa- construction is estimated to be about $850 is drop in demand for iron ore products in as further development of mining facilities, of accommodation for our future employ- nies, bitten by sanctions imposed on Rus- million. Once the shop reaches full capac- China. Although in 2014 we exported up to has been one of the top priorities for the ees, as well as sports facilities, a canteen, sia over its actions in Ukraine, are looking Azamat ity, we are hoping to produce 440,000 met- 2 million mt of iron ore, in 2015 the fig- government of the past couple of years. The a swimming pool, etc. The reconstruction to Kazakhstan as a good place to expand or ric tons (mt) of high-grade chromium alloy ure will reach 500,000 mt in the best-case development of these cities relates directly of the school and kindergarten is still in move their operations entirely. On the other Bektybayev per year. scenario. to the development of a competitive mining progress. Various study groups and activi- hand, low oil prices have greatly contrib- The iron ore division is represented by So- industry,” said Albert Rau, the Vice Minis- ties were organized and musical and sports uted to the deteriorating value of the Rus- kolov-Sarbai Mining Production Associa- How is ERG contributing to improving ter of Investment and Development. equipment was purchased for the children. sian ruble, making Russian goods cheaper tion (SSGPO) which comprises four large the social and economic situation in par- The case of Temirtau, a center of coal min- The works on redevelopment of the streets and thus ready to flood the Kazakh market. pits, one underground mine, an enrichment ticular cities where it operates? Vice President, Production ing in the Karaganda region, is explored of the Terekty village are being carried out This has increased competition for Kazakh plant, and a pelletizing shop. There also are ERG is a socially oriented business. Over EURASIAN RESOURCES more in depth in the coal section. as well. Additionally, a regular water sup- firms struggling to meet lower prices from non-core assets - dolomite and limestone the past five years, the company invested GROUP (ERG) It is not only the government that is respon- ply was implemented; garbage containers abroad. The weak Russian ruble has also open pits. We produce about 40 million mt about 100 billion tenge in social programs, sible for helping local people, but private and garbage removal trucks were purchased had some welcome benefits for Kazakh of ore and 16 mt of iron ore products a year. both in social security for our employees companies. “A positive factor for us is the Given the current market situation, we are and development of the regions; we also current situation with the Russian ruble, planning to extract about 32 million mt of contribute to other charity projects across which has helped us to decrease our cost ore and produce about 12 million mt of iron the country. ERG set up sports centers in of transportation and thus exports to Euro- ore materials. Chromtau, Aksu, as well as some mosques, pean markets became more profitable,” said The aluminium division of ERG comprises churches and synagogues in various re- Krykpyshev of Kazakhmys Corp. Kazakhstan Aluminium Smelter (KAS) and gions. ERG's social investment is growing Russian companies like RJC Group have ENRC was recently reorganized into Aluminium of Kazakhstan (AoK), which year on year; it is in the core of the com- had a very positive experience in Kazakh- ERG. How did this affect the company's represent the entire aluminium cluster in the pany's vision. We have been signing memo- stan and plan on further expanding here. operations? region. Alumina is produced at Pavlodar al- randums of collaboration with akimats of “In 2011, RJC participated in Minex Cen- In terms of internal processes, the company uminium plant, which is a part of Alumini- Aktubinsk, Karaganda, and Pa- tral Asia, where we were approached by is now going through a transformation. We um of Kazakhstan. ‘Krasnooktyabrsky’ and vodar regions for the past 11 years. Quite Kazakhmys Exploration, who offered us adopted a different approach to corporate ‘Torgaysky’ mines’ processing facilities a few infrastructure projects were brought to work with them at several deposits. This governance, as currently a lot of attention is supply PAP with bauxite. This year, alu- to life in line with these agreements. ERG allowed us to enter the Kazakh market. In allocated to tactical strategy and operations mina output will reach about 1,400,000 mt. comprises 'ERG Komek' ('ERG Help') order to optimize our operations and focus management. Apart from that, the company Part of the aluminium is exported, and the charity that supports vulnerable social stra- on further development of the local market, moved from one, two, and five-year plan- rest is used to produce primary aluminium ta/populations as well as socially important we opened a representative office, TOO ning. There is a special program developed at our plant. This year, we are planning to and cultural projects. RJC Karaganda. Geological exploration has in ERG that allows for modeling various produce 220,000 mt of primary aluminium. great potential and it opens many opportu- market situations and measuring the impact Energy division comprises 'Vostochny' coal What are the company’s goals for the nities for local and international companies. of fluctuations in commodity prices on the mine at Ekibastuz basin and Aksu power next three to five years? RJC aims to carve its niche in the sphere of entire company's operations. station that generates about 14.3 billion Given the current situation, it is important servicing geological exploration projects in kilowatt hours, which makes it the second- to note that we are not planning on reducing Kazakhstan,” said Andrey Kharlashin, di- Could you tell us about ERG's major largest power station in Kazakhstan. the output or downsizing. Despite the nega- rector of geology at RJC Group. running projects in Kazakhstan? tive outlook for demand for iron ore materi- Kazakhstan’s Soviet legacy in terms of To date, in terms of output, ERG is the larg- What are the company's plans regarding als, we are planning to maintain production mono-cities and its interconnectedness with est ferrochrome producer, as well as one of geological exploration of existing depos- at 32 million mt. At the same time, we are Russia present a number of challenges for the largest iron ore and alumina producers its? planning to increase ferroalloys, aluminium the advancing nation, which if exploited in the world. ERG accounts for one-third Our company is running geological explo- and Shubarkol coal output. • smartly can be turned into advantages. • of Kazakhstan’s metallurgic and mining in- ration work to increase the reserves. Explo-

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 36 - Industry Explorations Industry Explorations - 37 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

construction projects within the industri- third blast furnace, and now the power of How supportive has the local Karaganda What changes do you anticipate the new alization program. For these projects, we the furnace is 20% more than before, which government been? mining code will bring and what are the are planning to attract 400 billion tenge in will allow the company to produce up to ArcelorMittal is the only integrated steel main challenges for investors coming to 2016. 6 million metric tons (mt) of steel a year. company in Kazakhstan. The government the country? We also see that ArcelorMittal Temirtau is has always been supportive of the steel and The current mining and labor codes are old In 2014, several production facilities actively working to minimize the negative mining industry. In the economic downturn and require changing; modifications will were brought back into operation, in- impact of its work on the environment and of 2008, it was necessary for ArcelorMittal to bring the country in line with other global cluding production of silicone and barite decrease the volume of emissions. carry out cost optimization, an action coun- mining jurisdictions. The new mining code concentrate in Saran. What other manu- tenanced by the government. Support from will give a level playing field for interna- facturing capacities are you planning to Kazakhstan’s government is looking to the government is ongoing. Karaganda is the tional investors. In the recent past, the geo- bring back online this year? introduce a subsoil code. How will this prime industrial region for Kazakhstan. political situation in Kazakhstan would have In 2014, we also restarted production at new legislation help to attract new inves- been the main challenge, but the country has the Zhezkazgan copper smelting facility, tors in Karaganda? Strategically, how important is Kazakh- always been open to foreign investors, par- which has been closed for reconstruction The changes that will be introduced in stan globally to ArcelorMittal? ticularly in the mining industry. Geological for over a year. Together with this facility, subsoil legislation will help us increase Kazakhstan is very important to ArcelorMit- surveys confirm that there is a plethora of re- total production volumes in the region in- the investment attractiveness of the min- tal. It is a politically stable country, which sources; in the northwest, we can extract iron creased by 10% in the first quarter of 2014, ing sector through shorter approval times welcomes and encourages foreign invest- ore two meters from the surface. The home- and the processing industry increased by and simplified processes of getting licenses ment. For ArcelorMittal it has proved to be market has to be developed; currently, con- Nurmukhambet 12%. and approvals. We hope that the new code Vijay one of the safest locations to invest. And also sumption of resources is limited amongst the In 2015, we are planning to restart opera- will help attract investors to explore deplet- there is close engagement with the govern- population of 16 million. Abdibekov tions at a brick production plant in - ed deposits, which will be a very positive Mahadevan ment to attract foreign investments. So, it is tau, which used to produce 35 million move that will introduce new technology ideal place. How are you ensuring that environmental pieces of brick a year. To ensure stable and processes. We hope that our foreign damage sustained from mining extraction production at this facility, we are looking counterparts will be able to teach our lo- How have you managed to mitigate the is minimized? for new investments and we are hoping to cal professionals new methods of working. drop in the Russian ruble and the increase Part of our capital expenditure is dedicated Akim (Governor) CEO finalize this process this year. In 2016, we in operational costs combined with lower to environmental sustainability, i.e. reducing GOVERNMENT OF ARCELORMITTAL TEMIRTAU are planning to start production of synthetic Production of coal in Kazakhstan is ex- commodity prices? emissions from our steel facility. Underpin- KARAGANDA REGION detergents in Shakhtinsky. This facility has pected to reach 150 million mt by 2020. The market that we are operating in is chal- ning all our actions in running our mining been closed for quite some time because of What role will the region play in reach- lenging: falling demand, a significant -in business is maintenance of what I term our problems with financing, but we are hoping ing this target? crease in imports, uncompetitive raw ma- license to operate. This means that beyond to solve these issues soon. The Karaganda region is one of the largest terial costs and a very challenging export health and safety and environmental sus- regions in the CIS countries. market. To address these challenges and to tainability, this requires strong community ArcelorMittal Temirtau plans to con- Unfortunately, mining facilities do not op- offset higher operational costs, we regularly and stakeholder engagement. With regards tinue investing in Karaganda. How im- erate at 100% capacity, which means that review our operations and have strong cost- to environmental sustainability, to give you portant is the presence of large inter- we will be able to ramp up our production Can you give details of the overhaul and reduction initiatives to improve productivity an example, we are partnering with another In recent years, investments in the national companies in mono-towns and if necessary. This year, we are planning to turnaround that you have achieved in but never compromise on safety. We bench- company to capture methane gas present Karaganda region have significantly how are you working on attracting more produce 33 million mt of coal. In current Temirtau? mark our prices against competitors and in pockets in our coal mines to produce 40 increased, and several large-scale indus- international players? conditions, where the emphasis is put on The acquisition of Temirtau was an impor- build into our cost structure the fluctuating megawatts (MW) to 50 MW of eco-friend- trial projects have been finalized. What We are very interested in attracting new value-added products, we are not only con- tant for ArcelorMittal and complemented commodity price. ly generated electricity, rather than burning are your expectations for investments in international companies to the region. Ar- sidering coal for power generation, but are our portfolio of assets. Steelmaking and min- coal. 2015? celorMittal Temirtau is important for Kara- also looking at coking coal, as well as de- ing are capital-intensive businesses, which What is your assessment of Kazakhstan's In recent years, there have been increasing ganda, and we are interested in seeing it veloping carbon chemistry for the produc- means that high levels of investment are re- current infrastructure and its impact on Where do you expect ArcelorMittal Temir- volumes of investment, which is related to increase its production capabilities. More- tion of synthetic fuels. quired to ensure the running of the operation. mining investments? tau to be positioned in five years? the large-scale projects in the region. Since over, we are offering new projects to it, In the past twenty years since ArcelorMittal Mining locations are remote, but rail access We are operating in a challenging environ- these projects have been finalized and the which can be mutually beneficial. For ex- What is your expectation regarding the first acquired the plant we invested $5 billion in Kazakhstan is always nearby and is opera- ment therefore our priority is to continue financial situation is weak globally, we ex- ample, we are developing a project to build development of the mining industry in in the business, including modernizing our tional all-year-round, even at temperatures of executing our cost reduction plan, including pect a lower level of investment for 2015 a factory for complex alloys together with Karaganda for the next five years? coal and iron ore mines. -40 degrees Celsius; ArcelorMittal has never the improvement of primary and downstream than in 2014. Sinosteel, and the products of this plant will We see that companies in the region are Over the last four years, we have invested had issues with the movement of resources processes, optimization of ore mix, reduc- According to our estimates, we will re- also be useful for ArcelorMittal’s produc- modernizing their operations and produc- more than $1.5 billion in our operations in from mines. Today, rail infrastructure is over- ing fuel and energy consumption, improving ceive over 380 billion tenge for invest- tion. We are currently discussing possible tion capabilities and improving their em- Kazakhstan and, as a result of this invest- loaded; it is designed to cope with the freight quality. Our priority is to secure a sustainable ment in the region, which is 3% to 4% projects with POSCO as well. ArcelorMit- ployees’ conditions. We are also actively ment, our operations are more efficient and volume of 10 to 15 years ago. For movement future for the company and our employees. lower than in 2014. Nonetheless, we will tal Temirtau initiated an extensive program looking for new investors. All of these fac- technologically advanced than at any other of all goods, road construction is required to If the market improves including commodity continue to work to attract more. The pro- to modernize its production processes and tors allow us to remain optimistic about the time in our history. alleviate rail-traffic congestion; the rail sys- prices, ArcelorMittal Temirtau is planning to cessing industry is a key sector where we increase it efficiency. Since the entire econ- future development of the industry in Ka- Safety in our mines is our top priority. One tem also needs to be updated to facilitate increase its production of 3.5 million metric want to increase investment. This is re- omy of Termirtau depends on this facility, zakhstan and in Karaganda in particular. • of the main investments done was alleviat- high-speed rail, which would reduce logistic tons (mt) to 6 million mt and thereby con- lated to ArcelorMittal Temirtau’s program this has had a positive effect on the well ing the problem of methane pockets in our costs for producers and mining companies. sumption of mining products from 11 million for modernizing and upgrading production being of the town and the region. In 2015, coalmines; these methane pockets are unique Kazakhstan is land-locked and rail is its only mt to 14 million mt. • capacities at Kazakhmys Corp., and other the company finalized reconstruction of the to the Karaganda region. means of moving bulk material.

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 38 - Industry Explorations Industry Explorations - 39 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports

ability of non-core projects and work on has this situation changed over the past new projects. couple of years? At our Zhezkazgan facility, we have an op- Copper prices remain quite low and tion to convert copper cathode to copper force mining companies to look for ways wire. The production capacity is 50,000 to reduce their cost of production. How metric tons per year (mt/y). We produce is Kazakhmys planning to keep costs to this for our clients in Kazakhstan and Chi- a minimum? na. In 2014, the share of exports to China We are planning to change the system of was about 80% of total volume. Today, this mining at our deposits in light of low cop- share has decreased to 64%, as the situa- per prices. We are currently using room- tion has changed in China mainly due to and-pillar mining method at them, which internal politics and external factors. In this allows us to mine all the ore that we have, light, we are looking for new off-take mar- but which is also very expensive. We will kets. now be moving towards using in-between A positive factor for us is the current situa- room tailings with high metal content and tion with the Russian ruble, which helps us those copper cathodes will be of higher to decrease our cost of transportation and quality. makes exports to European markets more Bakhtiyar We are working on several other programs profitable. to optimize processes and reduce costs. Krykpyshev Where it is necessary, we are increasing Kazakhmys pays special attention to our production or the quality of the copper, industrial safety. Can you please tell us we are looking to use more efficient equip- about the various programs that you ment. In 2015, the copper price reached re- have in place to promote this? cord lows, so we understand that we need In 2012, we identified a five-year program General Director to change our methods to remain profitable. to decrease the number of accidents at our KAZAKHMYS CORP. facilities. Every year, we invest significant Mining companies across the world are amount of money to support this cause. struggling to find qualified talent. How This money is invested into modernization is Kazakhmys addressing this problem? of industrial processes, creation of safe We are certainly having difficulty finding conditions, purchasing of the most innova- the right talent. At the same time, we are tive personal protective gear, etc. Our goal working hard to ensure that we have a re- is to improve all the indicators of industrial serve of talent, which is why we are trying safety. We strive to achieve zero fatal ac- to decrease the deficit of qualified people cidents and reduce work accidents by 40%. Tell us about the transformation that oc- and are looking to continuously train them. We are improving our medical-help stan- curred within Kazakhmys and how it af- Kazakhmys has two training facilities: one dards as well. fected the company’s operations? in the Balkhash region, where we are train- In 2014, we underwent a restructuring, as ing metallurgists, and the other one in the What are your plans for the next three a result of which Kazakhmys was split into Zhezkazgan region, where we are prepar- to five years? two companies: a public company, KAZ ing specialists for mining and benefaction. We are planning to start operations at a Minerals, and a private company, Kazakh- The training process lasts three years. For new Zhilandinsky deposit in the Zhezka- mys Corp. The biggest change brought the duration, our students receive scholar- zgan region, which will begin operations about by this split was the projects that ships and are then hired by the company. in 2016 and will achieve full production each company worked on. KAZ Minerals Kazakhmys pays for the entire course of capacity by 2021. Close to Zhezkazgan we is now working on several projects in the education. We are also working with the also have Zhaman-Arbait 2 deposit, which east, and are also developing the Bozshakol leading institutes in Kazakhstan and neigh- will become operational in 2016. In the and Aktogay deposits in Kazakhstan and boring countries, including close collabo- Karaganda region, we are planning to start Bozymchak in Kyrgyzstan. Kazakhmys ration with the Mining Institute in Saint production at Nurkazgan GOK, produc- is working on the project in Zhezkazgan, Petersburg and the National University of ing 3.4 million mt/y at first and reaching Balkhash and Karaganda regions. Zhezka- Science and Technology in Moscow. We 4 million mt/y in 2017. Also, we are plan- zgan area is the most important one for the are sending our students to study there as ning to expand all of our existing deposits company, as it accounts for 75% of the total well as follow internship programs at dif- and increase their efficiency. Finally, we volume of production. ferent companies, where they can gain are looking to integrate hydrometallurgical Restructuring of the company has not valuable experience. processes for a more efficient extraction of changed the quality of the work environ- ore. • ment and HR approach. The main goal of Historically, the main market for Ka- Kazakhmys now is to increase the profit- zakhmys’ copper has been China. How

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 40 - Industry Explorations EDITORIAL Global Business Reports Global Business Reports EDITORIAL

OVERHAULING KAZAKHSTAN’S SUBSOIL REGULATIONS Can a new mining code bring Kazakhstan’s regulatory framework in line with international jurisdictions?

The main new feature of the law is the simplified process of granting rights, based on the Australian method, for unexplored pieces of land (not more than two square kilometers per one block).

Kazakhstan’s subsoil regulations continue to be a major impedi- smaller players such as Iluka Resources, who have only recently Yet the new code alone will not act as a magic wand to reawaken ment for the country’s mining industry to grow and attract foreign ventured into Kazakhstan. “The development of a regulatory re- Kazakhstan’s mining sector. “Arguably, legal acts alone cannot pro- - Albert Rau, investment. Although minor changes have already been imple- gime that is stable, transparent, and takes full advantage of the duce a surge of exploration activity in Kazakhstan. Global com- Vice Minister, mented, the current regulations are still cumbersome and need up- experience and expertise of companies with global reach, such as modity prices and new investments are major contributors towards grading. In 2014, lawmakers put forth an ambitious plan to bring Iluka, represents an important step in attracting the type of foreign stimulating the mining industry. If commodity prices are depressed Ministry of Investment and Development Kazakhstan’s subsoil regulations into line with other international investment that the President and Prime Minister have prioritized and capital expenditures for a new mining project are high, there mining jurisdictions. In consultation with law firms operating in for Kazakhstan. Achieving the right policy and regulatory settings will be little movement in the market. Harmonization of Kazakh- Kazakhstan, this article will outline both the recent and proposed will help ensure the long-term development of Kazakhstan’s highly stan’s mining code will be of great benefit when there is an upturn and companies in the past have been more focused on increasing changes to the country’s subsoil regulations. prospective minerals sector, and Iluka looks forward to working in the mining market. When the upturn occurs, we anticipate inves- profits rather than sustainable development. However, this trend is In 2014, Kazakhstan’s President Nazarbayev described the min- with the government as it undertakes reform of the mining code,” tor interest predominantly from the Asian or Gulf regions,” said changing and companies, especially those with foreign sharehold- ing sector as vital to the country’s economy, but lacking foreign said Alison Morley, country manager of Iluka Resources in Ka- Umid Aripdjanov, partner at Colibri Law. “A further change will ers, are becoming concerned with environmental protection and are investment. Michael Wilson & Partners, a law firm operating in Ka- zakhstan. be the creation of a financial and arbitration center in Astana. It is often the champions of applying policies similar to their countries zakhstan, reports that a joint committee of the relevant ministries There are, indeed, great expectations for the new mining code, as planned to invite 500 foreign English-speaking judges/arbitrators of origin; this is in turn spearheading efforts by the government prepared a draft Concept of the new Subsoil Use Code later that highlighted by Albert Rau, the vice minister of Investment and with English law governing the arbitration, giving investors more to follow suit and get more serious about the environment. “We year. The expected timeline is: “the Concept will be approved by Development: “The main new feature of the law is the simplified confidence to file a claim,” added Aripdjanov. are not using any dump trucks, but instead our conveyor belts can the Government of Kazakhstan by mid-2015, and the draft Subsoil process of granting rights, based on the Australian method, for un- As these changes are taking place, anticipation and great expecta- move just like dump-trucks, which also reduces our capital costs. Use Code itself will then be prepared and referred to the parliament explored pieces of land (not more than two square kilometers per tions are building among investors and, indeed, when the upturn Metso has designed and produced the largest crushing unit (LT-200) of Kazakhstan for further approval by 2016, so that the Code is in one block). We expect to see the first contracts based on this scheme in the global mining industry occurs, Kazakhstan should be well specifically for Koktaszhal. This installation is safe for the envi- place and takes effect during 2016.” in the second and third quarter of 2015 and to auction at least 100 positioned to deal with higher demand for its mineral wealth. ronment and reduces carriage by truck at the open pit mine. The Michael Wilson & Partners also says that some amendments to the areas in total this year. The law will also simplify access to geologi- structures weigh about 800 metric tons, but nevertheless can be existing subsoil laws were made in 2014: “The existing Law on cal data. We managed to dramatically decrease the time required easily moved around the mine,” said Ruslan Yun, chairman of the Subsoil and Subsoil Use was amended in 2014, with effect from to obtain such information from 240 days to one day. Moreover, Environmental Standards in Kazakhstan supervisory board of Altay Polymetals. 2015 to implement new and to amend existing definitions, namely we simplified the procedure for granting exploration contracts and Service providers are also participating in the increased level of (but not limited to) mostly unexplored territories, and subsoil use small deposits to remove extra administrative barriers. Overall, the “Subsoil users in Kazakhstan are subject to extensive environmen- environmental protection at mines around Kazakhstan. One ex- rights associated therewith; auction procedures; sample subsoil use new law will increase transparency in decision-making and remove tal protection regulation. The Ministry of Environmental Protection ample is Orica, a worldwide leader in explosives with a presence contracts; technological mineral formations and strategic resources. administrative barriers on all levels. of the Republic of Kazakhstan (MEP) is the principal State author- in Ust-Kamenogorsk. “Orica has very high SHEC standards all For example, mostly unexplored territories are defined as territories These changes should boost the development of junior companies ity in the sphere of environmental protection. Among other things, over the world, including in Kazakhstan. This is not related only that have preliminarily valued forecast resources. The exploration and simplify procedures for all mining companies.” it issues environmental permits and licenses and establishes the to our own plants and service centers, but also applies to how we rights for such territories are granted in a simplified manner. Auc- limits for environmental emissions. Individuals and legal entities work at customer sites, so our customers can be confident that our tion regulations were introduced as simplified procedures to choose that use the environment (e.g., subsoil users) are subject to state people on their sites are fully compliant with the highest levels of an investor with the highest signing bonus proposal, provided that environmental control. MEP carries out such control by organiz- safety and environmental protection. The use of our explosives is the same met all auction prequalifying obligations.” Harmonization of Kazakhstan’s mining code will be of ing state environmental inspections. Various aspects of business also environmentally safe, as well as safe for people who use it. The Some of the major changes have already been incorporated into the activities are subject to environmental requirements. For example, great benefit when there is an upturn in the mining market. use of emulsion in comparison with TNT-based explosives and oth- Concept, which include: “’First Come, First Served’ basis to ap- a positive state environmental expert evaluation must be obtained in When the upturn occurs, we anticipate investor interest ers significantly improves the ventilation process, which improves ply for the right to explore, develop and mine currently vacant and relation to projects involving an environmental impact before such predominantly from the Asian or Gulf regions. productivity. We also have more advanced technologies that can unallocated territory (mostly unexplored); economic incentives: projects may begin. Enterprises engaged in environmentally haz- reduce environmental impacts, such as electronic detonators, which land and property tax exemption, the application of international ardous business activities are subject to the mandatory requirement enable reduced vibration,” said Julia Yugay, country lead at Orica- accounting standards for tax purposes, no signing and commercial of obtaining environmental insurance covering potential damage Kazakhstan. discovery bonuses, royalty exemptions, etc.; open access to all - Umid Aripdjanov, as a result of environmental contamination,” according to Baker & Technological improvements introduced in a number of mines available geological data and information,” according to Michael Partner, McKenzie, a law firm. across Kazakhstan can add up to have a significant positive impact Wilson & Partners. Colibri Law Despite having detailed laws related to environmental protection, on the environment compared to using older technologies. These Most of the majors, like BHP Billiton and Vale, have come and these standards are still behind other international mining jurisdic- kinds of initiatives can lead to improved environmental standards gone, but Kazakhstan is working hard to lure them back along with tions. Kazakhstan’s environmental laws are often poorly enforced across all industries in Kazakhstan. •

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 42 - Industry Explorations Industry Explorations - 43 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports

Resources in Kazakhstan that were discov- be updated; and will the guarantee of de- at scientific departments of the Ministry ered by the Soviet Union in the 1950s and velopment rights be granted. Investors are of Emergency Situations and at mining fa- 1960s are becoming depleted, as is the State interested in Kazakhstan but internation- cilities. Our client portfolio includes com- balance, and new exploration is required. al mining companies have yet to impact panies such as Kazakhmys, ArcelorMittal Since the demise of the Soviet Union, only this jurisdiction; albeit, there are national Temirtau, ERG, Bogatyr Komir, Kostanay a relatively small amount of exploration companies very active in Kazakhstan, i.e. Minerals, Interrin and others. In the field has taken place in Kazakhstan. The Gov- Kazzinc, Kazchrome, Aluminium Ka- of equipment expertise and receiving cer- ernment is now addressing this problem zakhstan, Tau-Ken Samruk, Kazgeology, tificates for application of the equipment in and is taking action to replenish the reserve Kazatomprom, KazMunayGas – most of Kazakhstan, we work with suppliers from base leading to the reform of the mining these projects are privatized versions of ex-Soviet countries, mainly Russian, and sector. Within the reform, Kazgeology has Soviet mines. The lack of an equity market European. We carry out numerous indus- been created to gather mining data, digitize in Kazakhstan is holding back the develop- trial safety projects for Kazakhmys. For ex- it and possibly making it available to min- ment of its resources. ample, at Zhomart mine at Zhaman—Aybat ing companies. The Government has made deposit in Zhezkazgan region we developed funds available to Kazgeology to carry out Can you give an example of a mining a technological process for secondary pro- its own exploration, and to cooperate with project that MWP has worked on? cessing of tailings. sound foreign geological companies. The firm worked on the financing of the There are two stages to the reform. Phase gold-copper mine at Varvarinskoye now How are you planning to grow your busi- Michael one, the easy reforms, currently being un- owned by Polymetal; our brief was from Rustam ness in Kazakhstan? dertaken, i.e. to take away the state pre- the first joint venture in 1994 through to Geomark has been certified with inter- Wilson emptive rights (except for listed projects of project financing and mine construction, Khodzhaev national standard ISO9001-2009 ‘Qual- national significance); introduce new defi- commissioning and completion of the plant ity Management System’. We continuously nitions and concepts, allow the rapid con- itself and all infrastructure and the eventual work on improving the quality of the ser- cession of mostly unexplored territories, take-over of the mine by Polymetal from vices we offer, carry out audits, look for simplify and conclude the auction proce- Orsu Metals Corporation. MWP’s most re- new clients, offer new services and work Director Director dures, introduce better sample subsoil use cent big deal in the mining sector was in on the existing methods. Moreover, we are MICHAEL WILSON & GEOMARK contracts. The rationale behind the changes 2012 when it assisted with the dispute be- working on promoting our brand, we par- PARTNERS, LTD. is to expedite the approval procedure for tween KazakhGold and Polyus Gold, act- ticipate in conferences and attend exhibi- the farm-in and farm-out of exploration ing for KazakhGold. tions and symposia in order to broaden our blocks. There is also some streamlining of The firm has also recently assisted Balausa horizons and find new partners and clients. the taxes that have to be paid. A big issue company, a part of Ferro-Alloy Resources We are also planning to create a certifica- is that there is no cost-non guarantee that Ltd., on its vanadium project (the largest in tion and testing center to test equipment for an exploration company will be granted the the world) and is heavily involved in the spark and explosion safety, as well as pro- rights to develop a block after the initial ex- Jerooy Project in Kyrgyzstan. tection from moisture and dust. This center ploration phase; formerly, there was a com- will serve as the first facility to test explo- Can you please give a brief overview of plex license for subsoil use contract with What role do you envisage for MWP in Can you please introduce Geomark and sive materials. We are looking to expand Michael Wilson & Partners, Ltd. (MWP) procedure outlining and embracing both the Kazakhstan mining sector over the tell us about your key areas of expertise? the geography of our projects, and increase and tell us how much of your business is exploration and development. next five years? From the moment the company was found- the amount of projects we work on in Kara- generated by the mining sector? Phase two of the reform will be a new sub- Over the next five years, MWP will play ed in 2002, we focused on solving issues ganda, Pavlodar and , as MWP was formed as a full-service law firm soil use code, incorporating new practices a very significant role. We are members of related to industrial safety on mine sites well as in the eastern part of the country. in July 1998, and has acted for the majority and provisions, i.e. the availability of ter- the two working groups for the new sub- in the Republic of Kazakhstan. Our center One of the key priorities of the company is of the mining companies in Kazakhstan, in- ritory on a ‘first come, first served’ basis, soil use code, managed by both the Minis- offers the following services: research in to increase professional and academic train- cluding dealing with exploration, privatiza- preliminary exploration, guarantees for the try of Investments and Development of the the field of industrial safety, testing equip- ing of our staff. We plan to send our staff to tion, project financing, mine development rights to carry out subsequent operations Republic of Kazakhstan, and the OECD ment and materials and providing docu- study masters and Ph.D. degrees at the Min- and production and operations. The per- (e.g. development after exploration), easy members panel. There are fascinating op- ments confirming that technical specifica- ing Academy of the University of Freiberg, centage of the firm's business from mining access to the local stock market, third party portunities still in the mining sector be- tion of the equipment meet local standards, People's Friendship University of Russia varies; currently, it is not as high, as metal arbitration agreements, open access to all cause several Soviet-era enterprises need to process flow documentation for industrial and other universities. prices are low, and there is very little equity available geological data and information, be reformed and restructured, for example, safety, training and re-training of engineers and debt financing available. The firm's cli- tax exemptions and other. Currently the Kazphosphate, which the firm privatized; and technical staff, development of legal Where would you like to see Geomark in ent base within mining, is more of exist- new subsoil use code is in a draft concept in addition the green shoots of exploration documentation and drafting and expertise five years? ing clients; today, there are very few junior form, not officially available in English. in Kazakhstan are beginning to show. • of safety declarations, expertise of process First of all, we would like to maintain a lead- mining companies active in Kazakhstan, The timing for the introduction of the new flow documentation in the field of blasting ing position in this market and keep up with albeit, Kazakhstan has massive mineral po- subsoil use code is unclear; it is suggest- works. our business development plans. Two years tential. ed that it will be introduced by the end of Currently, there are 28 people working ago, the average age of our employees was 2015 and approved in 2016. The primary for our company, including seven people 52 and today with the new young specialists What changes have taken place with the question is to what extent will the system with a Ph.D. degree and one person with who are joining our team, the average age subsoil law and what changes do you an- change in practice, i.e. whether the old So- a post-doctorate degree in technical sci- has decreased to 46 years. In five years, we ticipate? viet underground mining regulations will ence. Almost all of our employees worked are hoping to become even younger! •

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 44 - Industry Explorations Industry Explorations - 45 - INTERVIEW Global Business Reports Global Business Reports INTERVIEW

Firm's only international competition is in ity to attract foreign and independent inves- of everyday life, with uses as diverse as bath- program, QA/QC management processes, and Kazakhstan; in the other stans competition tors; it will also be a challenge for the regu- room and kitchen facilities, sporting goods, 3D exploration software. is predominantly national. To attract new lators to accommodate hydrocarbons and healthcare, industrial welding, and aviation. Should the company’s interests in Kazakh- clients, the firm embraces the whole region hard minerals into a single statute. stan develop beyond the exploration phase to and not individual jurisdictions; it concen- Can you give an update on your partner- project development or mining – and I stress

N1 trates on specialization, for example, sub- What impact will the new mining code ship with Kazgeology? that is a long term prospect at this stage given soil throughout the stans which are catego- have on the mining industry and what Iluka has been engaging with Kazgeology Iluka’s entry into Kazakhstan only occurred rized into mining and energy. There is a CIS else can the government do to improve since its initial visits to Kazakhstan in March last year and on-ground exploration is yet to model for civil code, which is followed by the business climate? 2013, and the relationship has developed commence – the same approach would apply. nearly all the stans, so there are many com- UA: Harmonization of Kazakhstan's min- substantially since that time. Kazakhstan is In macro terms, the entry of global resource mon features. However, there are signifi- ing code will be of great benefit when there a new jurisdiction for Iluka, different from companies into Kazakhstan has the potential cant divergences among those jurisdictions is an upturn in the mining market. When the those where it has traditionally operated, so it to present tremendous training and develop- N2 that nonetheless can be easily managed upturn occurs, we anticipate investor inter- is important that the company draw on cred- ment opportunities for the Kazakh workforce with qualified personnel. est predominantly from the Asian or Gulf ible, well-regarded sources of in-country ex- – with ensuing benefits for the economy over- regions. pertise. all. But this is also two way street. Because Can you outline the changes that have AM: To improve the business climate, the Iluka has signed a number of memorandums just as companies can offer employment, taken place in Kazakhstan's subsoil law? following will be required: less bureaucra- of understanding with Kazgeology with the training and skills development, no company UA: The new package of amendments to cy; more civil and less public contracts and aim of benefitting from its considerable- lo entering a new jurisdiction can hope to suc- Umid Aripdjanov, the subsoil law came into effect in Janu- therefore fewer amendments. Public con- Alison cal knowledge and access to geological data. ceed without the essential knowledge, cul- ary 2015. Prior to the changes, the govern- tracts are always subject to many amend- This relationship will also provide Kazgeol- tural understanding, and goodwill of the local Assel ment had the priority right-to-buy with any ments. Civil contracts will ensure more Morley ogy the opportunity to observe and learn from population. transfer of subsoil use right or “associated investment security as agreed parameters Iluka’s highly experienced exploration and The key is creating an operating environment Meiramgaliyeva objects”, including shares. The amendment of a contract are observed throughout its mining professionals in the field. where companies have the flexibility and in- states that the government still has the right- lifespan and not subject to change through In addition to Kazgeology, Iluka is expecting vestment certainty to collaborate for the long- to-buy but only for strategic deposits and the public law. However, in some terms to sign agreements with Kazakh governmen- term in partnership with local people, govern- UA: Partner Country Manager areas, i.e. project of strategic importance such subsoil use contracts still have special tal agencies to facilitate on-ground explora- ments, and education institutions. AM: Associate ILUKA RESOURCES tion later this year. COLIBRI LAW to the state that may have an impact on na- status distinct from the ordinary civil con- tional security (typically major deposits), tracts. What innovations has Iluka introduced to which included to the list approved by the UA: The government is preparing a docu- What are Iluka's expectations for the next the market in the last two years? Government. Furthermore, there were ex- ment titled "100 Steps" to increase the at- three years, if the new Mining Code is im- In 2014, Iluka launched eight new products cluded one of the grounds to termination of tractiveness of Kazakhstan's economy; not- plemented in 2015? into the market, all to defined product speci- subsoil use contract as for breaching of the withstanding, the government should work The Kazakh Government has put the energy fications. obligation under project document, but was closely with many consultants on improv- and resources sectors at the center of its eco- The company also continues to progress com- included breaching financial obligations by ing the current global ranking of doing busi- nomic reform program, and Iluka welcomes mercialization of an acid soluble synthetic ru- more 70% for two consecutive years. As ness in Kazakhstan. The present ranking of plans to update the mining code. The devel- tile product, as part of sulphate market devel- Can you please give a brief introduction to the obtaining the subsoil use right, new Kazakhstan is above Russia and the other Can you introduce Iluka Resources on a opment of a regulatory regime that is stable, opment activities. and history of Colibri Law? method has been added as an alternative stans. A further change will be the creation global level? transparent, and takes full advantage of the And, in 2014, Iluka acquired an 18.3% stake UA: Colibri Law Firm was established in to the existing process – auction, which is of a financial and arbitration center in As- Iluka is an Australian-listed public company experience and expertise of companies with in Metalysis – a UK based company that is 2011 as a regional law firm covering all So- based on signing bonus bids. tana. It is planned to invite 500 foreign Eng- based in Perth and ranked in the top 100 com- global reach, such as Iluka, represents an im- developing a potentially disruptive technol- viet ‘stans’, i.e. Kazakhstan, Kyrgyzstan, lish-speaking judges/arbitrators with Eng- panies on the Australian Stock Exchange. The portant step in attracting the type of foreign ogy for the production of titanium metal pow- Tajikistan, Turkmenistan and Uzbekistan. Will the new subsoil code encompass lish law governing the arbitration, giving company has been involved in mineral sands investment that the President and Prime Min- der. If realized, this could materially increase Geologically, Kyrgyzstan and Tajikistan both mining and petroleum into one law; investors more confidence to file a claim. exploration, mining, processing, and mar- ister have prioritized for Kazakhstan. future demand for Iluka’s products. can be categorized as mining jurisdictions; and how advanced are discussions on the keting for over 60 years and has operations Achieving the right policy and regulatory set- Turkmenistan and Uzbekistan petroleum; new code? What are your plans for the next five across Australia and in the United States, as tings will help ensure the long-term devel- What are your plans for the next five years? and Kazakhstan as mining and petroleum AM: Oil and gas exploration discussions years within Kazakhstan's mining sec- well as a globally distributed sales and mar- opment of Kazakhstan’s highly prospective Subject to staged progress, in five years, I attracting self-determining producers for have predominantly taken place and are at tor? keting network. Iluka possesses the largest minerals sector, and Iluka looks forward to would expect to see Iluka’s exploration pro- whom 250 independent licenses have been the production stage. The new subsoil code UA: Many global law firms are experienc- global market share of zircon production and working with the government as it undertakes gram well established and possibly even issued for mining and petroleum, respec- will make more provisions for solid mineral ing difficulty in securing the right person- is also a major producer of high-grade titani- reform of the mining code. beginning to bear results. As a geologist by tively. projects to attract international investment nel; prevalent in the CIS region. Practices um dioxide. The company employs approxi- training, the hope for a substantial discovery for exploration. It will focus on the geology in Russia are shrinking, and Kazakhstan mately 900 people worldwide and contracts a What type of training program will Iluka springs eternal! What are your competitive advantages rather than the legal aspect. Subsoil code is part of the Customs Union. There could similar number for its mining and processing have in place in Kazakhstan for 2015 and I would also hope that the government’s cur- to attract new clients; and is the legal will replace the current Subsoil Use Law. be a trend for global law firms to restruc- activities. will you be bringing personnel from Aus- rent reform efforts are implemented and that framework the same across the stans? The new mining code is planned for 2016; ture; if this happens, Colibri Law Firm will Iluka’s core products are used primarily in the tralia to commence operations? Kazakhstan begins to see the benefits of sus- UA: Kazakhstan is a dynamic market for this may change as the previous law adopt- be standing-by for new legal associates to global pigment (titanium dioxide) and ceram- Wherever possible, Iluka seeks to prioritize tained foreign investment in its mining sec- Colibri Law Firm; it has most growth po- ed in 2010 endured 20 amendments and re- flood the market and Colibri Law Firm will ics (zircon) industries, with additional appli- local employment for its operations and ac- tor. Ultimately, as Iluka’s country manager, tential of the Soviet stans and the company lated 70 legal acts. select the best. The company is actively cations including the production of titanium tivities. Subject to agreements being final- I want to ensure that the company is a well- is expanding its Kazakhstan practice and UA: The new mining code must take into seeking to add to its personnel in Kazakh- metal, nanomaterials, zirconium metal and ized, initial training with Kazgeology will regarded and substantive corporate citizen in employing more personnel. Colibri Law account existing projects and have the abil- stan. • zirconium chemicals. These materials are part include participation in the preliminary drill Kazakhstan. •

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 46 - Industry Explorations Industry Explorations - 47 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 KAZAKHSTAN MINING, POWER & CHEMICALS 2016 GBR • Industry Explorations • KAZAKHSTAN

THE BIG DIG: EXPLORATION

“Negotiations with Kazgeology have been concluded and an agreement signed for an exploration project in the Korgantas area in the Karaganda province in central Kazakhstan. Discussions are on going with Kazgeology for a further project in central Kazakhstan-Balkhash-Saryshagan. Once projects are agreed, we will be in a position to commence grass-roots exploration.”

- Gary Hodgkinson, Director, Central Asia District, Rio Tinto Image: Syrymbet EDITORIAL Global Business Reports Global Business Reports

SLOWLY ATTRACTING INTERNATIONAL PLAYERS development of the local industry, and we benefit from local knowledge. In some jurisdictions local joint ventures are manda- Mineral Exploration in Kazakhstan tory by government legislation, a scenario with which we are com- fortable. Our objective in Kazakhstan is to run a profitable mine that will give healthy investor return. In 2010, we commenced negotiations with Tau-Ken Samruk; after lengthy negotiations, in 2013 we stepped back from the opportunity, as no viable commer- cial arrangement could be reached. After consultation with gov- ernment officials, it was suggested that we work with Kazgeol- ogy, as their mandate mirrored our aspirations for the Kazakhstan project. Negotiations with Kazgeology have been concluded and The lack of exploration may be the largest obstacle to growing the After the collapse of the Soviet Union, there was no exploration an agreement signed for an exploration project in the Korgantas mining industry in Kazakhstan. In 2008, the government imposed in Kazakhstan, as companies were more interested in developing area in the Karaganda province in central Kazakhstan. Discus- a moratorium on new exploration to prevent speculation from un- other industries and technologies. Luckily, now the situation has sions are on going with Kazgeology for a further project in central dermining its mineral properties. Although the ban has now been changed. First of all, the government created ‘Kazgeology’ - an Kazakhstan-Balkhash-Saryshagan. Once projects are agreed, we lifted, new exploration remains limited. organization responsible for geological exploration in the coun- will be in a position to commence grass-roots exploration,” said Yet most of the country’s current reserves are becoming depleted, try. Secondly, a special state organization was founded, and the Gary Hodgkinson, director of Central Asia district at Rio Tinto. so Kazakhstan needs to increase exploration, and one key devel- government now spends money on geological exploration. These Iluka Resources, a Perth-based company that possesses the largest opment in recent years was the creation of Kazgeology, a state- changes make it easier for private enterprise to take part in geo- global market share of zircon production and is a major producer owned company responsible for geological exploration. “Geo- logical exploration, and, at the same time, there is a realization of high-grade titanium dioxide also set its sights on Kazakhstan. logical exploration remains one of the least developed sectors in that now these companies have the rights to those deposits that Having only recently established a presence in the country, Ilu- Kazakhstan. The government and industry accept the fact that Ka- they are exploring,” explained Nikolay Radostovets, chairman of ka’s new country manager, Alison Morley, said: “Iluka has been zakhstan is underexplored. In the past 20 years, companies have the Association of Mining and Metallurgical Enterprises (AGMP). engaging with Kazgeology since its very first visits to Kazakhstan been relying on Soviet geological information, which, regardless One multinational conducting exploration activities is Rio Tinto. in March 2013 and the relationship has developed substantially of its quality, is not enough to open the potential of the country. “Our global strategy is to build local partnerships; this supports since that time. Kazakhstan is a new jurisdiction for Iluka, differ- ent from those where it has traditionally operated, so it is important Image: Government of Karaganda Region that the company draw on credible, well-regarded sources of in- country expertise. Iluka has signed a number of memorandums of understanding with Kazgeology with the aim of benefitting from its considerable local knowledge and access to geological data. This relationship will also provide Kazgeology the opportunity to observe and learn from Iluka’s highly experienced exploration and mining professionals in the field. In addition to Kazgeology, Iluka is expecting to sign agreements with Kazakhstan govern- ment agencies to facilitate on-ground exploration later this year.” In addition to Rio Tinto and Iluka Resources, Kores or Korea Resources Corp., a Korean government-owned company, is an- other player interested in Kazakhstan’s potential. " is among the top 10 largest mineral resources consumers world- wide and Kores, as a government-owned entity, is tasked with ensuring a steady supply of raw materials for our resource-hungry economy. Kores is involved in numerous projects around the world, the most notable of which are the Ambatovy nickel project in Madagascar and the Boleo copper project in Mexico. It is in this capacity that Kores is also greatly interested in working in Kazakhstan. In 2014, Kores signed an agreement with Kazgeol- ogy for a project for complex ores exploration at Dyusembay area in the Karaganda region. Other areas of interest are potential de- posits of copper, zinc, and rare metals in the northern and eastern parts of Kazakhstan,” said Jong In Kim, chief representative of Kores in Kazakhstan. The low level of exploration in Kazakhstan is an ongoing issue, but as the government is keen to attract foreign investors, the country may have a very different industry makeup in 10 years in terms of juniors and other exploration companies. •

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 50 - Industry Explorations Industry Explorations - 51 - INTERVIEW Global Business Reports Global Business Reports INTERVIEW

current copper prices. For the first time in tion works in Khantau, Zhambyl. We see knowledge. In some jurisdictions local joint Modernizing the mining code could have a the history of the mining industry not only huge potential there. It is a large gold-cop- ventures are mandatory by government leg- significant impact on the industry. The glob- in the CIS, but also in the world, a 100% per-iron deposit. We have already invested islation, a scenario with which we are com- al industry is well aware of Kazakhstan's re- cyclic-flow line system will be used in $20 million in drilling. Currently, we are fortable. Our objective in Kazakhstan is to source potential, but is not convinced of its the development of the deposit by open- very interested in creating a partnership run a profitable mine that will give healthy current political (i.e. transparency, stability) cut mining. There are several features that with an international company to develop investor return. In 2010, we commenced and commercial viability. A major impedi- make Koktaszhal unique not just in Ka- this deposit. negotiations with Tau-Ken Samruk; after ment has been the legislation for modern zakhstan, but in the whole of the CIS re- lengthy negotiations, in 2013 we stepped mining and exploration, specifically hard- gion. First of all it is the low-production Koktaszhal deposit is located very close back from the opportunity as no viable com- rock mining. It is not only necessary to cost compared to conventional methods, to Terekty village in the Karaganda re- mercial arrangement could be reached. Af- change the legislation, but to imbed it into which allows us to save up to 50% on the gion. Can you tell us about your involve- ter consultation with government officials, it the bureaucratic process, making it easier cost of production. This also makes us to ment in the socio-economic development was suggested that we work with Kazgeolo- for foreign investors and local companies very competitive, especially at current cop- of this village? gy as its mandate mirrored our aspirations for to work in Kazakhstan; arguably, the im- per prices. We do believe, however, that People are our greatest asset, and we realize the Kazakhstan project. Negotiations with bedding process will be a major challenge. in the near future the copper price will in- that we have to invest not just into training Kazgeology have been concluded and an Kazakhstan government is making positive crease. Secondly, there are no environment of our staff, but also in improving the qual- agreement signed for an exploration project movement to encourage mining projects in pollution sources, such as fuels and lubri- ity of their lives. Unlike most of the mining in the Korgantas area, Karaganda province, the country, but the current legislation re- cants, oil, exhaust gases. Moreover, we projects in the country, we employ only lo- central Kazakhstan. Discussions are ongo- stricts the ability to bring in technology and Ruslan are the first company in Kazakhstan to use cal people. So we do not have to fly-in and Gary ing with Kazgeology for a further project in capacity building. Kazakhstan's mining sec- paste thicker, which allows avoiding hav- fly-out workers to do basic jobs. Our work- central Kazakhstan - Balkhash-Saryshagan. tor needs to develop a vibrant junior mining Yun ing to invest in tailings storage facilities. ers come from the nearby Terekty village. Hodgkinson Once projects are agreed, we will be in a po- culture. Thirdly, operational safety is at a very high We invested $34.5 million in electrification sition to commence grass-roots exploration. rate due to the absence of moving equip- of the village, where we have constructed Has the lack of infrastructure in Kazakh- ment. There are just 32 people managing and reconstructed multiple power-supply How significant is your Korgantas proj- stan been a problem? the mining process, which makes us an ef- facilities. We constructed more than 6,000 ect? The lack of infrastructure problem does not Chairman of the Supervisory Board Director Central Asia District ficient company. m² of accommodation for our future em- This is an early-stage, grass roots explora- arise in the grass-roots exploration stage; ALTAY POLYMETALS RIO TINTO ployees, as well as sports facilities, a can- tion project and we have yet to initiate the Rio Tinto is expert in working in remote, Altay Polymetals is using a number of teen, a swimming pool, etc. The recon- fieldwork. There are a number of local min- challenging environments. Infrastructure is innovative solutions at Koktaszhal de- struction of the school and kindergarten is eral occurrences in the area, and we are still critical in the mine development stage, and posit. Can you tell us more about these still in progress. Various study groups and evaluating the historical data made avail- would be evaluated before we commit to any technologies? activities were organized and musical and able to us once the agreement was signed. major expenditure at feasibility study. Cop- We are using a patented technology at this sports equipment was purchased for the Our focus will be to look at the whole area per and bulk commodities require substantial deposit that allows us to significantly -de children. The works on redevelopment of to determine its potential. Rio Tinto believes road and rail connections, power and water. crease costs of production. The patented the streets of the Terekty village are being in the geological potential; our exploration Access to infrastructure will impact the eco- technology allows running the cycle-flow carried out as well. Additionally, a regular goal is to find a large, high-quality deposit. nomic viability of development projects and Can you introduce the Koktaszhal proj- line transport down to the end of the pit. water supply was implemented; garbage How significant is Kazakhstan to Rio Our drilling programs will target possible we will monitor with interest programs to ect to our readers? We created a partnership with a German containers and garbage removal trucks Tinto compared to mining jurisdictions mineralization under cover or at depths not upgrade Kazakhstan’s infrastructure. Koktaszhal is a copper-gold deposit locat- company called Takraf Tenova so that they were purchased for the removal of house- like China or Mongolia? previously explored. We have a six-year plan ed in Karaganda region. We began work- can take care of IP protection, and patented hold waste. More new jobs for residents There are two considerations for Kazakh- for Korgantas that will be continuously up- What are Rio Tinto's plans in Kazakhstan ing at the deposit in 2011, and production this technology in Kazakhstan, Germany, of the village and the surrounding area are stan: as a geographical hub for Rio Tinto's dated upon exploration findings; grass-roots for the next five years? is scheduled to commence in November Chile, Canada, Australia, Russia, and Chi- constantly being created. possible future operations in Central Asia; exploration can take between three to five The outlook is positive for us in Kazakhstan, 2015. We have around 92 metric tons (mt) na. and its’ wealth of mineral resources. Kazakh- years. but the key issues are: results-based explo- of rock, 17 mt of mined rock and expect We are not using any dump trucks, but in- What strategic plans do you have for Al- stan is a good location because of its close ration work; a volatile global economy; and three to four mt of ore per year. Koktaszhal stead our conveyor belts can move just like tay Polymetals for the next three to five proximity to China; albeit, its infrastructure Have you developed your plans to partner the need to understand the commercial sta- is a low-grade deposit with copper con- dump-trucks, which also reduces our capi- years? is a challenge but not insurmountable. The with Kazatomprom for a uranium project bility in Kazakhstan. We see a long-term fu- tent of about 0.4%, however thanks to the tal costs. Metso has designed and produced We plan to start production at Koktaszhal mineral that interests Rio Tinto in Kazakh- in Kazakhstan? ture in the country, and will continue to run technology and improved economics of the the largest crushing unit (LT-200) specifi- in November 2015 and achieve our produc- stan is copper, plus any other opportunities Plans for a partnership have not developed. our exploration programs developing a port- project, we can still have a good margin, cally for Koktaszhal. This installation is tion capacity in 2016. In the near future, we that are of value. We are not focused on any Our immediate goal in Kazakhstan is to folio of projects. Development of long-term, regardless of the low grade. We are able to safe for the environment and reduces car- also hope to find a partner for the develop- specific commodity, but opportunities-fo- progress our copper exploration projects sustainable mining operations is a complex reach very high extraction numbers: up to riage by truck at the open pit mine. The ment of Khantau in the Zhambyl region. • cused. Arguably, Kazakhstan could become and then move on to other commodities. Rio and time-consuming process that involves 97% for copper, 82% for gold and 90% for structures weigh about 800 mt, but nev- an important hub for Rio Tinto. Tinto wants to build a relationship based on the continuous advancement of a pipeline silver. ertheless can be easily moved around the execution rather than promises with govern- of projects from early stage exploration, mine. This machine allows us to crush cop- Can you give an update on your 50-50 ment and Rio Tinto internal stakeholders, through feasibility to mining operations. What is unique about the Koktaszhal per ore at a rate of 3,200 mt per hour. joint venture with Tau-Ken Samruk for a demonstrating that we can operate success- Over the next five years we hope to generate project and how does it differ from oth- copper project in northern Kazakhstan? fully in Kazakhstan. a number of quality exploration projects, one ers in Kazakhstan? What kind of geological exploration is Our global strategy is to build local part- of which we would like to see moving into The unique technology used at Koktaszhal Altay Polymetals currently involved in? nerships; this supports development of the How will the change in the mining code feasibility within five to 10 years. • allows us to maintain profitability even at We are also conducting geological explora- local industry and we benefit from local affect the industry?

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 52 - Industry Explorations Industry Explorations - 53 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

the fixed numbers in mid-summer 2015 Indonesia and Bolivia are becoming de- in delivering international expertise with a Kazakhstan a more appealing destination when the pre-feasibility study is complet- pleted and decreasing in grade. For exam- local context. than somewhere else? The current market- ed. At that point, we will know the exact ple, Indonesia’s production dropped from ing model of Kazakhstan does not promote amount of tin, copper, fluoride, and tung- 120,000 mt/y 10 years ago to 65,000 mt/y To what extent did SRK have to rely on these benefits to investors, and the govern- sten that are present and recoverable, and last year. We know the current and near fu- global expertise and how much did the ment and its various agencies charged with we will know the total amount and quality ture world demand and tin supply shortage. company have to adapt to the local con- attracting FDI could be more pro-active in of each product we will be able to produce. Kazakhstan and FSU countries are almost ditions in Kazakhstan? terms of seeking out investors and bringing The updated Joint Ore Reserves Commit- 100% importing tin from Asia. Syrymbet SRK provides expert opinion and technical them to Kazakhstan. tee report will soon be released, and the mine can cover this gap. solutions based on internationally recog- mine design will be done by AMC. From nized best practices. If technical advice on What is SRK doing to help its clients there, we will select the best economically How does Syrymbet plan to finance the local requirements is needed, SRK collabo- overcome the challenges of infrastruc- and technically viable option and move on construction of the mine? rates with local design institutes. These lo- ture and logistics in Kazakhstan? to the feasibility study, which will begin Strategically, we have a short list of po- cal requirements differ significantly from Compared to other mining jurisdictions, by the end of August 2015 and should be tential investors. While tin is stable on the the international approaches, but we have infrastructure is not a major challenge in completed by February 2016. We hope to London Metal Exchange and well known become quite familiar with managing the Kazakhstan. In terms of the environmen- start preliminary mine stripping and plant in Asia, Australia, and South America, it two approaches in parallel, minimizing the tal impact management, SRK has an en- construction in the middle of next year, and does not have the same position in Europe cost for the client, and avoiding duplica- vironmental science department. SRK is production by the end of 2017. The Syrym- and North America. We have discussed the tion of work. For example, in the field of involved in several projects with clients Tengiz bet deposit is surrounded by a national prospect of entering the North American Tony geotechnical engineering, precisely calcu- who want industry best practices in envi- park, which may cause problems on the market with ITRI. We plan to do an IPO, lating the final safe pit slope for an open- ronmental management of mines applied to Bolturuk environmental side, so we have been work- but not in the near future. First we will Thornton pit project can result in a major savings their operations here. ing with Golder Associates and a local con- start production so we can show the real on stripping costs. These calculations are An area that is not adequately addressed sulting company Terra since 2013 to assess potential of Syrymbet. All of our geologi- based on direct observed rock-mass char- in Kazakhstan is mine closure and min- the environmental impact of the project. It cal, mining, and metallurgical reports are acteristics taken as part of a geotechnical ing sustainability. Kazakhstan would ben- looks like it should not have any negative distributed to investors so that they can investigation of the project site. The local efit from remediation projects to clear up CEO General Director impact on the surrounding environment do their own math and see the potential of requirement, however, would be for a gen- some legacy issues. SRK sees mining clo- SYRYMBET SRK CONSULTING and local population due to usage of envi- the project. Once we start construction, we eralized approach derived through applica- sure as an important part of the internation- KAZAKHSTAN ronmentally friendly technology. We have anticipate a project cost of approximately tion of rock standard types. The problem is alization of the obligatory environmental a good relationship with the local and pro- $230 million. Local banks can finance this, that the final slope design is therefore a pre- practices in Kazakhstan. The government vincial government, who support the proj- so money is potentially available. Interest scriptive result, which can be overly con- is currently seeking advice on what is con- ect and understand that the mine will have is increasing among Western and Chinese servative, rather than an engineered study sidered best practices around the world and a great social impact for the area. The area financial institutions, but they are - wait specific to the project, that we can produce how they can be applied to avoid future already has solid infrastructure, such as a ing until the pre-feasibility study has been with the subsequent cost-saving benefits. legacy problems. railway located 30 kilometers (km) from completed. They want to see the final proj- With the client’s agreement, SRK will en- the mine site. Additionally, the government ect numbers produced by international sure that the data and the engineering pro- Do you have a final message about SRK? Can you give a brief introduction to has committed to investing $10 million standards before discussing the details. We When SRK entered Kazakhstan in 2010, cesses that we use are adapted to meet local SRK is a global company with a variety Syrymbet and its deposit? in 24 km of an 110-kilowatts power line, know that Syrymbet is a feasible world- you made the country the base for Cen- requirements. of service offerings to the mining indus- The Syrymbet deposit was first discov- which has been under construction since class deposit, with low mining and pro- tral Asia. What is Kazakhstan’s signifi- try. We work and succeed in some of the ered in the late 1980s by Soviet geolo- April 2015. Working so closely with the cessing cost, well-developed and efficient cance in this setting? How have mining standards in Kazakh- most challenging mining jurisdictions in gists. A great deal of money was spent on state and local governments reduces the technology, and strong economics, so we SRK Consulting was opened in Almaty stan been harmonized with the interna- the world. As for Kazakhstan, SRK would drilling in the 1990s, yielding high-grade political risk of the project and increases are confident in the project’s future. to be present on the ground for clients in tional system? like to steadily expand and bring in more core samples and confirming the large size the confidence of investors. Central Asia. Kazakhstan has the domi- It is still a work in progress, but there is service capabilities in different technical of the deposit. Around the turn of the cen- Do you have a final message about nant economy and mining business in the some advancement. SRK has been work- areas like hydrology, for example. SRK is tury, Lancaster Group bought the deposit How do you expect the demand for and Syrymbet? region. Almaty is also well connected in ing with Kazgeology to advise the govern- continuously looking for new talented indi- and became the new license holder. The price of tin to evolve in the future? Looking at most of the other mining proj- terms of flights to other regions. In 2010, ment on how to introduce the Committee viduals to join our team as well as new cli- previous exploration was good by Soviet The market can be unpredictable; for ex- ects in Kazakhstan, many companies try to SRK started with only five consultants and for Mineral Reserves International Re- ents to join our growing client base. We are standards but not up to international stan- ample, no one expected the recent price rush through development in an effort to the company has now grown to 25 consul- porting Standards. This is a result of the committed to Kazakhstan, as it is a country dards. Any Western company wants to see drop. Looking at the fluctuation of the past save money and then must spend millions tants. Currently SRK is looking to recruit government’s initiative to attract foreign of huge natural riches and enormous op- resources and reserves calculations in ac- 10 years, tin increased to $30,000 per met- more to correct their earlier mistakes on the several more senior level consultants with direct investment (FDI) into mining. So portunities. We will be proud to be a part cordance with international standards, so ric ton (mt), but now it is below $18,000/ project development stage. We do not want extensive international experience in re- clearly in time there are going to be signifi- of what will be a flourishing business op- the process had to be restarted. In 2012, mt. Twenty years ago, the price dropped to find ourselves in this position, which is source geology, and mining engineering cant changes to the current situation. But it portunity. • I was brought in to assess the resource, to nearly $3,500/mt, bankrupting most why we are investing our resources and to give the company more in house capa- needs to be appreciated at all levels in gov- which we confirmed by infill drilling to be of the old Soviet and western tin players. taking our time to do the job right. Syrym- bilities. SRK’s aim is to grow to about 30 ernment that attracting foreign investment one of the largest undeveloped tin deposits Prices are rising again because it is becom- bet has a strong and promising future; we consultants and to service the needs of our is a highly competitive process. Investors in the world. We invested heavily and sub- ing harder to find tin deposits with strong want it to serve as an example of a success- clients here. As part of the SRK model, the do not want to know that reputedly all the contracted to reputable companies in the potential. Additionally, tin consumption is ful mining project in Kazakhstan done by company brings in expertise from our sister elements of the periodic table can be found mining world, such as AMEC, AMC, SGS, stable and continues to rise. At the same international standards. • companies around the world, depending on in Kazakhstan, but rather what are the ben- ALS and Golder Associates. We will know time, the deposits of major players like the nature of the project. SRK prides itself efits, and, most importantly, what makes

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 54 - Industry Explorations Industry Explorations - 55 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 KAZAKHSTAN MINING, POWER & CHEMICALS 2016 GBR • Industry Explorations • KAZAKHSTAN

SPANNING THE PERIODIC TABLE: PRODUCTION

“We are very interested in attracting new international companies to the region. ArcelorMittal Temirtau is important for Karaganda, and we are interested in seeing it increase its production capabilities. Moreover, we are offering new projects to it, which can be mutually beneficial.”

- Nurmukhambet Abdibekov, Akim (Governor), Karaganda Region Image: YILMADEN Holding EDITORIAL Global Business Reports Global Business Reports EDITORIAL

TAKE YOUR PICK WORLD URANIUM PRODUCTION, 2007-2014 (mt) Mineral Production in Kazakhstan Source: World Nuclear Association. KAZAKHSTAN CANADA AUSTRALIA NIGER NAMIBIA RUSSIA REST OF THE WORLD

28,000

26,000

24,000

22,000

20,000

18,000

16,000

14,000

12,000 6,637 9,476 8,611 3,135 2,879 3,413 7,131 23,127 9,134 5,001 4,057 3,255 2,990 8,688 10,000

8,000

6,000

4,000

2,000

2007 2008 2009 2010 2011 2012 2013 2014

Kazakhstan has vast reserves of a wide range of minerals and met- uranium at the Akdala mine and 2,000 mt/y of uranium at the South $846.9 million, of which $40 million would go towards geological whole of the CIS region. First of all it is the low production cost als. As stated above, virtually all elements of the periodic table are Inkay mine. Since 2012, JV Betpak Dala LLP reached design ca- exploration. The Bozshakol mine currently being developed and compared to conventional methods that allows us to save up to 50% present in a country with a relatively small population. This section pacity production and began to extract 3,000 mt/y of uranium. The scheduled to start operations in the last quarter of this year should on the cost of production,” said Yun, chairman of the supervisory showcases some of them in greater detail as well as highlights new Akdala mine was the first mine in the world which extracted in also boost gold production as besides large deposits of copper, it board of Altay Polymetals. and exciting projects currently being undertaken. one year 1,000 mt of uranium by method of drill hole in-situ leach also contains highly valuable by-products of gold. Gold is now be- New entrants to the market are not yet in the production stage, but (ISL),” said Aleksander Uvarov, general director of Betpak Dala. coming an important aspect for companies previously focused on are actively involved in copper exploration. One such example, as Overall, Kazakhstan is certainly looking to benefit from nuclear other minerals. previously mentioned, is Rio Tinto. Overall, $1.15 billion is the Uranium power plant construction happening globally and can further in- forecast for 2015 in terms of investment in copper production, of crease its market share as the number one producer of uranium. which $16.9 million will go towards exploration. “Kazakhstan contains 12% of the world's uranium resources and an Copper expanding mining sector, producing about 22,830 metric tons (mt) in 2014, and planning for further increase before 2018. In 2009, it Gold Kazakhstan is currently behind other copper extracting countries Tin became the world's leading uranium producer, with almost 28% of like Chile, Australia, Peru and China in terms of exploring their world production, then 33% in 2010, 36% in 2011, 36.5% in 2012, Kazakhstan’s proven gold reserves are 2,300 mt as of last year. reserves. On-balance, proven reserves last year were 39 million Tin is currently in short supply, as the electronics industry in Japan and 38% in 2013. Kazakhstan has a major plant making nuclear There are 325 gold fields, of which 94 are in operation and 117 in mt, mostly concentrated in eastern Kazakhstan and Karaganda. Ka- and China consumes roughly 50% of the world’s tin. Consump- fuel pellets and aims eventually to sell value-added fuel rather than exploration. Most reserves are found in eastern Kazakhstan in the zakhmys controls about 72% of contracted copper reserves, accord- tion has been beating production for the past several years, as old just uranium. Of its 17 mine projects, five are wholly owned by Ka- Akmola, Karaganda, and Kostanai regions. The main companies ing to Dr. Dzhantureyeva. As mentioned above, KAZ Minerals is mines close and reserves are becoming depleted. The latest num- zatomprom and 12 are joint ventures with foreign equity holders, operating in gold extraction are Kazzinc, Kazakhmys, Polymetal, currently developing its Bozshakol copper mine, which is the larg- bers by the U.S. Geological Survey estimate that the world tin sup- and some of these are producing under nominal capacity. In 2013, Kazakhaltyn, Varvarinskoye, Altynalmas Gold, Metal Trading and est single mine development in the CIS region by both scope and ply to be 4.8 million mt, which is a decline in reserves since 1990. 9,402 mt was attributable to Kazatomprom itself, which was 16% Maikainzoloto. Projected reserves are estimated to be as high as volume of production. The mine will nearly double KAZ Minerals' This has pushed up the price of the mineral, and new deposits and of world production and put it slightly ahead of Cameco, Areva and 9,000 mt. Already explored deposits in central and eastern Kazakh- current production levels and has a projected lifespan of 40 years. production capacities are badly needed. One major development ARMZ-Uranium One,” according to the World Nuclear Associa- stan will require deeper drilling while there are potential depos- KAZ Mineral’s second project, Aktogay, is also on track to begin in Kazakhstan’s and, for that matter, the world’s tin market has tion. its to be found in northern and southern regions, according to Dr. production of its first oxide copper cathode in the fourth quarter of been a company that is a shining example of how local businesses Kazakhstan currently has no operational nuclear reactors after its Elvira Dzhantureyeva, head of service for analysis of the mineral 2015. have successfully navigated Kazakhstan’s business landscape and only one in Aktau was decommissioned in 2001; however, the gov- brought about thriving projects. Syrymbet, the exploration and ernment plans to begin construction of two new plants in 2018. soon-to-be production company of the Syrymbet tin deposit in Besides Russia, Kazakhstan is also cooperating with the likes of northern Kazakhstan, controls the largest undeveloped tin deposit Japan, China, India, and South Korea. China in particular presents 2,300 mt 50.4 mt 39 million mt in the world. Tengiz Bolturuk, CEO of Syrymbet said: “In 2012, an important export market as 55% of Kazakh uranium was export- PROVED GOLD RESERVES GOLD PRODUCTION 2014 PROVED COPPER RESERVES I was brought in to properly assess the resource, which we con- ed there in 2014. International players, including Areva, Cameco, firmed by infill drilling to be one of the largest undeveloped tin Toshiba and Uranium One, are also present and all are required raw material sector and transparency of extractive industries of the Despite record low copper prices, companies about to go into pro- deposits in the world. We invested heavily and subcontracted to to collaborate with Kazatomprom, Kazakhstan’s national nuclear Kazgeoinform National Center for Geological Information of the duction feel confident that their operations will still be profitable. reputable companies in the mining world, such as AMEC, AMC, company, as Kazakhstan is very keen to increase its technological Ministry of Investment and Development. “The unique technology used at Koktaszhal allows us to maintain SGS, ALS and Golder Associates. We will know the fixed numbers base. One major player in the uranium business in Kazakhstan is There were 50.4 mt of gold produced in Kazakhstan in 2014. $755.5 profitability even at current copper prices. For the first time in the in mid-summer when the pre-feasibility study is completed. At that Betpak Dala (South Inkai, Akdala mines), a joint venture of Ka- million was invested in gold mining last year, of which $35.6 mil- history of the mining industry not only in the CIS, but also in the point, we will know the exact amount of tin, copper, fluoride, and zatomprom, which owns 30%, and Uranium One, which owns 70%. lion went towards exploration. Kazzinc represented the lion’s share world, a 100% cyclic-flow line system will be used in the develop- tungsten that are present and recoverable and the total amount and Betpak Dala extracted 13% of the total amount of uranium mined of this with 33%, Altynalmas with 15% and Kazakhaltyn and Vava- ment of the deposit by open-cut mining. There are several features quality of each product that we will be able to produce. The updated in Kazakhstan in 2014. “It was planned to produce 1,000 mt/y of rinskoye both at 11%. Projections for 2015 were expected to reach that make Koktaszhal unique not just in Kazakhstan, but in the joint ore reserves committee report will soon be released, and the

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 58 - Industry Explorations Industry Explorations - 59 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 EDITORIAL Global Business Reports Global Business Reports EDITORIAL

mine design will be done by AMC. From there we will select the low the company to produce up to six million mt of steel a year,” reserves life does not exceed 10 to 15 years. Exploration is being best economically and technically viable option and move on to added Abdibekov. conducted on nine sites around Kazakhstan and the increase in the feasibility study, which will begin by the end of August 2015 Kazakhstan has enormous coal reserves, which can be used for both reserves was one million mt and 1.9 million mt of zinc and lead and should be completed by February 2016. We hope to start pre- export and to power the country’s industrial base. respectively over the last 15 years. The output in 2014 was 93,000 liminary mine stripping and plant construction in the middle of next mt of lead and 447,000 mt of zinc. 2015’s investments in the pro- year and production by the end of 2017.” duction of lead and zinc will grow to $1.13 billion, of which $3.2 Syrymbet going into production will signify a much-needed relief Phosphates million will go to exploration according to Dr. Dzhantureyeva. The to the short supply of tin on the world markets. biggest investors are Kazzinc, Vostoktsvetmet, Kazakhmys, Nova- Kazakhstan is in the top ten of countries with significant phosphate Zinc and Shaimerden. reserves. The country’s long history with phosphates dates back to Coal Soviet times when it was the center of production for the region. The main producer is Kazphosphate with an annual capacity of Kazakhstan has enormous coal reserves with 37.5 billion mt of re- 120,000 mt/y. Most of the deposits are in the Karatau basin. Kazakh coverable coal, the biggest in Central Asia and representing 3.8% companies are also interested in making more value-added prod- 17 million mt of the world total. The country has more than 400 coal deposits, of ucts and are slowly moving away from the dig-and-ship mentality. PROVED LEAD RESERVES which a third are classified as brown coal or lignite deposits. Kara- “Kazphosphate is looking to upgrade its processing capabilities in ganda has traditionally been Kazakhstan’s main coal producing re- order to create a range of value-added products, which will allow us gion and to the northeast of it are the Ekibastuz coalfields, some of to export them to new markets,” said Mukash Iskandirov, general the largest in Kazakhstan. The other locations include Maykubin- director of Kazphosphate. sky as well as Kushokinskoe, Borlinskoe, Shubarkol, Karazhyrin- In 2013 Russia’s EuroChem received a mining license to develop skoe fields and several other smaller deposits. Russia is the largest phosphate deposits in Zhambyl region that may affect Kazphos- 35 million mt export market, followed by Ukraine. However, since independence, phate’s dominant position in the market. “There are 45 explored PROVED ZINC RESERVES Kazakhstan’s coal production has decreased by 35%. Some of the phosphate deposits in the south of Kazakhstan; Kazphosphate is causes of this can be attributed to a poor safety record, but the more working on six of them. EuroChem has a license for the develop- important issue is the lack of foreign investment in this sector. ment of two deposits. We are happy to see new players coming to Kazakhstan’s largest coal producer, Bogatyr Coal, owned by the Kazakhstan, because we understand that they improve the overall American company Access Industries Inc., produces about 35% of economic wealth of the country. We think that in the near future we Chromium and Manganese Kazakhstan’s total coal output and develops northern Kazakhstan’s will see more players from Russia and other countries entering the Bogatyr and Severny coal fields. It is also Kazakhstan’s largest ex- market,” added Iskandirov. Kazakhstan holds the world’s second largest reserves of chromium porter to Russia. This coal is mostly used in power plants in south- EuroChem has ambitious plans in Kazakhstan. “We are develop- behind South Africa and also has the third largest reserves of man- ern Russia. Production of coal in Kazakhstan is expected to reach ing mining of phosphate ores and will continue the development ganese. ERG is the main player in this market in Kazakhstan. “Ka- 150 million mt/y by 2020 and Karaganda will play a crucial role. and construction of the deposit until 2018 when we will reach our zchrome represents the ferroalloys division which comprises four “Unfortunately, mining facilities do not operate at 100% capacity, production capacity of 640,000 mt/y. Current development of the mining objects and two metallurgic plants. Chrome ore extraction which also means that we will be able to step up our production base for raw material will allow us to do so. We want to finish the is carried out in 10th Anniversary of Kazakhstan’s Independence if necessary,” said Nurmukhambet Abdibekov, governor of Kara- first phase of the project by the end of 2015 and begin production Molodezhnaya and Yuzhny mines. Manganese ore is extracted in ganda region. of phosphate rock. We are planning to finalize construction of the Tur mine. At Aktobe, ferroalloys plant we completed construction chemical plant by 2018 and begin production in 2019,” said Dmitry of the fourth smelting shop. The cost of construction is estimated Valishev, general director of EuroChem-Karatau. to have been about $850 million,” said Azamat Bektybayev, ERG’s Kazakhstan’s considerable reserves of phosphate are attracting new vice president for production. 37,5 billion mt investors leading to the diversification of its market players. The 2013 acquisition of Voskhod Chrome, a chrome mine and PROVED COAL RESERVES processing plant in northwestern Kazakhstan, by Istanbul-based Yildirim Group from Russian mining giant Mechel represents Lead and Zinc a significant development. “Voskhod Chrome’s integration- pro One of the biggest investors in Temirtau, a small mining town in cess into YILMADEN Holding was flawlessly executed, and the Karaganda, is ArcelorMittal and the company has a great interest in Kazakhstan is fourth in the world in terms of its proven reserves of results have progressively improved almost every single month, further development of this industry. “ArcelorMittal Temirtau initi- zinc and third in lead. The on-balance reserves are 35 million mt of with record-breaking performance in mine output, plant efficiency, ated an extensive program to modernize its production processes zinc and 17 million mt of lead. These polymetals are concentrated machine uptime and finally sellable product output. Intense- col and increase efficiency. Since the entire economy of Termirtau de- in East Kazakhstan, Karaganda, and regions. Zhairem, laboration was achieved between Yildirim’s mining team and the pends on this facility, this has a great positive effect on the well Kazzinc, Kazakhmys, Shalkiya zinc and NC SEC Saryarka are the already existing mechanized mining contractor at Voskhod,” said being of the town and the region. In 2015, the company finalized biggest developers. Estimated reserves are 136 million mt of zinc Alp Malazgirt, CEO of YILMADEN Holding. reconstruction of the third blast furnace, and now the power of the and 58 million mt of lead according to Dr. Dzhantureyeva. New Yildirim’s investment signifies an increased interest from investors furnace is 20% more than what it used to be before, which will al- exploration is badly needed, as the currently developed deposits’ outside the CIS, a trend that is likely set to continue. • Image: KATKO JT

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 60 - Industry Explorations Industry Explorations - 61 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

alone. In Kazakhstan, we have reached a How do you maintain profitability given both Akdala and South Inkay, 20,000 mt drill hole ISL allows uranium to be extract- cumulative production level of 20,000 tons the low price of uranium and how has have been extracted in total. ed without extracting ore mass and sur- in 2014 and will reach 30 000 tons at the the recent devaluation affected your op- rounding formations to the surface, thereby end of 2016. KATCO was recently ranked erations, if at all? How does the present price of uranium significantly reducing the impact on the 48 among the 500 largest companies in First of all being profitable is necessary impact the company’s plans to increase environment. The essence and the main ad- Kazakhstan. for KATCO’s shareholders. We are striv- production? vantage of the method is refusal from bur- ing to optimize each process, but there is According to the company’s development den removing, shaft sinking, shaft tunnels, Is KATCO currently involved in any ex- no miracle solution. KATCO is involved in strategy, there are no plans to increase pro- and other mining operations that cause ir- ploration to increase its resource base? R&D, as both AREVA and Kazatomprom duction. Actual reserves at Akdala mine reparable loss to the ecology. When we began operations in 2000, KAT- are interested in developing innovative will be enough for five years; in addition, JV Betpak Dala LLP developed and ap- CO was engaged in exploration. In fact, technologies and solutions. There are no prospecting works were started to increase proved the policy statement of the company we inherited Soviet Union exploration, major or minor savings, but rather a day- the raw materials source in 2015. The con- in the field of quality, environment protec- so there were already identified reserves. to-day fight to improve our operations. tract on uranium production at South Inkay tion, occupational safety, and labor protec- KATCO completed its exploration phase There are two sides to devaluation. Given is valid until 2027 and prolongation of the tion. The system on integrated quality man- in March 2015 and is currently obtaining that KATCO is selling a commodity at a contract is planned for more than 10 years, agement, occupational safety and health new reserves for exploitation that will be price in U.S. dollars and costs are mainly in connection with new reserves discovery. protection and ecological management is added to our existing reserves. denominated in tenge, devaluation mathe- The low spot price of uranium has an im- implemented. The system on occupational matically improves our cost of production. pact on production economy, but we have health and safety management system is in Gerard How does KATCO minimize the nega- However not all equipment are local, im- Aleksander continued to make profit by optimizing ex- operation, according to which the system- tive impact of mining on the environ- plying that there is an impact on imported penses and applying new technologies. atic production control is carried out. Fries ment? goods and materials, which we are expect- Uvarov Bioreactors of utility fluids that have a stor- KATCO is committed to minimize the im- ing to see very soon. As far as social sta- In 2018, Kazakhstan plans to begin con- age pond are involved in the economical pact on the environment of its operations. bility is concerned, we have a permanent structing two nuclear power plants. Will and rational use of water resources at Ak- The company takes the environment into dialog with our employees and we take production of uranium increase as a re- dala and South Inkay. The storage pond is account at all stages of its mining projects. into consideration the social impact of sult? designed for collecting cleared utility flu- General Director General Director KATCO utilizes technology that has ex- the devaluation in our regular discussions Kazakhstan has been the world’s leading ids with the subsequent use for economical KATCO JV BETPAK DALA isted for half a century. On areas that have with the staff and the employees represen- producer of uranium since 2009 and now needs, watering of green plants, and wash- been operated then closed and remediated, tatives. extracts 35% of total world uranium pro- ing firm and moistening porous surfaces. we have observed regrowth of surface veg- duction. In 2007, Kazakhstan was the third The main methods of processing water are etation, implying no environmental issues. What could help attract foreign mining largest producer after Canada and Austra- biological cleaning, cleaning pressurized KATCO takes care to protect the surface of companies to Kazakhstan? lia, but today extracts more than Australia filtration, and electrolysis unit on -produc the steppe as the ecological aspect of our One of the more complex elements for and Canada combined. tion drains in environment. JV Betpak Dala business is very important to us. For the operators is the existing purchasing rules. The Fukushima Daiichi nuclear disaster LLP does not produce wastewater that is re- subsurface, the wells plugged with cement Subsoil use rules are complex, encourage in 2011 negatively affected uranium con- leased into the environment. after operation to prevent any leakage, and local producers, and make it difficult for sumption, but in such countries as China, we ensure no contact is made with pota- a subsoil user to operate. As far as KAT- , and India, in Africa and in the Mid- What are the company’s plans for the KATCO's history dates back to 1996. ble water aquifers. KATCO is equipped CO is concerned, safety is our first prior- Please tell us about JV Betpak Dala LLP dle East, construction of new power plants next five years? Please introduce us to KATCO and any with tools to control all chemical - ity, and according to the rules we are not and about its role in the holding of NAC has been ongoing because these projects re- In 2014, the partnership launched a satellite historical milestones that have shaped eters and radioactivity to prevent any con- permitted to ‘blacklist’ suppliers that we Kazatomprom JSC? quire more than 10 years to realize. Thus, at Akdala, the second stage of kiln house its presence in Kazakhstan today. tamination. Kazakhstani regulations are consider unsuitable in terms of safety, and The enterprise was established in 2004 on it is unlikely that construction of nuclear at South Inkay was constructed, and now KATCO is a joint venture between a extremely stringent and will probably be we are obliged to select the cheapest sup- the basis of the Akdala mine, and the de- power plants in Kazakhstan will affect the all extracted uranium is reprocessed at own French state-owned company, AREVA tighter in the future and of course we re- plier, even among local suppliers. KATCO velopment of the South Inkay mine began global price of uranium, but it will provide production facilities. The management of (51%), and Kazatomprom NAC JSC spect them. would like a supplier’s safety record to be in 2007. These mines are located in Sozak a moral boast, as the country will demon- the company constantly works to improve (49%). KATCO signed a subsoil use con- a criterion to discriminate between good Region in southern Kazakhstan. Initially, strate that it can consume uranium as well the everyday life of its mine employees. tract in 1999 for 40 years until 2039. We Does KATCO have difficulty searching and bad suppliers, but this is not yet per- it was planned to get 1,000 metric tons per as extract it. This decline in demand for In 2015, a rotation camp for 120 places at are active in the South Kazakhstan Oblast, for qualified employees in Kazakhstan? mitted. Also quality is not recognized as a year (mt/y) of uranium at Akdala mine, and uranium will pass, the industry will start Akdala was put in operation, and a rotation in the Sozak District. Almost all currently Two-thirds of KATCO staff (around 1,265 selection criteria, and it remains difficult to 2,000 mt/y of uranium at South Inkay mine. developing again, the need for energy will camp at South Inkay was expanded to 80 operating uranium mines are located in employees) come from the South Kazakh- introduce quality criteria in our technical Since 2012, JV Betpak Dala LLP reached be increased, and demand for uranium will places. The partnership has been working South Kazakhstan and Kyzylorda Oblasts stan Oblast and more than 51% from the specifications. Additionally, in order to at- design capacity production and began to rise accordingly. on cost saving of production, introducing except one in North-East Kazakhstan. Af- Sozak district. Nevertheless, it is indeed tract investors, an open and stable frame- extract 3,000 mt/y of uranium. Akdala mine advanced methods, and new technologies. ter industrial production start in 2005, an difficult to recruit skilled workers. Local work is needed, which is difficult given was the first mine in the world which ex- How does JV Betpak Dala LLP minimize The geological department of the company agreement was signed allowing KATCO akims (heads of local government) are the complex and changing purchasing tracted in one year 1,000 mt of uranium by the impact of its mines on the environ- confirmed the uranium reserves at site No. to produce 4,000 tons of uranium produc- keen to have everyone from their region rules. Finally, a pool of skilled workers is method of drill hole in-situ leach (ISL). ment? 4 of Inkay and Akdala. The main work of tion per year, which we did successfully work in the uranium industry, but KATCO also necessary: KATCO is working on this In 2014, Kazakhstan extracted 22,300 mt The international community has pro- all technical personnel is directed at cost in 2013 and 2014, and are continuing to has stringent staff requirements. However, aspect, and has signed several agreements of uranium, with JV Betpak Dala LLP ex- claimed that drill hole ISL is the safest saving of products and making the maxi- do. KATCO is the largest In Situ Recovery if they want young people to be educated, with major local universities. • tracting approximately 13% of this amount. method of uranium production. Develop- mum net profit. • (ISR) mine in the world since 2009, and KATCO is always ready to assist and pro- In 2014, South Inkay produced 10,000 mt, ment and implementation of the new pro- represents 6% of the world’s production vide university grants. and, since the beginning of operations at gressive method of mine development with

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 62 - Industry Explorations Industry Explorations - 63 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

ters (cm). In 2014, we extracted 175,000 product, we will need to produce around neighboring countries, keeping our trans- Russia. This will require additional invest- mt and transported 816,768 cm of ore. In 1.3 million mt of ore. If we were to use portation costs as low as possible. Our key ment and may affect the final price of the 2015, we are planning to mine 220,000 mt. traditional technology, we would have to export markets are Russia, Uzbekistan and product. We are happy to see new players So far our work is going well. produce 30% more. We want to mine this Turkmenistan. Kazphosphate is looking to coming to Kazakhstan because we under- We are developing mining of phosphate resource as long as possible and one of our upgrade its processing capabilities in order stand that they improve overall economic ores and will continue the development key focuses is to recycle all the raw ma- to create a range of value-added products, wealth of the country. In the near future, we and construction of the deposit until 2018. terial into good quality production and be which will allow us to export them to new will see more players from Russia and other We will reach our production capacity of able to sell it to our customers. We are also markets. countries entering the market. 640,000 mt per year. Current development looking to have zero waste in our produc- In 2011, Kazphosphate began developing of the base for raw material will allow us tion process. production of fertilizers out of phosphate How do you approach the transportation to do so. We want to finish the first phase ores through modernization and upgrade of phosphates and mineral fertilizers, of the project by the end of 2015 and begin Apart from creating new jobs, what role process of its equipment. We bought 13 Be- which often requires special logistical so- production of phosphate rock. We are plan- will EuroChem play in creating socio- laz dump-trucks with capacity of 130 tons lutions? ning to finalize construction of the chemi- economic benefits for the local popula- and purchased new excavators and other Transportation of some products from pro- cal plant by 2018 and begin production in tion? equipment. We plan to completely renew cessed phosphates is indeed requires special 2019. Not long ago, Karatau and Zhanatas were our equipment in the next four to five years. equipment, which in turn has an effect on considered ghost-cities. Before Euro- In 2013 we finalized construction of a sulfu- the final price of the product. We need spe- How does Kok-Djon differ from Euro- Chem’s arrival to Zhanatas, only 10,000 ric acid plant which will allow us to produce cial railway tankers and other equipment to Dmitry Chem’s assets in other jurisdictions? people were actually living there compared Mukash 650,000 mt/y of monohydrate. In order to ensure safe transportation. We have over Kok-Djon is one of the largest deposits in to the 15,000 people registered as resi- assimilate production of sulfuric acid, Ka- 500 tank containers that we use for trans- Valishev Karatau phosphate basin. It is divided into dents. After we began working in the re- Iskandirov zphosphate has also started reconstruction portation of our product to Europe and the four parts: Kis-Tas, Kesiktobe, Aktum and gion, the population increased, and many of production of wet-processed phosphor- United States, so we are not dependent on Araltobe. The length of each is 11.2 km, people returned. ic acid, which is crucial for production of third parties. Kazphosphate was able to 12.5 km, 7.8 km, and 9.5 km, respectively. One of our companies is registered in phosphate fertilizers. By 2016, we should maximize the efficiency of its logistical op- At this stage, EuroChem-Fertilizers is de- Zhanatas, which means we are paying be able to produce up to 500,000 mt/y of erations, allowing us to maintain a competi- General Director General Director veloping the Araltobe area and plans to taxes to the local budget. Also according phosphate fertilizers, and by 2020 we will tive price for our products. Regardless on EUROCHEM-KARATAU KAZPHOSPHATE move on to Kesiktobe in the near future. to our subsoil contract, we are supposed reach one million mt/y for local and foreign our efforts, up to 25% of the price compo- One of the key features compared to other to transfer $40 million before the contract markets. sition of some of our products is transpor- deposits in Karatau basin is the fact that expires for socio-economic development tation cost, and we do hope to reduce this both of the above-mentioned areas are of the city and revamping its existing in- How do you assess the competitiveness of share in the future. abandoned in Р2О5. According to GKZ frastructure. From 2012 to 2014, we trans- Kazphosphate on local and international the total reserve at Araltobe is 27.567 mil- ferred $15 million for the development of markets? Historically, Kazphosphate has been very lion mt with an average content of Р2О5 Karatau and Zhanatas. We develop a spe- Today, phosphate fertilizers are becoming active in its CSR commitments. Could - 28,2%. cial program together with the local au- an important regional product, and com- you tell us about some of your recent Before beginning to work in Kazakhstan, thorities, where we identified key strategic panies are expanding geographies of their projects? In 2010, EuroChem won licenses to de- EuroChem had only one phosphorous de- investment areas where this money was Could you tell us about key developments exports. For example, many Russian com- Kazphosphate employs over 6,000 people; velop two deposits in the south of Ka- posit in Murmansk region, Russia - Kov- most needed. Thanks to the money that we Kazphosphate has gone through in the panies dominate markets in India and Paki- the average age of our employees is between zakhstan. Why did the company enter dorsky GOK. Unlike the Karatau deposits, transferred to Zhambyl region, many hous- past couple of years? stan. Kazphosphate positions itself as a 40 and 45 years. Having such a young em- the country? where there is only phosphate, the Kovdor- es were restored and are now offered to In 2014 Kazphosphate celebrated its 15th primarily Kazakh company and focuses on ployee base means that the company must EuroChem is looking to become a global sky deposit has three minerals, namely iron young specialists. A large amount of aban- anniversary. The company has gradually providing the domestic market with phos- pay special attention to education and train- company, which means it cannot ignore ore, apatite, and baddeleyite. doned buildings were either destroyed or developed into a full-fledge producer with phate fertilizers. We maintain a leading po- ing. We support our young employees, and Asian markets and Kazakhstan in particu- renovated, the roads now have asphalt, and a focus on exports, and achieved its full sition on the local market and continuously offer additional training programs for them, lar. In Kazakhstan, we were able to com- What are the unique features of the tech- heating has been restored. Many schools production capacity. We are now prepared work on improving the quality of our prod- as well as support their children’s education. bine our interests and the presence of a re- nology that you are using? and kindergartens have been renovated in to grow even further. Currently, we have a uct and services. Of course, we also explore Over the past five years, we built housing source base for our production facilities, as We decided not to use a traditional scheme Zhanatas and Karatau. turnover of $400 million, and by 2020 we new markets and increase our presence in facilities for our specialists, a camp, sports well as capital resources for construction of of having a beneficiating phosphates - af Further development of local towns will be want to reach $1 billion. Kazphosphate neighboring countries. center and other facilities for our employees chemical and processing facilities. The in- ter mining, and because of the fact that closely related to the development of our supplies its products to over 30 countries and their families to make sure they enjoy a vestment climate also attracted us to enter Karatau basin phosphates are difficult to production facilities. We will be providing around the world. We export to the Euro- In 2013, Russia’s EuroChem received a comfortable life outside working hours. this market. beneficiate, we have very little waste ma- gas for local residents, while also supply- pean Union and the CIS. In recent years, we mining license to develop phosphate de- terial. This is why we designed a special ing our facilities. Providing steady water began exploring the US market, and today posits in the Zhambyl region. How the ar- What are Kazphosphate’s strategic plans Tell us about the progress at Kok-Djon technology and the final production will supplies will be related to the construction American exports account for 7% of the to- rival of a new player changed the market for the next five years? deposit. be is dicalcium. This technology has never of water facilities for our production. • tal export volume of the company. The com- for Kazphosphate? We are planning to increase our levels of In October 2013, in accordance with the been applied at this scale. pany's activities cover three main segments: There are 45 explored phosphate deposits in production, while also increasing our pro- working program of our mining contract, Depending on the type of the final product, mining and sale of phosphate, production the south of Kazakhstan; Kazphosphate is ductivity to bring it closer to world stan- we began mining and extraction of phos- extraction of Р2О5 will be between 89% of yellow phosphorous, and production of working on six of them. EuroChem has a li- dards. We want to make sure our employees phate ore at Araltobe site at the Kok-Djon and 95% without prior beneficiation and mineral fertilizers. cense for the development of two. However, have comfortable lives, and we will keep in- deposit. We mined 5,000 metric tons (mt) concentration of phosphates. Thus, in order Phosphates have low value, which is why they will also need to construct a processing vesting in improving conditions at our sites of ore and transported 239,191 cubic me- to receive the planned amount of the final we only sell it domestically and to the plant, as their nearest facility is located in and nearby towns. •

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 64 - Industry Explorations Industry Explorations - 65 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

and Asia, YILMADEN plans to expand its Can you tell us about your planned ex- There is demand across all our service lines. do need updating. There is less emphasis in global network to include Africa and Latin ploration activities? M&A is showing signs of increased activ- Kazakhstan on mining automation as labor America. The Holding continues to hunt In 2014, operational exploration, grade ity; the auditing business is constant; and we costs are low compared to Australia and for international opportunities and invest- control, and reconciliation projects that currently have some very large consulting Canada. ments to develop its capabilities and pro- comply with international standards were projects with the big mining players. One ductivity while placing sustainability at the completed at the Voskhod mine, while of the key minerals in Kazakhstan is ura- With low labor costs in Kazakhstan, heart of all its strategies, decisions, and ac- the deposit’s resources and reserves were nium, and China, due to its 15-year policy have companies working in the country tions. revaluated in compliance with the JORC of building and commissioning domestic been less impacted by the global decline code. As a result of these efforts, an ad- nuclear reactors, is actively interested in in mining operations, and, with the new Can you give us an overview of Voskhod ditional 1.5 million mt were added to the exploiting that. Japan also has reactors they railway line through Turkmenistan, Uz- Chrome in Kazakhstan? existing reserves to bring Voskhod’s total are looking to start up. For this reason alone, bekistan and Kazakhstan, will demand In 2013, YILDIRIM Group made headlines amount of remaining proven chrome ore China and Japan should create a surge in the increase from neighboring countries for in the international mining community reserves to nearly 20 million mt. demand for uranium. Copper is another key iron ore? when it acquired the chrome assets of the mineral in Kazakhstan where demand glob- The real costs are felt at the key special- Russian mining giant Mechel, including Can you please highlight the improve- ally is outstripping supply. Iron ore is also ist levels, which would apply to all global the Voskhod assets situated in northwestern ments achieved in beneficiation tech- an important mineral for the country; how- projects. The cost of base labor is less of an Kazakhstan. The Voskhod chrome ore mine niques? ever, there is supply competition from Aus- influence on margins. Kazakhstan's proxim- and chrome concentrate plant is comprised In 2014, Voskhod Chrome conducted tests tralia. Kazakhstan also has a wealth of gold, ity to China gives the country a competitive Dr. Alp of a state-of-the-art underground mine and with new beneficiation equipment such as Aaron silver, zinc and coal. advantage with easy transportation routes. a modern ore processing plant. The mine’s shaking tables to modify the spirals cur- The new railway line will have little effect Malazgirt total reserves are approximately 20 million rently used at the plant. The results indi- Crouch What changes has the updating of Ka- on iron ore demand as the big iron ore us- metric tons (mt) with a chrome-to-iron ra- cated that it is possible to increase the yield zakhstan's mining code brought to the ers, i.e. steel producers, are in eastern Chi- tio of 3.5 to 3.8, one of the highest in the by another 5 to 8% while achieving a re- mining industry? na. Iron ore is available in China, but it is world. duction in tailings loss. The tailings pond From our viewpoint, the changes to the of a poor grade. Chinese iron ore produc- In addition to providing chrome concen- currently has about 600,000 mt of mate- code, which were designed to encourage ers receive between $110 per metric ton CEO Audit Partner trate for chrome chemical, chrome metal, rial that can be recovered to obtain chrome foreign investment, have yet to affect the (mt) and $130/mt, compared to the global YILMADEN HOLDING DELOITTE and low carbon ferrochrome producers, the concentrate with a grade of 53% chromium mining industry. Any change will probably price of $50/mt, suggesting that the Chinese company also sources raw materials for the oxide (Cr2O3). In order to reprocess the be noticed when we carry out our 2015 au- government is subsidizing iron ore prices to Tikhvin Ferroalloy Plant in Russia. Vosk- tailings with an improved beneficiation dits. To date, mining has generally been create jobs in China's steel mills. Arguably, hod’s current beneficiation utilization is circuit, Voskhod Chrome signed a contract seen as a “second-class citizen” with oil and long term, we could see a drop in iron ore one million mt of raw ore, with a capacity with the Kazmekhanobr State Scientific gas receiving all the attention. Arguably, demand from China as it will have exceeded of 1.5 million mt. Production Association of Industrial Ecol- however, reductions in oil prices should in- capacity in steel and the government could ogy in Almaty, who are currently finalizing crease the profile of the mining sector. If we withdraw subsidies from either iron ore pro- How successfully have you been able the project for Voskhod Chrome’s new ben- want to see real development in Kazakhstan ducers or the steel mills. to integrate Voskhod Chrome into the eficiation plant with shaking tables. mining, the big international mining corpo- Can you please give us a general intro- Holding? Can you give us a brief overview of De- rations are going to have to start investing in What are the main challenges facing new duction to YILMADEN Holding? Voskhod Chrome’s integration process into What are your plans and expectations loitte's Energy and Resources division in the country's resources. investors in Kazakhstan's mining sector? YILMADEN Holding was established in YILMADEN Holding was flawlessly ex- for the next few years? Kazakhstan and its evolution? The challenges are a shortage of infra- 2013 in order to consolidate YILDIRIM ecuted, and the results have progressively Previous exploration and drilling done Energy and Resources (E&R) represent What other steps could the government structure and human resources, primarily Group’s Metals & Mining subsidiaries un- improved almost every single month, with at Voskhod Chrome’s Karaagash deposit one-third of our business in Kazakhstan; take to encourage international invest- skilled workers. International companies der one roof. The holding is currently com- record-breaking performance in mine out- have revealed four million mt of resourc- however, when our other service lines are ment? will invariably bring their own skilled labor. prised of five companies in four countries: put, plant efficiency, machine uptime and es that comply with JORC standards. The included, for example, consulting, internal Historically, Kazakhstan's government has Skilled labor is available in Kazakhstan, but Turkey, Sweden, Kazakhstan, and Russia. finally sellable product output. Intense col- company’s production plans for 2015 and audit, tax advisory, this jumps to 50%. The an excellent record in joint ventures with in- the vast majority work for local companies, Together, these subsidiaries make YIL- laboration was achieved between YILDIR- beyond will include the addition of these division's business is cyclical; currently, we ternational oil and gas and uranium players. are limited in their ability to speak English, MADEN the fourth biggest player in the IM’s mining team and the already existing resources to its existing reserves. At Vosk- are experiencing a downturn, but with the This gave leverage for the Rio Tinto/Ka- and work according to the old Soviet code global chromium industry as well as the mechanized mining contractor at Voskhod. hod Chrome, the sublevel caving method is big players considering acquisitions, we are zGeology copper porphyry ore exploration of resource determination, which no longer only company to produce chrome ore and A $50-million capex program was initiat- used for production at the mine. In 2014, not far from an upturn. Kazakhstan has been in the Karaganda province of Kazakhstan meets international standards. high quality high carbon ferrochrome (HC ed, and all new underground mining equip- geotechnical analysis conforming to inter- openly encouraging foreign investment into and should encourage other international FeCr) in four countries. ment was procured from top-notch suppli- national standards was completed. Starting the E&R sector, and to date, this has been mining companies to invest in the country's How do you see Deloitte's role in Kazakh- YILMADEN’s focus is on exploring, min- ers, leading to a dramatic improvement in in 2015, the gap between levels will be in- more successful in oil and gas than mining resources. stan evolving over the next five years? ing, and processing mineral resources with uptime, at over 80%. The introduction of creased from 20 meters (m) to 40 m, which projects. Having said that, mining projects Deloitte is handling large projects and fash- minimal impact on the environment. The innovative mining techniques such as se- will further increase Voskhod Chrome’s have progressed via local companies joint How does Almaty compare to Australia ioning a positive reputation in the mar- Holding exports top-quality materials to lective drilling and blasting also resulted in annual ore production capacity. Construc- venturing with government entities. and Canada in terms of mining innova- ketplace. Being a global company, we are customers in more than 50 countries via substantial improvements in the ore grade tion for Voskhod Chrome’s new beneficia- tion? known to international clients who will use well-located distribution centers all over going into the processing plant, which in tion plant for high-grade tailings will begin In which segment of your business within For innovation, Kazakhstan is a follow-up our broad spectrum of services, including the world. turn improved plant efficiency and led to in Q2 of 2015, and the plant will be opera- E&R are you seeing the greatest demand; player in the mining industry, but has ad- due diligence, consultancy and engineering Headquartered in Istanbul, Turkey and ac- record-breaking levels of concentrate pro- tional by the end of the year. • and where do you see the most resource opted up-to-date technology in uranium ex- technical work. Our goal is for Deloitte to be tively engaged in many projects in Europe duction. growth in mining? traction; however, some of the older mines the preferred choice. •

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 66 - Industry Explorations Industry Explorations - 67 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 KAZAKHSTAN MINING, POWER & CHEMICALS 2016 GBR • Industry Explorations • KAZAKHSTAN

KAZAKHSTAN'S EQUIPMENT AND SERVICE SUPPLY CHAIN

“We may say that geochemical tests are in fashion, which is attributed to the active geological performance of local mining companies including junior companies funded by foreign enterprises. Though in terms of revenue and the bottom line performance, the trade inspections as well as technological inspections are more attractive.”

- Azer Mammadov, Managing Director, SGS Kazakhstan and Caspian Sub-Region Image: Kazzincmash EDITORIAL Global Business Reports Global Business Reports EDITORIAL

SEEKING QUALITY AND Since 2010, delivery times for CAT mining equipment have INFRASTRUCTURE improved due to the opening of two CAT facilities in Russia - Tosno, St. Petersburg and . As these trucks The Evolving Market for Supplying come from within the Customs Union, they have a price Mining Equipment in Kazakhstan advantage over our competitors. Delivery of equipment is enhanced by the excellent railway infrastructure in Kazakhstan.

- Aman Shakenov, Director, Mining Division, Borusan Makina Kazakhstan

As Kazakhstan is looking to attract new international players to ers,” said Dmitry Vorozhtsov, general manager of Sandvik. Transportation and Heavy Goods Equipment on the infrastructure front, companies operating as heavy goods join the ranks of its main domestic players like Kazzinc, ERG, Atlas Copco has extensive experience in the Kazakh market and equipment providers in the country are also expanding and are Kazakhmys Corp. and Kazatomprom, services and equipment has introduced cutting edge technology to Kazakhstan. “In 2013, In 2014, President Nazarbayev introduced "Nurly Zhol" (Bright likely to grow further in both number and size as the industry suppliers are never far behind. Already boasting a presence of Atlas Copco expanded its product portfolio by acquiring MEYCO Path), a new economic policy that envisions massive state invest- continues to develop. Transportation and heavy goods equipment successful operation, local providers like Kazgiprotsvetmet, Equipment. Due to the downturn in mining activity, there will be ment in infrastructure over the next several years. This is in re- providers in Kazakhstan include Tamoz Machinery, Liebherr, Vostokshahtostroy, Iskander and Vostok Prom Geo have a clear some rationalization and changes to the product line. The MEY- sponse to geopolitical challenges such as low oil prices and sanc- advantage in terms of being domestic which facilitates form- CO factory has been transferred to Sweden with the competence tions on Russia. The funds for the projects will originate from ing partnerships and knowing the local culture. However, these center remaining in Austria. Atlas Copco has sold a MEYCO Po- Kazakhstan’s National Fund, similar to Norway’s Petroleum Fund, domestic companies must not feel too comfortable as tough in- tenza to Tajikistan and also introduced this technology in Kazakh- created with the sole purpose of saving for a rainy day. The fund ternational competition has not only already established itself in stan at Ust-Kamenogorsk,” said George Apostolopoulos, general has so far accumulated $76 billion from Kazakhstan’s exports rev- Kazakhstan, but further players are already eyeing the market as it manager of Atlas Copco. enues. The infrastructure plan looks to develop transport networks could become the next destination with a mining boom. There has been some concern over the entrance of Chinese equip- and logistics infrastructure to connect the country’s macro-regions As local companies are more skilled in the Kazakh customs, it ment providers and their impact on the market in terms of increas- through roads, railways and even airlines. The greatest focus will may be a good idea for foreign players to partner with local ones ing competition; however, this may be truer for other Central be given to implementing major road projects: Western China – in order to increase their chances of success in penetrating the Asian nations rather than Kazakhstan. “Chinese competition in Western Europe; Astana – Almaty; Astana – Ust-Kamenogorsk; market. Kazakhstan has not impacted much on Atlas Copco's mining busi- Astana – Aktobe – Atyrau; Almaty – Ust-Kamenogorsk and Kara- ness, but has bitten and is dominant in Uzbekistan, the rationale ganda – Zhezkazgan – Kyzylorda; Atyrau – Astrakhan. The gov- being a historic relationship between China and Uzbekistan. Com- ernment is also looking to explore opportunities to build or lease Equipment Supply petition in Kazakhstan is of an international source, i.e. Sandvik terminal facilities and dry ports and seaports in China, , Rus- and Caterpillar. It is difficult to define precisely Atlas Copco's sia and the European Union according to the Astana Times. More Kazakhstan’s equipment supply market has been characterized by market share in Kazakhstan, there being many different sectors specifically for railways, the European Bank for Reconstruction companies being more concerned with price rather than the qual- of equipment: for example, surface; underground; drilling con- and Development and a number of commercial banks are provid- ity and durability of their equipment. However, a change is un- sumables; and products that Atlas Copco offers but its competi- ing a syndicated financing package of $300 million in support of derway as companies are adopting Western methods of operating. tors do not, and vice versa. Sandvik, due to its longevity in the a comprehensive modernization and restructuring program of Ka- Today some of the main equipment providers are, indeed, West- market, is ahead of Atlas Copco on underground equipment; but zakhstan Temir Zholy, the country’s rail operator, also according ern. Some examples are Sandvik and Atlas Copco. “In 1997, Atlas Copco is ahead of Sandvik for the surface sector and drilling to the Astana Times. Sandvik entered the Kazakh market by acquiring Tamrock, one consumables. Over the three sectors, Atlas Copco has a market In 2014, a railway connecting Kazakhstan, Turkmenistan and of the world leaders at the time in supply of equipment for mining share of 35%, plus or minus 3%. Atlas Copco's after-market sup- Iran was inaugurated opening up access to the Middle East and operations whose office was established in Kazakhstan. Through port is a great aid for maintaining its client base and securing new its ports in Iran for Kazakhstan and Turkmenistan. Iran and Turk- this acquisition, Sandvik initially entered the mining sector in Ka- clients,” said George Apostolopoulos, general manager of Atlas menistan, on the other hand, gain access to ports in China through zakhstan with equipment for underground excavation although its Copco Central Asia. railway connections leading through Kazakhstan. What has also current portfolio has extended to surface drilling, blasting, crush- As the needs of Kazakhstan’s companies are changing, the desire received significant amounts of attention has been China’s New ing, screening equipment and its support. Arguably, Kazakhstan for quality products is also rising and this presents a good growth Silk Road project that aims to connect China to Europe by reviv- has the fastest growing resource market in Asia and the former potential for Western equipment providers looking to expand to ing the ancient trading routes. Soviet Union countries which is attracting Sandvik among oth- new markets. While Kazakhstan is undergoing a number of exciting changes

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 70 - Industry Explorations Industry Explorations - 71 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 Global Business Reports Global Business Reports INTERVIEW

Arguably, it is not only the fluctuating mineral In 2013, Atlas Copco expanded its product prices responsible for the mining downturn, portfolio by acquiring MEYCO Equipment. but mining houses have allowed cost structures Due to the downturn in mining activity, there Chinese competition in Kazakhstan has not impacted to become inflated; cost structures need to be will be some rationalization and changes to the much on Atlas Copco's mining business, but has bitten and looked at and reduced. 2017 could be a year of product line. The MEYCO factory has been is dominant in Uzbekistan, the rationale being a historic recovery for the exploration market; it would transferred to Sweden with the competence relationship between China and Uzbekistan. Competition in have suffered a three- to four-year downturn center remaining in Austria. Atlas Copco has Kazakhstan is of an international source, i.e. Sandvik and and the market's cyclical nature would suggest sold a MEYCO Potenza to Tajikistan and also Caterpillar. an improvement, supported by a McKinsey re- introduced this technology in Kazakhstan at port on mining and construction. Ust-Kamenogorsk.

How important is Kazakhstan to Atlas Cop- Can you outline your commitment to sus- co in the CIS region and globally? tainable productivity? - George Apostolopoulos, Atlas Copco Kazakhstan is the company's hub Atlas Copco's policy is that sustainable pro- for six countries: Armenia, Tajikistan, Kyrgyz- ductivity is the foundation for any investment; General Manager, stan, Uzbekistan, Kazakhstan, and Mongolia. the environment, health and safety issues and Atlas Copco Central Asia This group of countries places Atlas Copco quality of work are the keys to its operations. Central Asia in the top 15 of Atlas Copco’s Arguably, Atlas Copco leads the way in corpo- George mining customer centers globally. rate social responsibility (CSR) too. Notwith- standing, Kazakhstan has yet to embrace the Volvo, Turkuaz Machinery, AK Machinery and others. One leader Apostolopoulos Has Atlas Copco been affected by compe- importance of CSR and health and safety. that stands out and has been present in Kazakhstan since 1999 is tition from Chinese equipment suppliers? Borusan Makina, the representative of Caterpillar. “Borusan is a What is your market share in Kazakhstan? Is the government doing enough to mandate Caterpillar (CAT) dealer in Kazakhstan and Kyrgyzstan, and is Chinese competition in Kazakhstan has not im- rules and regulations for health and safety part of a Turkish conglomerate for CAT operating in Turkey, Azer- pacted much on Atlas Copco's mining business, in the work place? baijan, Georgia, and the far east of Russia. Borusan is one of the General Manager but it has bitten and is dominant in Uzbekistan, Arguably, the Soviet influence has installed biggest dealers of CAT in the CIS region. In 2011, we established ATLAS COPCO CENTRAL ASIA the rationale being a historic relationship be- the thought process that unless the government a Components Rebuild Center (CRC) in Karaganda, and in 2013, tween China and Uzbekistan. Competition in imposes rules and regulations, they have no we completed our equipment rebuild shop and further expansion Kazakhstan is from international companies, importance. Government could be doing a lot is planned. Borusan enjoys over 50% market share in the min- i.e. Sandvik and Caterpillar. It is difficult to more. It is still up to the individual companies ing sector for equipment supply within the model size with which define precisely Atlas Copco's market share to educate and train personnel to be conscious we are in competition. We have an excellent customer portfolio in Kazakhstan, since there are many different about health and safety in the work place. for greenfield projects for varying commodities which allow for sectors of equipment: for example, surface; un- peaks and troughs,” said Aman Shakenov, mining division direc- derground; drilling consumables; and products Do you offer financing options for purchas- tor at Borusan Makina Kazakhstan. Atlas Copco offers but its competitors do not, ing your equipment? “Since 2010, delivery times for CAT mining equipment have im- Can you outline the rationale behind Atlas and vice versa. Sandvik, due to its longevity in Atlas Copco's products give value for money: proved due to the opening of two CAT facilities in Russia - Tosno, Copco entering the Kazakhstan market? the market, is ahead of Atlas Copco on under- it promotes the importance of equipment life- St. Petersburg and Novosibirsk. As these trucks come from within Kazakhstan has a plethora of natural mineral ground equipment, but Atlas Copco is ahead of cycle cost, efficiency and safety. We do offer the Customs Union, they have a price advantage over our compet- resources, which was the rationale behind At- Sandvik for the surface sector and drilling con- finance packages at competitive interest rates itors. Delivery of equipment is enhanced by the excellent railway las Copco entering the Kazakh market in 1992. sumables. Over the three sectors, Atlas Copco to assist our customers. We aim to be flexible infrastructure in Kazakhstan,” added Shakenov. The company's service offering includes min- has a market share of 35%, plus or minus 3%. when it comes to the individual needs of ev- However, the sheer size of the country does present a challenge ing and construction equipment, compressors Atlas Copco's after-market support is a great ery one of our clients, helping them acquire the for a number of companies. One example is the Almaty-based dis- and diesel generators, drilling consumables, aid for maintaining its client base and securing necessary equipment to ensure that their opera- tributor of chemical solutions, Chemie & Technology. The com- warranty and post-warranty maintenance of all new clients. tions run as smoothly as possible. pany offers acids and drill fluids used at all stages of production. equipment, and plus training programs for its “Underdeveloped infrastructure certainly poses several challeng- customers. Has Kazakhstan's infrastructure posed a What are Atlas Copco's short-term plans in es for us, and mainly affects the time of delivery. In turn, this can problem for you? Kazakhstan? have a negative effect on operations of the mining companies we Does mining still contribute 80% to 90% to Kazakhstan's infrastructure is an issue and the In the short term, Atlas Copco has to traverse work with. We always try to work efficiently, process all orders Atlas Copco's revenues in Kazakhstan? reason for Atlas Copco having service branch- the bottom of the downturn in mining activ- in record times and minimize lead times. Because of the cost of In 2010, mining would have contributed 90% es is to be close to its customers to facilitate a ity, look for an improvement in its business our products includes delivery costs, we make sure we deliver the to Atlas Copco's revenue in Kazakhstan, peak- prompt service. Branches are at Ust-Kameno- through focusing on after-market, become product in very short time,” said Maxat Bekov, executive director ing in 2013. In 2015, the Kazakhstan mining gorsk, Satpayev, Karaganda and Almaty, and even more efficient, maintain close relation- of Chemie & Technology. market has mirrored the global downturn for for construction and compressors at Aktobe ships with its customers, and be prepared for As Kazakhstan aims to further upgrade its infrastructure and mining and exploration; the revenue contribu- and Shymkent. an upturn in mining activity. • heavy goods equipment providers are expanding in the country, tion of mining for Atlas Copco in Kazakhstan the mining sector certainly looks to benefit from improvements is now 80%. The company is enduring the Can you describe your new product MEY- in both transportation infrastructure and wider service offerings downturn, maintaining staff levels, and look- CO Versa sprayer; have you introduced the from equipment providers. • ing forward to an upturn in the mining market. technology to Kazakhstan?

Industry Explorations Industry Explorations - 73 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 Global Business Reports INTERVIEW

tor for equipment supply within the model Kazakhstan. There is a difficulty in recruit- size that we are in competition. We have an ing manpower; we liaise with local universi- excellent customer portfolio for greenfield ties/colleges to overcome this problem and projects for varying commodities, which al- we hire locally. Part of our corporate social low for peaks and troughs. responsibility is to offer an internship pro- gram. In 2014, we interviewed 400 students How much has your market share grown in Kazakhstan for 30 job opportunities. from 2010 to 2015? On a global scale, how important is Kazakhstan to Borusan? What is the split between your clients in Our market share of over 50% has remained Kazakhstan between domestic and for- constant between 2010 and 2015; we antici- eign companies and what impact do you pate that it will stay at this figure for the next expect the new Mining Code to have on five years. Outside of Turkey, Kazakhstan is your client base? one of the most important investments for Our customer portfolio is 70% domestic, Borusan. One example is the expenditure of 30% foreign most of which are Russian $30 million for our components/equipment companies, for example: Severstal; Poly- rebuild complex in Karaganda. metal; United Company RUSAL; Russian Copper Company and EuroChem. We expect Aman What is your strategy for staying ahead the new Mining Code to make life easier for of your competitors and is your service mining companies enabling them to forward Shakenov offering comparable to Turkuaz Machin- plan with more confidence. The new Code ery? will make investment more stable and attract Our CAT brand is powerful and we have a international mining companies, i.e. Rio diversity of product offerings; our strategy is Tinto and contract miners as Thiess. to offer a better service and build stronger Mining Division Director customer relations. Turkuaz focuses on the Have you found mining companies re- BORUSAN MAKINA excavator business, whereas Borusan can luctant to embrace new technologies and KAZAKHSTAN supply all equipment for the mine site, i.e. working practices? drills, mining trucks, mining shovels, wheel CAT has a strong reputation in the mining loaders, lighting towers, water pumps. Boru- industry with a proven record of reliability. san's competitive advantage is that it offers Borusan is forming a new group within its a one-stop-shop for mining equipment re- mining team dedicated to introducing new quirements. CAT has a financing division; technologies to the mining community, for Borusan can supply a whole fleet of CAT example: tele-remote operation for LHDs machines, service and recondition equip- improving safety in the workplace. We have Can you give a brief overview of Borusan ment for a second life in our CRC facility recently introduced this to Kazzinc mining Makina? together with CAT certification. company. Borusan's objective is to take op- Borusan is a Caterpillar (CAT) dealer in erators out of underground mines. We are Kazakhstan and Kyrgyzstan, and is part of What financing options do you provide? also working on managing traffic for open- a Turkish conglomerate for CAT operating CAT Finance offers credit loans or a subsid- pit mines. Customers are more agreeable to in Turkey, Azerbaijan, Georgia, and the far iary who offers whole project financing cov- change once feasibility studies prove that in- east of Russia. Borusan is one of the biggest ering non-CAT equipment, i.e. conveyors, novation is beneficial. dealers of CAT in the CIS region. In 2011, rail solutions. There is also a leasing option we established a Components Rebuild Cen- for clients, popular with small mining com- What are Borusan Makina's plans for the ter (CRC) in Karaganda, and in 2013, we panies. next five years? completed our equipment rebuild shop and Borusan Makina's five-year strategy plan is: further expansion is planned. This facility Have delivery times improved since 2010 work on efficiency; further improve its safe- has got five stars certification from CAT and and has the lack of infrastructure in re- ty culture; increase customer support; and implemented six recognized best practices in mote areas of Kazakhstan been a problem grow its market share for the introduction equipment rebuild processes of CAT. Boru- for after-sales service and maintenance? of new technology. Arguably, over the next san's mining division accounts for 300 of its Since 2010, delivery times for CAT mining five years, we expect steady growth in the 800 personnel, and generates 60% of Boru- equipment have improved due to the open- mining sector in Kazakhstan; we will focus san's revenue. We have a sales support team ing of two CAT facilities in Russia—Tosno, on work-efficiency of equipment with our of five people, three key account managers, St. Petersburg and Novosibirsk. As these customers. The versatility of CAT's portfo- and an application team. 90% of our staff trucks come from within the Custom Union lio enables us to diversify into other markets, is dedicated to support services, i.e. tech- they have a price advantage over our com- i.e. engines to support energy, transportation nicians, service engineers. Borusan enjoys petitors. Delivery of equipment is enhanced and smelting works. We offer mining cus- over 50% market share in the mining sec- by the excellent railway infrastructure in tomers a one-stop-shop service. •

Industry Explorations - 75 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

ture of Kazakh mining market which is pre- equipment at Nurkazgan mine (Kazakhmys) What are the main types of equipment 80% of the orders were coming from Ka- Dmitry dominantly open-pit projects and remaining on a 24/7 basis with an availability of around that Kazzincmash produces and who are zzinc, but we want to bring this percentage underground assets. Although working in the 85-90%. Service performance at Nurkazgan your main clients? down to 50%. Kazzinc, as our parent compa- Vorozhtsov same market, the strategy of miners differs: if mine is something we are really proud of. First and foremost we produce equipment ny, wants us to be competitive on the market, the main requirement for open-pit projects is for mining, processing and metallurgical which is why we participate in tenders, even equipment availability, the companies work- Can you give an example of how Sandvik's sectors. Our products include cone crushers, when we work with Kazzinc. ing in underground mining are primarily fo- economic, social and environmental re- drum mills, ball mills, separators, pumps, cusing on reduction of operating costs so we, sponsibilities have been demonstrated in special shovels for steel, spaceports, etc. We How would you assess the machine-build- General Manager at Sandvik, will have to leverage to satisfy Kazakhstan? also supply equipment for the energy sector. ing sector in Kazakhstan? SANDVIK MINING both. Sandvik puts a lot of attention on EH&S. We have our own laboratory and special- Kazzincmash is a member of the Kazakh- AND CONSTRUCTION We have a three-year plan focusing on main ized equipment, which allows us to know stan’s Machine-Building Union. We hold KAZAKHSTAN Has the competition from Chinese equip- EH&S KPIs and striving for cultural change. the exact properties of metal and to set the various forums for machine-building profes- ment providers affected Sandvik? We managed to equip all our vehicles with current characteristics required by the client. sionals and see strong potential for the devel- Currently, Sandvik in Kazakhstan is not af- GPS and measure the safe use of vehicles on We work with Kazzinc, as well as with oth- opment of the mining sector. Currently, we fected by competition from Chinese compa- a daily basis. The rebuild service center and er companies in Kazakhstan. We work with supply 10,000 metric tons (mt) of casting to nies. Potentially, Chinese competitors are a service project at Nurkazgan regularly pass Corporation Kazakhmys, and are looking to the Kazakh market, while the deficit on the threat if the combination of factors applies: ISO/OHSAS audits. We live up to safe work- also create partnerships with Donskoy GOK. market reaches 200,000 mt, which is cur- e.g. the ore grade reducing and metal prices ing environment standards and all Sandvik In the south of the country we work with road rently being imported; hence we see a lot of remain low for long – these may trigger some managers are to demonstrate EH&S leader- Alexandr construction companies. In the beginning of potential. It is important to find those nich- companies working at the breakeven point to ship in work, home or on vacation. On the 2015 we won a tender to supply crushers to es, where we can take leading positions and look at Chinese alternatives. Another example environmental part, we try to balance fun and Anchugin First Non-Metal Company in Russia. Our strive to produce more products that are in might be establishing a footprint of Chinese responsibility and enjoy outside activities. In prices and lead times were more attractive for demand in Kazakhstan. equipment through acquisition of Kazakh de- July 2015, Sandvik’s office in Almaty will the client. We were able to supply this crush- posits by Chinese miners. This is what hap- spend a day on beautification of the Ili River. er within four months. Our production has Kazzincmash is one of the main produc- pened with the gold industry of neighboring almost no waste. Thus, we are also maintain- tion plants in the mono-town of Ridder. Tajikistan. In general, big national miners do How do you maintain your market share Director ing our competitiveness because we have our What steps is the company taking to retain not wish to compromise reliability for cheap- and do you offer financing and leasing op- KAZZINCMASH own technology for production of equipment current employees and attract new ones? er options. tions? and highly qualified staff. At Kazzincmash There are many families where people have Sandvik is the leading service provider in we are using Russian, German, Japanese and been working at our production plant for gen- Can you give an example where a mining underground excavation in Kazakhstan and, Czech equipment. erations, and we highly support this tradition. company has benefited in production and since recently, has got a sufficient surface We are always happy to see our employees performance from using Sandvik equip- business in the portfolio. To compete, Sand- Kazzincmash was the first company in Ka- bring their children and grandchildren to ment? vik maintains a high level of trust among zakhstan to produce an ultra-fine grinding the factory. Thanks to the continuous mod- In 2002, Sandvik established a rebuild service customers by honoring its promises and of- mill. What is the advantage of this type of ernization of our equipment and technology center used for reconditioning of expensive fers flexibility i.e. commercial terms, equip- equipment? that we use, we can offer more interesting Can you outline some of the reasons why components in the city of Satpayev. Current- ment modernizations. We set up a right ser- Ultra-fine grinding has been used extensively positions to our employees. We do our best Sandvik entered the Kazakhstan market? ly, the service center in Satpayev is recondi- vice and logistics footprint to guarantee high among beneficiating companies as a method to ensure an adequate salary for our employ- In 1997, Sandvik entered the Kazakhstan tioning over 400 components a year and helps parts availability and excellence of technical Kazzincmash has a very long history. Can that allows for a higher degree of extraction. ees, one that would correspond to their input market by acquiring Tamrock, one of the to extend a lifetime of Sandvik equipment services to make sure equipment is perform- you tell us about its most recent develop- Kazzincmash is the first company in- Ka and would justify their perspectives about world leaders at the time in supply of equip- working at Kazakhmys mines. Availability of ing as well as it can. It is Sandvik's policy to ments? zakhstan and the rest of the CIS to produce future, which is exactly what attracts new ment for mining operations whose office was parts and technical competence, in conjunc- employ and retain the best people, regularly The facility has first been mentioned in 1915 an ultra-fine grinding mill, which can easily employees. We invest a lot into training our established in Kazakhstan. Through this ac- tion with tight cooperation with Kazakhmys appraise staff performance and make sure the as Ridder forging and mechanical workshop complete with similar equipment from inter- staff - teaching them how to work with vari- quisition, Sandvik initially entered the min- specialists, helped in cutting repair lead time overall efficiency of the organization is grow- with foundry and molding areas. In 1946 by national manufacturers. Ultra-fine grinding ous equipment and tools and we continuously ing sector in Kazakhstan with equipment for to one to three days. ing. Same as others, Sandvik does payment an order of the Non-Ferrous Metals Ministry mill MUI-450 - a type of mill, designed for work on increasing the level of their profes- underground excavation although its current extension i.e. leasing, renting, trials, etc. The it was decided to design and repair the me- fine and ultra-fine continuous grinding and sionalism. We believe that our employees portfolio has extended to surface drilling, Has the lack of infrastructure in remote re- final form of extension is always a deal speci- chanical facilities of Leninogorsk polyme- dispersion of solid particles in liquids by play a decisive role in our production process blasting, crushing, screening equipment and gions of Kazakhstan been an obstacle for fied to suit the needs of particular customers. tallic industrial complex. In 2004 Kazzinc- grinding up material suspension using solid and we are doing everything to ensure favor- its support. Arguably, Kazakhstan has the Sandvik operating a 24/7 steel belt after mash, an affiliated company of Kazzinc Ltd., balls - bead. The uniqueness of this mill is able working conditions for them. • fastest growing resource market in Asia and sales service? What are Sandvik's plans in Kazakhstan was set up within the machinery and repair that, unlike analogues, the material is like it is the former Soviet Union countries which is To overcome problems of operating in remote for the next five years? plant. From then on, we began integrating in open air. Thus oxidation occurs naturally, heavily attracting Sandvik among others. territories, Sandvik places equipment infra- Sandvik's five year plan will be to endure the modern methods and innovative technol- which is why less amount of reagents is need- structure near population centers. Availability current downturn in mining activity, continue ogy in the production process. We began to ed to recover valuable components. How important is Kazakhstan to Sandvik of parts and service presence guarantees high its direct operations with our customers and work efficiently and now we are one of the on a global scale and what is your expan- equipment availability for our customers. We grow overall efficiency. It has now created a best machine-building plants in Kazakhstan. How do you collaborate with Kazzinc and sion strategy in the region? provide all types of services including field solid platform to service the needs of major The facility is using the newest equipment, how important are other mining compa- Kazakhstan sufficiently contributes to total support, component rebuilds, contracts for mining houses for surface and underground technology and software, which allows us to nies for Kazzincmash? revenue of Sandvik Mining so it is important. technical maintenance and trainings. To give projects and attracting new customers is the produce high-quality products in a very short We work with Kazzinc as well as other min- The strategy of Sandvik is aligned with fu- you an example – we have been maintaining next logical step. • period of time. ing companies in Kazakhstan. In the past,

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 76 - Industry Explorations Industry Explorations - 77 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

ny's needs. Thrane then established a Rus- and have you seen improvements in re- What levels of mining and exploration AK Machinery has also established long- sian company with a Russian partner. In cent years in terms of outsourcing? Ugur activities are you seeing in Kazakhstan? term agreements with its clients, especially 2011, Thrane again had to expand its foot- There is a big difference between Kazakh- It was difficult to work with Volvo- Con for maintenance. Good customer service print and established its Kazakh company stan and Europe in the level of mainte- Basturk struction in the mining sector as its prod- equals repeat business. to service its customers' needs, and now nance and after-sales service. In Europe, uct range was unsuitable; due to this, AK has offices in Almaty and Karaganda. The it tends to be sub-contracted, but in Ka- Machinery lacked exposure to the min- What are the challenges of working in Russian and Kazakh markets are similar in zakhstan, this remains in-house and more ing sector so its knowledge was limited Kazakhstan and its mining industry? their format but work to a different agenda. people have to be employed, and arguably, of mining and exploration activity in Ka- Kazakhstan's geographical size, its infra- Thrane's position is in the grey-zone be- the level of service is not always to the re- General Director zakhstan. With Hidromek's dealership, AK structure and bureaucracy i.e. customs time tween consulting and equipment supply; it quired standards. Outsourcing could ben- AK MACHINERY Machinery has enlarged its product offer- delay, makes it a challenging country to consults with clients for new solutions to efit Kazakhstan, but, to date, there has been ing and will be more active in the mining work in; however, the country's infrastruc- improve operations, i.e. capacity, quality, no firm action. The lack of infrastructure in sector, especially to the suppliers and ex- ture is slowly improving, and AK Machin- energy saving, etc. Thrane's portfolio has Kazakhstan can be a challenge, but it has plorers who are big players in Kazakhstan ery is optimistic that there will be a reduc- three main products: sensor-based sorting not halted Thrane's ability to carry out its with specialized requests. Products that the tion in bureaucracy. for ore, fine screening, and paste technol- after-sales service and maintenance. company is supplying to the mining sector ogy. Sensor based sorting for ore offers are: excavators; Putzmeister concrete mo- How will the new Mining Code change bigger capacity and considerable savings Have you experienced difficulty in intro- bile pumps; Atlas Copco bit mining attach- Kazakhstan's mining sector? by sorting out waste rock before it enters ducing new technologies? ments; Guris of Turkey concrete batching Investment is increasing in the mining sec- Nils Chr. the beneficiation plant. The next step in the Universities in Kazakhstan are top-heavy plants; LasZirh tire protection chains; and tor; Kazakhstan's minerals are under-ex- beneficiation plant is milling—traditionally with older people who can be resistant to Inan Makina MTB hydraulic breakers. Fo- plored, and AK Machinery's objective is Thrane used with cyclones; this method, however, change. Companies are reluctant to be the cus is now on establishing new contacts in to be a service provider for entrepreneurs generates low efficiency, and Thrane has first to take the initiative and risk of intro- the mining sector; the company has exist- coming to the mining sector. The govern- now introduced a fine screening concept to ducing new technology; albeit they do have ing customers in the construction sector. ment's new Mining Code will help stimu- replace cyclones. The energy saved from younger people in situ who are more likely AK Machinery is currently restructuring, late mining activity; any company enter- the screening concept will give a 30% to to welcome new proven technology. Eu- closing some regional offices and appoint- ing the mining sector will need the type of President 50% increase in capacity, or from a green rope is more accommodating towards new ing local agents who are being product- expertise/consultation that AK Machinery THRANE TEKNIKK perspective liberate the energy for other technology. The mentality in Kazakhstan is trained, and financed by AK Machinery, can offer. Its strategy will be to segment: uses. Another new technology that Thrane quite risk-averse where personal responsi- Turkey; this will give more points of con- specialists for mining and specialists for is dealing with is paste technology. Current bility for failure is avoided in the case of tacts for clients. construction. tailings consist of 30% solids and 70% wa- introducing something new in a company’s ter stored in tailings ponds; solids sink to operations. In Europe, this is understood to What percentage of AK Machinery's Where do you see AK Machinery in Ka- the bottom, and the water is pumped and be a calculated risk, but with potential for business comes from mining and con- zakhstan in three to five years? re-cycled. This storage method requires success that can save a company time and struction? AK Machinery will have greatly increased large dams, is expensive and environmen- money in the long run. So, the project will Currently, the mining business is 30%, and its turnover, expanded its mining business; tally dangerous, and a lot of water is lost move forward without risk of personal con- construction is 70%. After the marketing of and developed a network of local agents in Can you give a brief overview of Thrane? in the process. Paste technology consists sequences. the company's mining services, it is confi- Kazakhstan with at least one in each city to Thrane Group consists of companies lo- of 70% solids and 30% water and does not Can you please give a brief overview of dent that the mining business will signifi- facility customer satisfaction have devel- cated in Norway, the UK, Russia and Ka- require large dams; water can be circulated What are Thrane's competitive advan- AK Machinery and its developments in cantly increase. Today's economic climate oped a network of local agents in Kazakh- zakhstan with close partners in the United straight back to the plant without losses, an tages in Kazakhstan? the last three to five years? has adversely affected construction, the stan with at least one in each city. This is States, the United Kingdom, and Germany. ideal system for countries such as Kazakh- Thrane specializes more in new technology AK Machinery began in 2007 in Kazakh- company is 50% down on its construction actually one of our primary goals to have Thrane Group brings the best solutions stan where water is precious. than its counterparts. Larger competitors stan and was the first serious dealer for business; however, even with low com- agents representing AK Machinery all over based on know-how, equipment, and de- concentrate more on big turnkey projects, Volvo Construction Equipment investing modity prices mining is stable. The com- Kazakhstan. Our strategy is not to open of- sign. Thrane & Thrane Teknikk was es- How reliant is your Russian office on the but Thrane focuses on established and new not only in sales but also after-sales and pany is pushing other distributors to further fices that may still be far from our clients, tablished in 1954 and has been supplying research and development (R&D) done plants. In Kazakhstan, Thrane would like parts services. In 2014, AK Machinery expand its mining portfolio; its objective is but to have agents who are right there on quality products and solutions to the in- in Norway? How much do you benefit a breakthrough and acceptance of its new ended its association with Volvo and took to become a one-stop-shop that will be mir- the ground ready to help. We seek to train dustry since then. The group now has ac- from your partnerships with WesTech, technologies. It is only a matter of time be- on a dealership with Hidromek from Tur- rored for its construction business. them to provide consultation and imme- tivities in Russia, Kazakhstan, the Ukraine, Tomra Sorting Solutions, Derrick Cor- fore the pressure on companies to reduce key; the rationale being that Hidromek had diate assistance to clients even in remote Norway, and the United Kingdom. New poration, and others? production costs per metric ton aligns with more desire to invest in the construction What is AK Machinery's competitive locations. They will be receiving plenty of products and know-how from all over the Thrane's in-house R&D initiatives are part- Thrane's new technologies. The current and mining sector in Kazakhstan as part advantage? support from our head office and other lo- world are regularly being added to ensure nered by Norway and Russia; both parties' downtime in mining operations affords a of its global expansion. Hidromek recently AK Machinery's competitive advantage cations around Kazakhstan. These are our that everything from complete projects to expertise is amalgamated. Thrane could company the time to try new technology. • purchased 97% of the factory in Thailand will be its one-stop-shop, supported by plans for the foreseeable future. • individual products and solutions uses the not exist without its external partnerships; that manufactures Mitsubishi's motor grad- a team of expertise for sales, parts and latest and best technology on the market. we rely on a triangle of partnerships be- er. 2015 will be a year of gaining insight after-sales superior to its competitors, as Thrane's first business in the region, i.e. tween Thrane, external partners, and our between AK Machinery and Hidromek; are AK Machinery's financing terms, i.e. Russia, was in 1991, which was followed customers. the company's association with Hidromek cheap credit from Turkey. The company by a representative office in 1998. Business has inaugurated extension into Uzbekistan has retained its staff who, over the years, escalated, and by 2005 the representative What is the level of maintenance and and Turkmenistan, previously covering just has built a wealth of expertise and consul- office model no longer satisfied the compa- after-sales service offered in Kazakhstan Kazakhstan and Kyrgyzstan. tation capabilities to offer its customers.

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 78 - Industry Explorations Industry Explorations - 79 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

local mining companies favor the cheaper What after-sales service and mainte- How much does the mining industry con- Given the size of Kazakhstan, how does Alisher Kamilov, option of operating Chinese trucks. Volvo nance do you offer to your customers? tribute to Metso’s revenue in Kazakh- Metso efficiently provide its services and Group Kazakhstan is trying to change the DI: Mining companies prefer to have on- stan? Has this changed since the decline solutions across the country? Daniyar mindset of mining companies on Chinese site maintenance; Volvo Group will ar- in commodity prices? This is Metso’s main challenge in Kazakh- trucks, highlighting the long-term reli- range a mobile workshop. The geographi- At the moment, Kazakhstan represents a stan, especially because we are relatively Ismuratov & ability of Volvo/Renault trucks. Arguably, cal size of Kazakhstan and the remoteness relatively small portion of Metso’s global far from the main sources. Hence we invest when Chinese trucks begin to develop of mining projects does not facilitate ser- revenue, but we hope to grow. Along with significant efforts into securing a local pres- Yuriy Pelmenev faults, mining companies will switch to the vicing Volvo and Renault tippers, for in- other equipment providers, Metso is follow- ence and availability. Metso has established known quality of Volvo/Renault. stance, from its centers. ing global trends. When metal prices and in- numerous service facilities and placed engi- vestor interest are high, we receive as many neers as well as satellite stocks in remote lo- What are Volvo Group future expansion Can you highlight some of the biggest orders for capital equipment as for services. cations. This is the only way to do business plans in Kazakhstan? challenges that you have encountered When they are low, the services share pre- in Kazakhstan, thus we invest quite heavily DI: The company's expansion plans will when working in Kazakhstan? Is the vails. to do so. depend upon the global market situation, quality of fuel a challenge? AK: Marketing and Communication especially for natural resources. Current- AK: The challenges for Volvo Group Ka- What is Metso’s market share for the sale How would you characterize the invest- Manager ly, mining companies are cutting budgets, zakhstan are: finding finance solutions to of mining equipment in Kazakhstan? ment climate in Kazakhstan, specifically DI: Regional Group Trucks Sales Manager This is an interesting question because every in the context of mining? YP: Regional Group Trucks Sales for example Kazakhmys and ERG, and match a customer's expectations and the Manager waiting for an improvement in commod- price differential between Volvo/Renault year is different. Overall our market share is The government dedicates a lot of attention VOLVO GROUP KAZAKHSTAN ity prices. There is potential business for trucks and Chinese trucks. The implemen- Alexey major, within the high quality, Metso cali- to the mining sector and serves as the pri- Volvo Group when the market improves; tation of the Euro IV emissions standard in ber of equipment. However, at the moment, mary driver of the industry here. The adop- meanwhile Volvo Group will pursue the Kazakhstan could benefit Volvo Group, as Strikha low-cost equipment providers keep consid- tion of the JORC, for example, signifies smaller companies who perform short- current Chinese trucks would arguably fail erable market share where Metso is not rep- their commitment to attract and diversify term sub-contract work, but the investment this emissions standard; an opportunity for resented. the range of investment. The country was in a Volvo Group trucks versus the cheaper Volvo Group trucks to increase its market the first in the CIS to do so, making the tran- Chinese truck is an issue. Volvo Group's share. Fuel quality is not a big issue for Considering many local companies are sition from local to international standards Regional Director Kazakhstan, strategy to overcome the price differential Volvo/Renault trucks provided that it is not ready to invest in Metso’s equipment a giant step. This move is part of a positive Ukraine, Uzbekistan over cheaper products, how are you try- trend and demonstrates the administration’s is to promote the reliability of its trucks by purchased from a reputable distributor. METSO KAZAKHSTAN loaning them to mining companies for test ing to change this mentality? focus, which is important for the mining drives. How important is Kazakhstan to Volvo There are two global approaches. Junior community. From our perspective, Kazakh- How do you handle competition from Group's global operations; do you have companies try to keep capital expenditure as stan is open to change. western companies, i.e. Scania; and plans to expand into other central Asian low as possible, while majors prioritize reli- what is your market share? countries? ability and quality. Nevertheless, the market Where do you see Metso in the next three YP: Competition in the mining industry is AK: Kazakhstan is perceived by Volvo is global, and today with a large number of to five years? tough, i.e. from Scania, a company that is Group as having the most potential of the mines around the world, quality is becoming Metso has a relatively solid installed base well established in Kazakhstan's truck mar- countries in the Central Asia region; Ka- progressively more important. This is why of equipment. Our main focus is to maintain ket, offering service workshops and finan- zakhstan's development rate is the highest we expect a market-wide shift towards high- this existing installed base and improve it as Can you please give a brief overview of cial solutions for its customers; however, in the region, and unlike the remainder of er quality products. Our customers also have much as we can. Since metal prices are low Volvo Group in Kazakhstan, the ratio- Volvo Group’s mining product portfolio is Volvo's global locations, enjoyed the ma- certain obligations to their end users. For at the moment, investors are reluctant. Met- nale behind its presence in the region one of the best in the world. Volvo Group’s jor investment of a new workshop. The Why did Metso choose to enter the Ka- example, Metso serves concentrators who so will continue to focus on its aftermarket and its association with Renault? market-share target in Kazakhstan is 20%; company has agents in the region and full zakh market? provide raw materials for steel plants. Our activities, which are built from technologi- AK: In 2008, Volvo Group was established Scania's market share has risen from 10% working importers in Turkmenistan, Azer- The answer is very simple: the raw mate- customers want to feel confident that their cal excellence, experience, and the highest in Almaty, Kazakhstan and today, it has of- to 20% year-over-year. baijan, Armenia and Georgia. Volvo Group rial base is excellent in Kazakhstan. You can products will be delivered on time for fur- safety standards. Additionally, there are in- fices in central, west and south Kazakhstan. has shown a growth rate of up to 15% to find almost every mineral in this country. ther processing. This is difficult to achieve frastructure projects underway due to presi- The rationale behind Volvo's presence in What kind of financing and leasing op- 30% in any one year. with unreliable, low-quality equipment. dential programs. Most sites are located in Kazakhstan is that it is a developing coun- tions does Volvo Group offer? Please walk us through Metso’s most remote areas, making infrastructure devel- try with many opportunities for truck pro- AK: Volvo Group Kazakhstan do not of- What are Volvo Group's plans for the important products that are used by the Does Metso have any specific training opment crucial. Regardless of the global ducers. In 2013, Renault Trucks (merged fer its own financing solution in Kazakh- next five years? mining sector, including any new tech- programs in place for operators of your situation, the Kazakh government will con- globally in 2001) were introduced into the stan, but works with the leading companies AK: To further expand business in Ka- nologies in the pipeline. equipment? tinue to develop projects, which provides Volvo Group Kazakhstan portfolio as well. in Kazakhstan to provide financing for its zakhstan, selling more trucks and recruit- Through our knowledge and experience, Of course, training is also our primary fo- Metso with opportunities. Additionally, Previously, the French truck producer was customers; in 2015, Volvo trucks have been ing more local people. Metso continuously works on the develop- cus. Industry professionals continuously go there are many greenfield projects that Met- represented by another dealer, Turkuaz delivered to a mining company in Karagan- DI: Expand business especially in the trans- ment of many products. We are introducing through Metso’s training courses. Decades so is working on, which may take anywhere Machinery. da under a leasing agreement, generating a port sector in tandem with the construction a range of new equipment to the Kazakh of close customer collaboration have trans- from one to five years to complete. Thank- profitable return for the company. There of the new Silk Road, the Western Europe- market, providing solutions to our custom- formed us into a knowledge company; we fully, there remains a significant amount of What percentage of your business comes has been a gradual move towards invest- Western China highway. Volvo Group has ers. Single pieces of new technologies are have facilities around the world where elec- work to be done, and Metso is putting all from the mining sector? ing in western trucks on the rationale that a positive forecast for the next five years in not always wanted nor demanded by the tricians, operators and customers can come of its resources and knowledge forward to AK: Most of Volvo Group Kazakhstan’s although investment is higher, they are Kazakhstan. • miner. Hence we are developing an integrat- and train. All local operators have access to keep going strong. • turnover stems from transport, specifically more reliable with a longer lifecycle than ed solutions which we provide to customers these resources, which are available in every long-haulage trucks. Mining is minimal as Chinese trucks. rather than just a unique piece of equipment. country to different extents.

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 80 - Industry Explorations Industry Explorations - 81 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 EDITORIAL Global Business Reports Global Business Reports EDITORIAL

of industrial application of scientific developments and the role of our ing together on the TengizChevrOil project. For us this is a very new sion of JORC, which allows public audit as well as GKZ reports, but INNOVATIVE SERVICE Center was to improve this situation, ensure scientific development, format of work and we are very much looking to earn the respect of under the condition that GKZ reports have the priority. Of course, this SOLUTIONS FOR MINERS strengthen the scientific and technical potential of the country and thus our American partners,” said Abzal Akhmetzhanov, first deputy general system will simplify work for a lot of companies, but at the same time aim for technological breakthroughs in Kazakhstan. At the beginning director of KPSP. we do hope that JORC is still going to enter the systems of mining com- IN KAZAKHSTAN of the process, there was not enough capital to support all the scien- Another area of expertise necessary to develop and grow the market is panies in Kazakhstan very soon. Having two standards is excessive and tific projects within the Center; similarly, our clients, both private and testing and laboratory services. SGS has a well established presence complicates the understanding of the resource base among investors,” Service companies are providing a wide governmental organizations, also did not have the money to invest in in Kazakhstan. “We may say that geochemical tests are in fashion, said Freiman of GeoMineProject. range of software, technology, engineering, our projects. Thus, we came up with an idea to also create production which is attributed to the active geological performance of local mining There are a number of consulting companies present in Kazakhstan that laboratory, consulting, and financial solutions facilities within our Center to turn scientific ideas into actual products. companies including junior companies funded by foreign enterprises. provide services ranging from exploration to mine closure. These com- Today, this aspect is one of our key competitive advantages, especially Though in terms of revenue and the bottom line performance, the trade panies are an important element in developing the industry and their to support the resurgence of Kazakhstan’s compared to other scientific organizations. Firstly, we are now acting inspections as well as technological inspections are more attractive,” presence and expertise in due diligence and other services is required mining industry. as producers, and thus can create perfect solutions, and think of every said Azer Mammadov, managing director of SGS Kazakhstan and Cas- by the international players looking to invest in Kazakhstan. Kazakh single detail when it comes to developing new products. Secondly, we pian Sub-region. companies understand that adhering to international standards is of vi- implemented dozens of projects, and developed innovative solutions in SGS also offers the Belarus-Kazakhstan-Russia Customs Union con- tal importance to demonstrate to the world mining community that they Mining Software Kazakhstan that are now also being used across the world. Thanks to formity assurance certificate. This has proved a popular service, espe- can conform to its high standards. “SRK provides expert opinion and this we can now communicate better with our clients and we now speak cially since the Eurasian Economic Union continues to have a positive technical solutions based on internationally recognized best practices. Foreign companies usually provide mining software, although some lo- the same ‘language,’” said Abdurasul Zharmenov, general director of impact on the whole of CIS. “The key advantage for our customers ob- If technical advice on local requirements is needed, SRK collaborates cal or Russian ones also play a part. Some of the companies operating the National Center on Complex Processing of Mineral Raw Materials taining such certificates rests with overcoming technical barriers upon with local design institutes that are more specialized in meeting local in the country are MICROMINE, RJC Group, Geovia (part of Dassault of the Republic of Kazakhstan. trade in the Eurasian Economic Union (EEU), which includes Kazakh- design requirements. These local requirements differ significantly from Systèmes), and GeoMineProject. It has been noted that international Another interesting provider of innovative services that has just recent- stan, Russia, Belarus, Kyrgyzstan and Armenia. The common rules and international approaches, but we have become quite familiar with man- software providers should lower their prices for smaller Kazakh com- ly entered the Kazakh market through a joint venture with Kazgeology requirements practiced on the territory of the EEU allow use of these aging the two approaches in parallel, to minimize cost for the client panies, as they may find them somewhat out of their price range. is the Canadian company Geotech. The new venture, named KazGeo- certificates in any EEU country without any additional authorization and avoiding duplication of work where possible. A good example of “The biggest issue related to the integration of new technologies and tech, is a provider of geophysical airborne surveys and, despite being procedure. At the moment, not all requirements for this certification are this is in the field of geotechnical engineering. Precisely calculating software in Kazakhstan is the poor awareness of these technologies in the country for only about a year, is already greatly in demand by being harmonized but intensive work is being conducted to form and the final safe pit slope for an open-pit project can result in a major sav- among the older generation of specialists. At the same time, young spe- the most important companies. “The technology KazGeotech uses is set common requirements,” added Mammadov. ing of stripping costs,” said Tony Thornton, general director of SRK cialists that have the skills to work with new technology do not have patented by Geotech: Z-Tipper Axis Electromagnetic system; and Ver- Yet another step to help bring in outside investors to conduct explora- Consulting. the experience of working at mine sites, thus they have no experience satile Time Domain Electromagnetic system. KazGeotech has recently tion is the transition of Kazakhstan from its own GKZ to the JORC Ruslan Sevostyanov, general director at Wardell Armstrong agrees: in integration of such technologies,” explained Georgiy Freiman, chair- introduced a fixed-wing aircraft survey for Rio Tinto in Kazakhstan,” standard in line with the international community. “In December “The mine design and mineral resource estimation standards and meth- man of the board of directors of GeoMineProject. said Said Sultanov, director of KazGeotech. 2014, Kazakhstan accepted an analog of the Russian code for auditing, odologies currently used in the FSU were inherited from the Soviet To address this problem, companies can become involved with educa- Thrane Teknikk is yet another example of an innovative solutions NAEN, ‘Kazakhstan CRIRSCO’. The accepted code is an adapted ver- era and, having originally been tailored to Soviet economic realities, tion and training. “MICROMINE also works with local service com- provider, one that has had a long presence in Russia, but has only en- panies and educational institutions where it supplies solutions free-of- tered the Kazakh market fairly recently. “Thrane's portfolio has three charge to benefit students studying geology of mining. For example: in main products: sensor-based sorting for ore, fine screening, and paste the coming months, MICROMINE will be traveling to East Kazakh- technology. Sensor based sorting for ore offers bigger capacity and stan's technical college to instruct lecturers on its solutions. When a considerable savings by sorting out waste rock before it enters the company purchases a MICROMINE solution and lacks in-house ex- beneficiation plant. The next step in the beneficiation plant is milling, pertise, a training program is obligatory to maintain standards,” said traditionally used with cyclones; however, this method generates low Arman Anapiyaev, business development manager at MICROMINE. efficiency and Thrane has now introduced a fine screening concept to International software providers not already in the country should keep replace cyclones. The energy saved from the screening concept will Kazakhstan in mind as the country is well on its path to become the give a 30% to 50% increase in capacity, or from a green perspective, next mining hotspot. liberate the energy for other uses,” said Nils Thrane, the company’s president. Kazakh companies and institutes are themselves initiating improve- Innovative Solutions ments with a wide range of applications, notably in Kazakhstan’s big- gest industries such as oil and gas and, increasingly, mining. Despite the country finding itself in need of foreign investment both financial and technological, Kazakhstan’s people are well educated and hungry to succeed. Since Soviet times, the country has fallen behind Engineering, Laboratory and Consulting Services in terms of innovation and creativity, but, nevertheless, pockets of lo- cal innovation continue to thrive. One example of locally researched There is a slow but steady trend among companies in Kazakhstan to and produced innovative solutions is the National Center on Complex use EPCM providers, which has not been the case historically. Local Processing of Mineral Raw Material of the Republic of Kazakhstan. companies like KPSP are partnering with international ones that have The Center is committed to helping the mining industry in Kazakh- extensive experience. These types of partnerships are crucial to help stan develop. They strive to cooperate with both local and international develop Western practices in Kazakhstan. “There are large companies players and enjoy substantial success in providing their technology to that have access to the newest technology and have the capacity to in- their clients. “Our center unites academic and industrial institutes in the vest. Shareholders of KPSP decided to bring the company to a new sphere of mining and mineral processing in Kazakhstan. It was consid- level and to begin collaboration with Fluor, a large international engi- ered that the Soviet organizations were not working efficiently in terms neering firm. Fluor was happy to work with us and now we are work-

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 82 - Industry Explorations Industry Explorations - 83 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 EDITORIAL Global Business Reports Global Business Reports INTERVIEW

do not sufficiently cover the economic aspects fer shares by the government in larger com- company listed on the KASE. Investors have breakthroughs in Kazakhstan. In the begin- others. For example, we have developed of a mining project being developed in the panies. “We would normally become involved enjoyed a 40% return on their capital and the ning, there was not enough capital to sup- technology for a lead factory for the Cana- modern economic environment. This has led in financing at the initial public offering stage. production at Maksut is expected to begin in port all the projects; similarly, our clients, dian company Teck Cominco. We have also to a situation when FSU companies seeking Currently, there is little activity for us in this the fall of 2015. both private and governmental organiza- done work in Italy, Bolivia, Brazil, and Chi- foreign investments have to significantly -re sphere. The Kazakhstan government is plan- One way to acquire financing besides the tions, also did not have the money to invest na. At the moment, we have close relations work and amend their project designs to meet ning to make its stock exchange more effec- KASE or commercial banks can be through the in our projects. Thus, we came up with an with ThyssenKrupp and POSCO, which is international standards. Therefore, our role in tive by insisting that companies who list over- Eurasian Development Bank (EDB), founded idea to also create production facilities to funding the construction of a production fa- Kazakhstan as a consultant is mainly to use seas and have their major assets in Kazakhstan by Russia and Kazakhstan in 2006 and now turn scientific ideas into actual products. cility in Kyrgyzstan. their geological, mining, metallurgical and list on it, with the rationale being to add value including many Central Asian nations as its Today, this aspect is one of our key com- environmental expertise to advise their clients to the Kazakhstan stock market,” said Aaron members. “One of the bank’s first projects petitive advantages, especially compared Can you give us an example of a technol- on how to ensure international compliance of Crouch, audit partner at Deloitte. was the development of the Zarechnoye Ura- to other scientific organizations. Firstly, we ogy that the center has developed and their businesses and meet the requirements of “The local market is still underdeveloped as nium Deposit, implemented by a joint venture are now acting as producers, and thus can you are most proud of? international investors.” the KASE is still not in a position where it can between Russian and Kazakhstan entities. The create perfect solutions and think of every We have created technology for smelting A variety of service providers are already in accommodate startup companies, although it EDB provided $63 million to finance the proj- single detail when it comes to developing of the ferro-aluminum-silicon and the ‘Ka- the country assisting both producers and ex- is looking at ways to accommodate this. Mid- ect. Current production capacity of the mine is new products. Secondly, we are implement- zahstanskiy’ alloy for deoxidation, modifi- plorers, but as the industry continues to grow, tier mining companies are still struggling to about 1000 metric tons per year of uranium. ing dozens of projects and developing in- cation and alloying of steel, based on the others should continue to enter this already raise local finance. The local banking system Later in 2006, the EDB, in syndicate with two novative solutions that are now also being use of off-grade carbonaceous feed, which expanding sector. is not robust or experienced enough to provide German banks, West LB and Bayerische Hy- used across the world. Thanks to this, we was truly revolutionary. Current technol- bespoke financing packages for developing po-und Vereinsbank, opened a $120-million Abdurasul can now communicate better with our cli- ogy is patented in 15 countries - Kazakh- mining companies,” said Tony Thornton, gen- credit facility to finance the development of ents and speak ‘the same language’. More- stan, Ukraine, Russia, Kyrgyzstan, United eral director of SRK Consulting. the Voskhod chromium deposit in Aktyubinsk Zharmenov over, when we speak about implementing States, European Union, Algeria, Mexico, Professional and Financial Services Kazakhstan boasts a very small, but thriving oblast. The EDB’s share was $60 million,” projects in Kazakhstan, we are confident South Africa, China, South Korea, Hong private equity market. Centurion Resource said Galymzhan Tajiyakov, director of Project that nobody knows our mineral wealth bet- Kong, Australia, and Japan. Another exam- The limited options provided by the Kazakh- Group has actively pursued investors from Finance Group at the Eurasian Development ter than we do. ple is KIVCET technology for processing stan Stock Exchange (KASE) have been of abroad, especially the United States, to invest Bank. lead-containing raw materials, based on the General Director particular concern among investors in the in projects in Kazakhstan. One of their invest- Meanwhile, the European Bank for Recon- Can you please tell us about the center’s combined process of batch burning, smelt- NATIONAL CENTER ON country’s mining industry. Historically, the ments was BAST’s Maksut copper-nickel struction and Development (EBRD) has in- structure, its divisions and the role that ing as a spray type with oxygen, recovering COMPLEX PROCESSING OF KASE has been used as an instrument to of- project, which was the first small-cap equity vested roughly $7 billion in the local econo- the central office plays within the orga- of oxide melt in a layer of carbon material, MINERAL RAW MATERIALS, my. Half of these investments focused on the nization? and defending of depleted melt in an elec- REPUBLIC OF KAZAKHSTAN private sector including loans to mining proj- The center has seven branches: Institute of tric furnace, continuously carried out in a ects. Some of the projects agreed to this year Geology and Economics of Mineral Raw single unit of original design. This technol- have been a 70 million euro loan to the first Materials, Almaty; D.A. Kunayev Mining ogy is patented in Kazakhstan, Russia, Chi- solar plant in Kazakhstan and a 42.5 million Institute, Almaty; Zh. Abishev Chemico- na, India, Mexico, Brazil, and Chile. euro loan to upgrade Astana airport’s infra- metallurgical Institute, Karaganda; Eastern We also proposed a new technology for the structure. This brings EBRD’s investment in Research Mining and Metallurgical Insti- production of ferrosilicon, which allows us Kazakhstan to $420 million in 2015 alone. Can you please tell us about the role that tute of Nonferrous Metals, Ust-Kameno- to reduce the percentage of aluminum and The lack of financing options should not put the center has played since its inception? gorsk; Kazmekhanobr State Scientific Pro- titanium in the final product. At this stage in off international investors, as these are bound The inception of the center dates to 1992, duction Association of Industrial Ecology, the implementation of the roadmap for the to develop along with the industry. There are, when the issued Almaty; Center of Metallurgy; and a sub- development of mining and metallurgical nevertheless, other issues that the govern- a decree that a network of national centers sidiary in Astana. The central office deter- complex in , we are plan- ment has the power to influence to help cre- was to be created covering the priority sec- mines the general strategy of the company, ning to construct a ferroalloy factory for the ate a more accommodating business climate, tors of the economy. Mining and metallurgy develops scientific programs, and manages production of ferrosilicon with low content including stable tax regulations. “Action by and nuclear energy were among these key various projects, assesses new technologies of aluminum and titanium. the government for the further development of sectors. The first center created under this and their industrial potential. Within the legislation to provide more guarantees on the decree was the National Nuclear Center, central office, we have research laborato- How do you assess the current situation stability of legislation in respect of subsoil use and the second one was ours, the National ries, design-construction department, test- for foreign investors, and what are your and taxation in particular is needed. The gov- Center on Complex Processing of Mineral ing and experiential section, which work on future plans? ernment should establish an absolute limit for Raw Material of the Republic of Kazakh- scientific and technology products develop- Today, foreign investors are not as eager to the maximum tax burden for a mining compa- stan. Our center united academic and in- ment as well as branches, which also work work in Kazakhstan as they were a couple ny, which would provide for more assurance dustrial institutes in the sphere of mining on the creation of scientific products. of years ago. Despite the fact that the gov- to investors that regardless of different inter- and mineral processing in Kazakhstan. The ernment is making certain amendments in pretation of tax legislation there will be an Soviet organizations were not working effi- Can you tell us about your portfolio of the legislation to facilitate the work of for- absolute limit above which their investments ciently in terms of industrial application of clients? eign companies, it has also become stricter will not be taxable,” said Sergey Dementyev, scientific developments, and our role was We cooperate with many local companies, in some respects with international inves- audit partner at KPMG Kazakhstan and Cen- to accelerate and improve this situation, such as Samruk-Kazyna, ArcelorMittal tors. By 2020, we are planning to increase tral Asia. Changes like these would signal fur- ensure scientific development, strengthen Temirtau, Kazatomprom, Kazzinc, and for- the share of international sales to 50%. ther improvements to the business climate and scientific and technical potential of the eign companies, such as POSCO, Thys- Today, only 5% to 10% of our sales come help boost investors’ confidence. • country, and, thus, aim for technological senKrupp, Hanwa Co., SMS Siemag, and from abroad. •

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 84 - Industry Explorations Industry Explorations - 85 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports

It is important to have a partner who is Are there any other geographical areas familiar with Kazakh regulations and em- of Kazakhstan that you are focusing on ploying local personnel within a multina- in addition to eastern Kazakhstan? tional company; in these circumstances, In 2015, KazGeotech will continue its joint venturing is the most efficient way of operations in eastern Kazakhstan during providing a service in Kazakhstan. A great August. In the center of Kazakhstan, the example is Air Astana, which is 51% Sam- company will conduct fixed-wing airborne ruk Kazyna, and 49% BAE Systems. surveys for Rio Tinto, and in the south sur- veys are being carried out on behalf of the Which of your technologies are most ap- government. Western Kazakhstan is still to plicable for Kazakhstan and what is the be part of KazGeotech's portfolio; it is a market demand for airborne surveys in known location for minerals. the region? Initially, fixed-wing surveys where big ar- What type of training programs do you eas can be mapped are the most applicable have in place? for Kazakhstan. Once the client identifies KazGeotech's programs are practical; its se- prospective mining areas, the helicopter nior geophysicist teaches interns, who are ZTEM and VTEM surveys can be used. university students and have a basic knowl- Said From a VTEM survey, drilling can be car- edge of electronics/engineering. Interns are ried out; this setup has been successfully carefully chosen; the current two interns are Sultanov used in Africa. Gravity survey is another already operating solo the ZTEM project available service for the oil industry. The and are able to assemble and test the system demand for airborne surveys is growing; before the geophysicist takes over. From good results in identifying mining oppor- September 2015, the company will be train- tunities will stimulate further interest. Cur- ing interpretation geophysicist with the aid Director rently, it is the majors, i.e. Rio Tinto and of software and accompanying instructor KAZGEOTECH Kazzinc, which are benefiting from the sur- from Canada; only qualified geophysicists veys. would be appropriate for this training.

When were your technologies patented What are KazGeotech's plans for the and how long have they been available next five years? globally? KazGeotech plans to increase the mineral Airborne surveys came on-stream in the resources base of the country, train as many Can you please give a brief overview of western world about 20 years ago. In Ka- local people as possible in all its services KazGeotech? zakhstan, these surveys were used in the (field operators, geophysicist, data -inter KazGeotech was presented to President Soviet Union. Technologies have advanced pretation, airborne survey pilots), transfer Nazarbayev on Industrialization Day, 2nd and today airborne surveys afford a better the technology into Kazakhstan and create July 2014, and registered on July 30, 2014. understanding of the geology; ZTEM tech- more local jobs. Equipment was brought into Kazakhstan at nology gives the ability to see up to 2 ki- Over the next five years, with the financial the beginning of September 2014, and the lometers (km) beneath the surface. During assistance of the World Bank, KazGeo- first surveys took place mid-October. Since Soviet times, Kazakhstan was explored on tech's plan is to fly 2.7 million sq. km. of then, projects have been conducted for big the surface, but after a lull in activity during Kazakhstan; this initiative is supported by mining companies in eastern Kazakhstan. the 1990s, exploration has been increasing, Kazakhstan’s government. For 2016, Ka- The technology that KazGeotech uses is especially for airborne surveys. zGeotech plans to create its own aviation patented by Geotech: Z-Tipper Axis Elec- company, bringing in two fixed-wing air- tromagnetic (ZTEM) system; and Versatile What is the cost of an airborne survey craft and two Eurocopter B3s, making it a Time Domain Electromagnetic (VTEM) and how is it calculated? vertically integrated company. Currently, system. KazGeotech has recently intro- The cost of an airborne survey is usually the company has one fixed-wing aircraft duced a fixed-wing aircraft survey for Rio provided per line km. The cost depends on from Geotech, and when using ZTEM and Tinto in Kazakhstan. KazGeotech has been a number factors, such as the size and the VTEM, helicopters are chartered from Sky able to move quickly because of efficient shape of the area, how far the base from Services who has the only Eurocopter B3 management style, less bureaucracy and the area, the type of the aircraft used, etc. in the country. Although we have an excel- the assistance of the Ministry of Investment The cost of the fixed-wing magnetometer/ lent relationship and I would always rec- and Development. spectrometer surveys under “normal” con- ommend Sky Service, we do not want to be ditions is usually in the range of $28 to dependent on someone else when it comes What are the advantages of having a $35 per line km; for VTEM surveys, $150 to providing good quality service to our cli- joint venture with Kazgeology rather – $180 per line km; and for ZTEM, $180 - ents. • than being solo? $210 per line km.

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 86 - Industry Explorations INTERVIEW Global Business Reports Global Business Reports INTERVIEW

What level of interaction do you have consider acquisition. Currently our main fo- Kazakhmys as subcontractors and develop can partners. Parallel to working on various with the mining industry in Kazakhstan cus is trade inspections, geochemical tests Abzal a design for reconstruction of a beneficia- projects with Fluor, we are also working on and which of your services are most in and technological inspections. tion plant in Nurkazgan for processing of creating a corporate center for training of demand? Akhmetzhanov copper ore. our staff. Thanks to the fund created by We operate in business-to-business industry SGS offers conformity-assurance certifi- Fluor we were able to provide several stu- and building long-term relationships with cation for the Belarus-Kazakhstan-Russia KPSP offers EPC services. How would dents with grants. our customers is paramount, therefore in customs union conformity assurance cer- you assess the readiness of Kazakh com- most cases we are partners to our customers, tificate. How has this improved your cli- panies to work with just one contractor? Since 2012, KPSP has been collaborating and this partnership has been built for years. ents’ operations? First Deputy General Director EPC format is an international standard of with the Karaganda Technical Institute We do interact with different companies in The key advantage for our customers obtain- KPSP work in many countries, but Kazakhstan to create a corporate university. How different market segments like geochemical ing such certificates rests with overcoming remains an exception to this rule. Luckily, have your employees benefited from this and metallurgical tests, trade inspections, technical barriers upon trade in Eurasian we are now moving towards it. KPSP be- collaboration? mobile on site laboratories, technological Economic Union (EEU), which includes gan working as the main design contractor Today, we have three groups of special- inspections etc. Speaking of demand, we Kazakhstan, Russia, Belorussia, Kyrgyz- for a glass factory in the Kyzlorda region, ists working at KPSP. The first group is the may say that geochemical tests are in trend, stan and Armenia. The common rules and where we are a part of an EPC consortium. specialists who have very extensive experi- which is attributed to active geological per- requirements practiced on the territory of In order for us to fit within the EPC- for ence and are typically older and approach- formance of local mining companies includ- EEU allow use of these certificates in any mat, we created a construction department ing retirement or have already retired. The ing junior companies funded by foreign en- EEU country without any additional autho- within our company together with SICIM, second group is employees between 20 and Azer terprises. Though in terms of the revenue rization procedure. At the moment, not all as well as a trading house. We see that there 30 years of age, who have little experi- and the bottom line performance the trade requirements for this certification are being is a strong interest on behalf of our client ence. The third group consists of special- Mammadov inspections as well as technological inspec- harmonized but the intensive work is being for EPC services, because they make it a ists between 35 and 45 years, who are very tions are more attractive, as these inspec- conducted to form and set common require- lot more convenient to work. We hope that productive and have extensive experience tions are usually long-term or bigger in vol- ments. Taking into account that Kazakhstan in the next five years we will see more proj- in the industry. Unfortunately, the third ume (bulk shipments). has become a WTO member the technical ects in this format. group is the smallest within KPSP and on requirements of EEU will have to be har- the market as such. The main reason for Managing Director In 2010, SGS forecasted a substantial monized with WTO requirements and once Currently, many mining companies are this phenomenon was the difficult situa- SGS KAZAKHSTAN AND increase of international companies’ in- done, this shall have positive impact on trade looking to decrease their capital expen- tion in Kazakhstan in the 1990s. A simi- CASPIAN SUB-REGION vestment activity in the mining sector in activity of WTO member countries. diture in view of lower metals prices. lar situation can be seen in Russia. This is Kazakhstan. To what extent have these Occupational health and safety presents a What solutions can KPSP offer its client why KPSP began working with Fluor and predictions come true and what is your number of shortcomings in Kazakhstan. base? began collaborating with the Karaganda current expansion strategy here? What can SGS do to increase the overall We continuously work with our clients Technical Institute to train our specialists. Unfortunately we did not witness increased safety of mining employees in the country? to optimize capital expenditures. We are We opened a special class, where our stu- investors’ activity in the mining sector. SGS services related to OHSAS 18001 stan- able to do this through several ways. We dents can practice and increase their level Though exploration budgets from 2010 to dards (we deliver training courses and certi- use construction materials that enable us to of knowledge. Those students who perform 2012 were growing, they have since been fication audits) contribute to make the min- minimize the construction timeline. Sec- best have a chance to eventually come Since 2001, SGS has a structure of 10 declining. At the moment the Kazakhstan ing industry healthier and safer. The purpose How important is the mining industry ondly, we offer various complex solutions. work at KPSP. business segments operating in 10 geo- exploration budget is almost the same as of this standard is to prevent incidents at for KPSP? We are able to run design and construction graphical regions. Can you give us more in 2010. There might be plenty of reasons work; this standard is especially applicable Mining companies are our main clients, and processes in parallel, which also decreases What are your plans for the next five background on this arrangement? for that including different macro environ- to high-risk mining operations. In Kazakh- include Kazakhmys, ArcelorMittal Temir- construction time. Lastly, we work on im- years? This coincides with the vision of the com- mental factors but the most obvious one is stan SGS certified with OHSAS standards tau and other important players. Howev- plementing 3D modeling, which allows us We want to build a solid EPC company to pany i.e. to be the most competitive and most legal and tax issues that foreign investors such companies as JSC Katko, KazTransOil, er, in recent years prices for metals have to get information about the project, which follow industry trends. We want to become productive service in the world. We have think of when entering this geographical re- and others. significantly decreased, and consequently is used in construction and during opera- a mobile and highly qualified organization been building our competitive strengths for gion. Keeping this in mind the government there was a decrease in investments in the tions of the project. using innovative technologies, so that we years and we obtained skills, knowledge and is revisiting the concept of the local Mining What are your plans in Kazakhstan for miming sector. For this reason, regardless can react to our clients’ requests in a fast finance resources to deliver high quality ser- Code which shall now resemble some simi- the next five years? of the fact that we are based in Karaganda Can you tell us about your collaboration and flexible fashion. We want our clients to vices in most industries. The reason why we larities with the Australian mine code. Our plans are to grow and further diversify. in the heart of Kazakhstan’s mining indus- with Fluor and the advantages it pres- understand that KPSP can solve any tasks operate in different segments is attributed to As a company, we have our own mid and We anticipate that the market will pick up try, we are forced to explore other sectors, ents to KPSP’s employees? and overcome any presented challenge. the need of market development with service long-term visions and objectives, which also and simply want to be at right time in right and now we are also involved in the con- There are large companies that have access What is also important is that we want for diversification. Thus we ensure growth of imply the investment of tangible resources place. Our business style, based on partner- struction process of a port in western Ka- to the newest technology and the capacity our company to be a good and interesting the business by being able to deliver a va- to ensure that we deliver the exact types of ship rather than on the client–executor phi- zakhstan. to invest in further development. Share- place for our employees to work. • riety of services to different segments in the solutions for our customer that at the end of losophy coupled with highly skilled profes- holders of KPSP decided to bring the com- market. Geographical expansion is also part the day will add value. When we say tangible sionals in our team allows us to look into the Could you give us an example of a proj- pany to a new level and collaborate with of market penetration and market develop- resources we mean certain capital expendi- future with optimism. • ect you worked on recently? Fluor, a large international engineering ment strategies, hence operating globally tures that we do for our customers in order We are working on developing a project for firm. Fluor was happy to work with us, and allows achieving economies of scale and to facilitate development of a certain stage a tailings storage facility for ArcelorMittal now we are working together on the Ten- business growth especially in emerging and in the project. Our expansion strategy is or- at Vostochnaya facility close to city. gizChevroil project. For us, this is a very developing countries where economic activ- ganic in most cases i.e. we grow by using our We also designed an oxygen station for new format of work and we are very much ity is growing. own experience and knowledge but we may LindeGas at ArcelorMittal. We work with looking to earn the respect of our Ameri-

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 88 - Industry Explorations Industry Explorations - 89 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

In 2015, RJC significantly increased its is used at Polymetal’s deposits in Russia and of safety, good-quality explosives and high- Orica has manufacturing facilities presence in Kazakhstan. What are your Kazakhstan. This system has been imple- ly-trained personnel could bring real value around the world in addition to integrat- plans for further development? mented at 20 mines in Kazakhstan. Also, our to the local market. ed global and local supply chains. What Indeed, in 2015 RJC significantly increased latest developments have attracted the atten- manufacturing activities do you have in its presence in Kazakhstan by strengthen- tion of state organizations in Kazakhstan, How important is Kazakhstan to Orica Kazakhstan? ing the local management team and actively such as Kazgeoinform. on a global scale and can you give us an Orica has two manufacturing plants in Ka- participating in various marketing activi- example of a recent large project you zakhstan. The largest one is located in Ust- ties. We are strongly focused also on im- What companies is RJC cooperating have completed here? Kamenogorsk, Kazakhstan. It produces car- proving quality control, which allowed us with? In comparison with Australia, the Americas tridged explosives, non-electric detonators to win new contracts at the Dolinnoye and We work with many companies in Ka- and some others countries in Europe and and emulsion matrix for bulk explosives. It Bakarchyk deposits. RJC participates in zakhstan and take part in different ten- Africa, Orica in Kazakhstan is still rela- was commissioned in 2002. The second one many regional exhibitions, which allows us ders. Mainly, we work with geological ex- tively small. This is not because demand is located in Ekibastuz city. It was commis- to broaden its network of potential clients. ploration companies, service companies, is low, but rather because the local mining sioned in 2012 based on the demand in that Moreover, we are improving existing tech- drilling companies, and laboratories. RJC sector still tends to favor price over qual- area. It produces emulsion matrix, which is nology. We offer solutions for managing worked with TOO Archey, TOO Corpora- ity and performance. Miners still compare a component for bulk explosives. geological exploration and create data banks tion Vostokpromgeo, TerraKad, Labwork kilogram (kg)-to-kg and unit-to-unit pric- for geological data, which are very popular Mining and others. We are interested in col- es, but not taking the picture of costs and Orica is a member of the Dow Jones among our clients. laboration with private and state companies performance as a whole. However, Orica Sustainability Index, the Australian Andrey and are taking the necessary steps in that di- Julia can deliver a high value to local customers SAM Sustainability Index and the FTS- Can you introduce the AGR system and rection. We are currently in discussions with through our products that reduce the costs E4Good Index. Can you tell us how your Kharlashin tell us about the advantages it offers to Kazgeoinform, a department of the Commit- Yugay for charging, drilling, excavating, etc. Orica approach to sustainability has been ap- mining companies? tee for Subsoil and Geology of the Ministry delivers value by improving safety, deliv- plied in Kazakhstan? AGR 3.0 system is designed to assist min- of Investment and Development. ering cost savings, and enhanced blasting Orica has very high SHEC standards all ing projects in their different stages, during techniques. over the world, including in Kazakhstan. the exploration as well as drilling phases. What are the key challenges that the min- Orica is focused on moving from being a This is not related only to our own plants Director of Geology Country Lead AGR software consists of several programs, ing industry in Kazakhstan is facing? supplier of choice to a true partner with our and service centers, but also applies to how RJC GROUP ORICA KAZAKHSTAN including work with templates, documenta- The mining industry in Kazakhstan faces customers, delivering a range of services we work at customer sites, so our custom- tion, and data management. The design of similar problems as in Russia, including that improve our customers’ overall per- ers can be confident that our people on their this software allows the user to scale data the lack of a reliable state mineral base formance in blasting and deliver optimiza- sites are fully compliant with the highest management systems easily, and add new and qualified talent, as well as unwilling- tion and safety. We are currently working levels of safety and environmental protec- projects, deposits, and mining companies ness among mining companies to use new with AltynAlmas at the Pustinnoe deposit, tion. The use of our explosives is also envi- where necessary; thus, the client has a high- technology. Companies need to invest more where we provide full range of services, ronmentally safe, as well as safe for people tech base for automation and organization into modernization and optimization of pro- including drilling and blasting. In this case who use it. The use of emulsion in compari- of geological data. Application of AGR 3.0 cesses to improve the quality of mining op- the customer does not have to think about son with TNT-based explosives and oth- Can you tell us about RJC and reasons system is a secure method to increase the erations. However, this is a difficult process permits, magazines, routes for delivery of ers significantly improves the ventilation behind the company’s decision to enter effectiveness of mining operations through in an unstable economy. Kazakhstan is also Can you please give us a brief introduc- explosives; the mine gets the whole pack- process, which improves productivity. We Kazakhstan? automatization of collections and process- quite slow in applying new technology when tion to Orica and tell us about the rea- age and pay for the cubic meter of blasted also have more advanced technologies that RJC has been in the market since 2007. To- ing of primary geological data, as well as compared to more developed countries. This sons behind the decision to enter the Ka- rock. Under similar conditions we will soon can reduce environmental impacts, such day, our main activities include geological unification of large volumes of data. More- is related to the high cost of such solutions or zakh market? start working with Kaz Minerals. as electronic detonators, which enable re- exploration and valuation services of hard over, accessibility to his data becomes easier to the fact that there are not enough qualified Orica Kazakhstan was established in 2000. duced vibration. rock deposits. We use modern software to through the Internet. It also allows infor- people to use these technologies. The lack of It was registered in Almaty first in order to Orica is the global leader in commercial process geological data and create 3D mod- mation to flow at a faster pace from site to qualified specialists is more pronounced in apply for all legal permissions and get all explosives and blasting systems and re- What are your plans for the next five els. We also developed our own specialized project directors, which of course increases Kazakhstan than in other countries. approvals for its further activities. Later on, search and development (R&D) is cru- years in Kazakhstan? software for geological exploration called the speed at which executive decisions are in 2002 a branch of Orica-Kazakhstan was cial to your company. Can you give us Our plans for the next five years are to move AGR system. made. Finally, our technology allows us What are your future plans in Kazakh- created in Ust-Kamenogorsk city, where an example of a new technology that has from being a supplier to a partner of choice In 2011, RJC participated in Minex Cen- to avoid mistakes related to human factors stan? the construction of the plant was started lat- been introduced to Kazakhstan? among our existing and new customers; in- tral Asia, where Kazakhmys Exploration and simplifies operations at deposits where We hope the mining industry in Russia and er the same year. In 2012 Orica purchased At Orica, we are committed to continually troduce new technologies to Kazakhstan, approached us about working with them at people work in different languages. AGR Kazakhstan will begin to recover from the Minova, which included its branch in Ka- investing in R&D and constantly looking so that we are not behind other countries; several deposits. This allowed us to enter the 3.0 software can be used to its full potential, current crisis. In the coming year, we are zakhstan. Minova produces anchors and for new ways to enhance our customers’ train and provide support to mining com- Kazakh market. In order to optimize our op- from documentation of geological explora- planning to strengthen our presence in Rus- supporting goods for underground mines, businesses. A couple of recent examples of panies’ personnel in how to improve safety, erations and focus on further development tion data to data management. Today, six sia, Kazakhstan, and other countries. We supplying to Kazakhmys Corporation and technologies newly introduced to Kazakh- fragmentation, and the optimization of their of the local market, we opened a representa- companies are using this system. will keep on improving our AGR system. other underground mines in Kazakhstan. stan include electronic detonators, which blasting; and prove to our existing custom- tive office - TOO RJC Karaganda. Geologi- One of our most ambitious projects is the ac- We saw an opportunity in the Kazakhstan help to form a blast in a completely dif- ers that we are a reliable partner in any min- cal exploration has a great potential and it What clients are using the AGR system in ceptance of our work standards as national market because of the growth of mining ferent manner, equipment for underground ing conditions that they may face. • opens many opportunities for local and in- Kazakhstan? standards of primary geological documen- companies operating in the country. How- charging and blasting; and underground ternational companies. RJC aims to carve its Our software AGR 3.0 is used by corpora- tation in Russia and Kazakhstan, as well as ever, at the time, there were also some con- bulk explosives Subtek, which helps to niche in the sphere of servicing geological tions like Kazzinc, Kazakhmys, and at the the creation of a national bank of geological cerns with the level of safety in the local in- charge up-holes and achieve high results in exploration projects in Kazakhstan. Raigorodok deposit. Moreover, our system data. • dustry. We believed that our high standards effectiveness and safety.

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 90 - Industry Explorations Industry Explorations - 91 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

in Central Asia. There are no local compa- Which of your service offerings are most sion and is known for its strong involve- ers who realize the market and industry Arman nies in Kazakhstan selling software pack- commonly used in Kazakhstan? ment in the management of combined fleet is and has changed, and also in a cost ef- ages similar to MICROMINE; competition AA: MICROMINE exploration and mine systems. The Leica/Jigsaw-based Hexagon fective manner, realize a strategic alliance Anapiyaev & is international. design software is the majority of service Fleet Management System (FMS) is argu- with Hexagon provides access to current offerings used in Kazakhstan; the most di- ably the best system in the world, it is very and emerging technologies. This is what Ablaykhan How important is Kazakhstan to MI- verse software package encompassing ten robust and capable of allowing companies Hexagon/Leica offer. A true partnership, CROMINE on a global level? models which would be of interest to pro- to squeeze the best out of their operations. the world’s best technologies, strong and Shapenov AA: MICROMINE works with more than duction companies and geologists. Then together with our mining planning skilled local support and commercial flexi- 12,000 companies globally. Especially in Where will we find MICROMINE in Ka- capability based on the MineSight plan- bility that allows all Kazakh companies the Kazakhstan, all mining companies use MI- zakhstan's mining market in five years? ning platform and our collision avoidance opportunity to access Hexagon’s research CROMINE's software solutions in their AS: Within the next five years, MICRO- system based on the SafeMine System we and proven capabilities. AA: Business Development Manager production process, for example, subsoil MINE's strategy for Central Asia will be have the combined capability that brings AS: Marketing Specialist and service companies, and companies to extend its service offering to other coun- AB proven capabilities and technologies into What are Leica’s plans for the next five MICROMINE providing local consulting at international tries. MICROMINE has made tentative either standalone applications or an inte- years in Kazakhstan? standards. approaches to Iran via mining exhibitions grated system. AB: Hexagon/Leica have an amazing ca- Can you give a brief introduction to MI- where it received a positive response to its Our vision is to be the first global provid- pability in Kazakhstan and the company’s CROMINE and the rationale behind en- Does MICROMINE have any expansion service offerings. er of mining solutions connecting design, philosophy is to build on our strong capa- tering the Kazakhstan market? plans for Central Asia? planning, measurement and visualization bilities and relationships for mutual suc- AA: MICROMINE was established in 1986 AA: MICROMINE has two types of busi- Do you have a final message about MI- Marina information to make smarter, faster deci- cess. The local Leica office already has in Perth, Western Australia and is a global ness: providing and producing solutions CROMINE? sions, while making the mine site more ef- established and proven strong relationships company with 20 offices, one of which is for mining companies; and consulting by AS: Another important aspect of MICRO- Kochetova, ficient and safer place to work. To achieve with many mining customers, the brand in Kazakhstan, which opened in 2008. It is international standards. In addition to MI- MINE's Kazakhstan office is that it has a this we are offering the most comprehen- and team are highly regarded for their tech- the hub for doing business in Central Asia CROMINE exploration and mine design development department and a part of our Alan Bradford sive range of configurable technologies to nical capability and support, and the exten- covering Kazakhstan, Kyrgyzstan, Uzbeki- software, it also has Geobank, a geological product is developed here in Almaty. The monitor the entire mining value chain in sion into other technologies, based on local stan and Tajikistan. The rationale behind data base management system, and Pitram Kazakhstan office employs local develop- the market. demand is a natural growth pattern. This MK: Managing Director, Leica Geosys- for mining solutions. With input from cli- ers taking part in the development of soft- situation is a unique foundation that many MICROMINE entering Kazakhstan is the tems Kazakhstan region's exceptional resource potential; ents, MICROMINE's solutions are contin- ware recognized all over the world. • AB: Regional Manager Business Develop- Why did you decide to enter Kazakhstan of our competitors fail to match. prior to 2008, distributors carried out work uously being updated. ment Central Asia and how has this market evolved over Over the next five years, Hexagon/Leica LEICA GEOSYSTEMS AND the last 20 years? wants to contribute to the technological HEXAGON MINING DIVISION MK: Leica has been in Kazakhstan for al- advancement of mining in Kazakhstan. tion according to Kazakh standards. Today, Datamine is not flexible enough, and Micro- most 20 years. The business has been very We are prepared to invest and establish Dr. Georgiy GMP represents a group of companies and mine is far better. successful and Leica has kept the number an advanced local technology hub, train- in-cludes GMP Russia, GMP Canada and About two years ago, Leapfrog software one position in the Kazakhstan market for ing capabilities and exchange technical Freiman GMP’s head office in Kazakhstan. In 2014 was introduced, but it is too early to judge the level of service and quality of products knowledge as part of investment back into we opened offices in Can-ada and Russia. its popularity. Around the same time a new that we provide. The reason for entering the partnership process. Leica will also set Also in 2014 we created GeoMineSoft, as Chinese product 3DMine was introduced, Can you introduce Leica Geosystems on the Kazakh market was to grow the busi- up a specialist workshop for the compa- a separate division within the company, which is the cheapest on the market and a global level and tell us how much inter- ness in this strategically important region. ny’s hardware to train and employ people, which develops mining software. could develop a niche. action the company has with the mining Currently Leica is the only company cover- which will also make it more cost effective Often, price is the most important factor that industry? ing the whole cycle of all mining process- for the mines in the region to gain access to On what project can we see GMP’s soft- affects choice of software. Currently, the AB: Leica Geosystems mining is part of the es. Leica is in very close contact with our new technologies. ware in use? most expensive product is Minesight, but recently formed Hexagon Mining Division customers and the company is also taking MK: Leica wants to provide more com- Chairman, Board of Directors In 2015 we began working with Polymetal, because of its high price there is only one a subset of the Hexagon Group. Hexagon is care of its own people by running several plex solutions to our customers as to sim- GEOMINEPROJECT (GMP) which is working on Bakyrchik, the second license currently in use in Kazakhstan. Dat- a €3 billion-plus organization that focuses development projects. Leica also recently plify their work. Kazakhstan is an emerg- largest gold deposit in Kazakhstan. Atlyntau amine and Surpac are much cheaper, while on measurement technologies of all types introduced innovative and revolutionary ing market and thus less prepared for these is another client where we are Micromine is even lower on the price range and part of that concept is the mining divi- new solutions that will optimize and im- complex solutions than other mature mar- integrating our own product, Mine-Vision, but is less functional in terms of modeling sion. The Hexagon Group is founded from prove several processes in mines. Leica ex- kets. Leica’s focus is now to develop our for database management system. We also mining production. a number of different companies and the pects these new solutions to improve our organization as to grow the Kazakh market began working with Kazzinc. MineVision is organization has a prolific capability due customers’ capability through market feed- to understand the value of the software that Could you introduce us to GMP and its a database management system that offers What is GMP’S development strategy for to the individual and combined strength of back the company can only improve more. we can provide. • current projects? centralized storage and management of data. the next five years? these premium companies. Hexagon inte- GMP was created in 2009. Our employees Our main task will be to expand the geog- grates these capabilities with the vision of Are Kazakh companies receptive to the are specialists in geology and mining with What mining software is the most in de- raphy of our projects. We would like to in- end to end capability. Thus, within mining new technologies that Leica/Hexagon a lot of experience in the field as well as mand in Kazakhstan? crease the number of our projects in Canada Hexagon wants and has the capability to have to offer? consulting. GMP focuses on developing Datamine software is very popular in Ka- and Russia. GMP will also continue to de- be involved in projects from exploration to AB: In this region we are seeing a gen- innovative methodologies for resource es- zakhstan and Russia. In some aspects, this velop new software such as GeoSearch and reclamation, a unique situation that none of eration change happening with companies tima-tion, promotion of software products software is less user-friendly, but the min- MineVision. These programs will be trans- our competitors come close to. not being satisfied older technologies and among mining companies, and development ing and engineering parts remain the best. lated into English, and we will be able to use Leica Geosystems Mining is an integral or with the status quo. These companies of our own software for resource estima- However, in terms of resource estimation them outside of Kazakhstan. • part of the larger Hexagon Mining Divi- are led by the strong leaders and manag-

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 92 - Industry Explorations Industry Explorations - 93 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 KAZAKHSTAN MINING, POWER & CHEMICALS 2016 GBR • Industry Explorations • KAZAKHSTAN

A ROUGH ROAD TO DIVERSIFICATION: KAZAKHSTAN'S CHEMICAL INDUSTRY

“Today, the volumes of production of chemicals are fairly low in Kazakhstan. However, we see that the government is actively working on increasing production levels and investing in the sector.”

- Maxat Bekov, Executive Director, Chemie & Technology Image: BASF Central Asia EDITORIAL Global Business Reports Global Business Reports EDITORIAL

KAZAKHSTAN INVESTS IN ITS CHEMICAL SECTOR

A sense of optimism drives market and export our products to Russia,” said finance manager of Kazakhstan’s nascent chemical Linde Gas Kazakhstan, Alexandra Tuzhilina. Other international chemical companies, such as BASF, recognize industry, identified by the state as the sector’s potential, and are looking to capitalize on the country’s strong mining industry in the near future. “Mining will be a new Kazakhstan is continuing to place its bets on a strategic growth sector, but major challenge for BASF in 2016. However, we are already in conve- challenges remain. petrochemicals as the new driver of its economy. Sooner or nient contact with Kaz Minerals for their main projects, Bozshakol later we will have unlimited reserves of feedstock. and Aktogay. Frankly speaking, we are optimistic about the future of the mining sector in Kazakhstan, not withstanding low prices for commodities,” said Verfaillie. Other opportunities may arise as a result of the Kazakh state pro- gram of accelerated industrial and innovative development, which - Saduokhas Meraliyev, calls for the reconstruction of various outdated plants as well as Chairman of the Board, general infrastructure development. These upcoming infrastructure Kazakhstan Petrochemical Industries (KPI) projects will also stimulate domestic consumption of chemicals. “As part of [the second phase of the industrial development pro- gram] some public funds will be put towards the continued con- struction of the shipyard near Aktau. [Italian company] Eni will Known for its colossal oil and gas reserves and abundant hard rock times and does not allow companies to implement effective pro- begin construction of the shipyard, which will allow Evonik the minerals, Kazakhstan is not typically associated with the produc- duction strategies,” said Bekov. opportunity to market its paints and coatings of marine containers tion of chemicals. Beginning in 2014, however, the government More than 80% of the country’s fixed assets for chemical produc- and ships,” said Sarbekov. has been supporting the sector as part of its efforts to diversify the tion are worn out. In order to counteract this weakness, the govern- The third and most recognized problem is the lack of investment. Kazakhstan is home to a unique mineral resource base suitable for country’s economy. An industrialization program drafted in 2014 ment is assisting in the modernization of major chemical plants as The government is hoping to bridge this gap in financing through production of any chemical, boasts low labor costs, and a strategic by the Ministry of Investment and Development identified chemi- well as state-owned refineries in Atyrau, Shymkent, and Pavlodar the special economic zone (SEZ) in southern Kazakhstan, Chemi- geographical position to serve international markets. Both the gov- cals as a key sector for development, and from 2015 to 2019, the to increase chemical production there. Projected investment in re- cal Park Taraz. The park will offer its members ready-made infra- ernment and the industry are working hard to revitalize chemical government plans to invest public funds to support local chemical finery modernization will total 720.9 billion Kazakhstani Tenge by structure, tax breaks and hiring assistance. Two additional zones production, but without the entrance of international giants into the production. “Today, the volumes of production of chemicals are the end of 2019. designated for chemical production are also under construction market, this process will take more time than expected. It is now fairly low in Kazakhstan. However, we see that the government is Related to the problem of outdated equipment is the lack of quali- in Atyrau and Pavlodar. The former will capitalize on proximate time for both local and international players to recognize that the actively working on increasing production levels and investing in fied human resources to operate new equipment. This is due to the sources of feedstock from the Kashagan oil field to produce petro- fruits of Kazakhstan’s industrial wealth have yet to be harvested. • the sector,” said Maxat Bekov, executive director of Almaty-based emigration of trained professionals from the country over recent chemicals for export. “Kazakhstan is continuing to place its bets on chemical distributor Chemie & Technology. decades, as well as a gap in the education of specialists during the petrochemicals as the new driver of its economy. Sooner or later we In the first half of 2014, Kazakhstan’s imports of chemical products 1990s. Yet many of the companies that are established in Kazakh- will have unlimited reserves of feedstock, and after 10 or 15 years, amounted to nearly $1.1 billion, compared to exports of $470 mil- stan are transferring their knowledge to local specialists and stu- KPI and the SEZ will be booming,” said chairman of the board at lion. During this period, the most exported products included yel- dents. “We constantly support local universities, schools and char- Kazakhstan Petrochemical Industries (KPI), Saduokhas Meraliyev. low phosphate, chromium oxide and hydroxide, phosphate fertiliz- ity funds. All our social projects are aimed at helping either the In line with its goal to diversify its national economy, Kazakhstan’s Kazakhstan imported 20,000 tons of hydrogen peroxide ers and other agrochemicals. The majority of production is limited younger generation or elder people to learn more about chemistry, government is keen on developing a range of industries including to base chemicals manufactured by three state-owned refiners in science, improve people’s lives, and develop their skills and knowl- agriculture, mining, and construction, all of which require intensive last year, up by 10% from 2013. This implies strong demand Pavlodar, Atyrau and Shymkent. Other chemical producers include edge,” said country manager of Dow Kazakhstan, Igo Girnyk. use of chemical products. Hydrogen peroxide, for example, is heav- and consequently huge potential. the Aktobe plant producing chromium compounds, the Ulba metal- Forming partnerships with international companies such as Dow ily used by the mining industry. “Kazakhstan imported 20,000 mt lurgical plant, Kaustik, Orica Kazakhstan, the Termirtau Electro- and BASF can also help address the shortage of talent. “BASF in- of hydrogen peroxide last year, up by 10% from 2013. This implies metallurgical Complex, Irtysh Rare Earths Co., KazAzot, KazPhos- vests in its human resources. The level of education is good here, strong demand and consequently huge potential for Evonik. We phate, and Nephtechim. Major chemical factories are strategically but many Kazakh students do not have the opportunity to travel also produce cyanide, which is used by 99% of local gold mining located to provide easy access to the CIS countries, China, and, abroad. BASF is working with key decision makers to help link companies in their processes,” said head of the representative office - Serikzhan Sarbekov, with continuously developing infrastructure, the Middle East. BASF to Kazakhstan and promote technology transfer from Ger- Kazakhstan at Evonik, Serikzhan Sarbekov. Head, Representative Office, Kazakhstan, In a similar vein, German industrial gas manufacturer Linde Gas While Kazakhstan’s rich resource base and proximity to large ex- many,” said managing director and head of country cluster Central Evonik Chimia port markets serve as advantages for becoming a major value-added Asia at BASF, Xavier Verfaillie. came to Kazakhstan because of mining major Arcelor Mittal. chemical producer, several problems arrest the industry’s growth. Bringing foreign companies to Kazakhstan is a priority and the “Linde Gas entered the Kazakh market in 2013 with a big project – The most often cited challenge is outdated equipment. “There are government is holding negotiations with Lanxess, GreenDay, In- an air separation unit (ASU) for Arcelor Mittal’s plant in Termirtau. several obstacles that impede the growth of the sector. First of all, dussGroup, and others to realize some of the pending projects slat- The new ASU is huge, with a capacity of 62,000 normal cubic me- this is obsolete equipment that has been in use since the Soviet ed for the chemical industry. ters per hour. Having such a big plant allows us to serve the Kazakh

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 96 - Industry Explorations Industry Explorations - 97 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

ready completed, along with a rail station refinery began producing polystyrene, a structure.) Local content allows us certain strategic growth sector and plans to invest outside. We have constructed a temporary raw material for terephthalic acid. Once Olzhas preferences when we go for tenders with na- 80 billion tenge to support it. How effec- water pipeline for construction needs, iden- KLPE begins producing ethylene, which tional and oil companies, and currently our tive have the government’s efforts been in tified all long-lead items and completed all can be combined with polystyrene, a final Zhumanov products boast an impressive 70% to 77% of supporting the chemical industry? site preparation work. The project is ready product polyethylene terephthalate can be local content. Corrocoat Caspian is the only The government has identified the chemical to move into an active phase. KPI has a produced, which is very demanded by the high-tech coatings manufacturer in Kazakh- industry as a priority for development and contract with Tengizchevroil for feedstock market. stan. We compete with international compa- created a free economic zone in Taraz. How- supply, as well as various contracts for util- Secondly, Atyrau refinery started to - pro nies such as PPG, Hempel, 3M and Jotun. ever companies are not permitted to pur- ity supply. We are currently selecting EPC duce 130,000 mt of benzene. Benzene is Managing Director Our business is divided into manufacture chase land within these zones. They are gov- contractors and the plant will begin opera- made into ethyl benzene, which is then pro- CORROCOAT CASPIAN and supply of materials, and application. We ernment-owned, meaning that terms need tions in about 42 months. cessed into styrene and polystyrene. Years provide application and repair services for to be renegotiated after a given number of ago, there was a petrochemical plant in Ak- a wide range of companies in different in- years. There are also different types of gov- How developed is the petrochemical clus- tau producing ethyl benzene and later sty- dustries, such as oil and gas, mining, chemi- ernment support programs, and we are trying ter, or National Industrial Technopark? rene and polystyrene. Similarly in Atyrau cals, food and beverage, power, piping and to take advantage of some of them. Corro- KPI is just one participant within the petro- there used to be a polypropylene plant with marine. We supply materials to two types of coat Caspian is part of the government’s in- chemical part. KLPE is the largest member, a small capacity of 40,000 mt. Frankly we companies: end users with their own appli- dustrialization road map for example, which and its expected production is significantly have experience in Kazakhstan in this field. cation units (big oil and pipe companies) and allows us financing preferences. greater than that of KPI, at approximately 1 service companies who work in application However, local manufacturers require other Saduokhas million mt of various types of polyethylene Are you optimistic about the growth of and have been dealing with imported materi- types of support. One of the main concerns per year. A second plant that is already in the sector in the next three to five years? als of our competitors. However, our product among small and medium-sized enterprises Meraliyev operation is Polymer Production, producing Where do you hope KPI will be in this is sophisticated, and we invest significantly (SMEs) is import substitution. We are re- merchandise such as packing materials. A timeframe? in research and development. Globally, our questing that preference be given to local third plant is in early stages. KPI is at ap- In four years, KPI should be a full-fledged main strength is product formula. While the manufacturers to be granted contracts by proximately the same stage as KLPE. production company. If this is the case majority of our coatings are vinyl Ester res- national companies. As a local manufac- there will be only one problem: product ins, some are polyester, acrylic and epoxy- turer I am able to secure contracts from in- Chairman of the Board Will KPI’s plant meet international stan- placement. If KPI successfully launches based materials. All have glass flake fillings, ternational companies that recognize the KAZAKHSTAN dards in terms of safety and quality? operations, with high safety standards and of which Corrocoat is one of the leading Corrocoat name and quality. However, state PETROCHEMICAL INDUSTRIES The plant will certainly meet all interna- appropriate quality, this will be the only manufacturers in the world. These protect companies prefer imports and do not grant (KPI) INC. tional and local standards. We are looking challenge left to overcome. Russia had pro- water molecules from getting to the sur- local SMEs contracts. Corruption is ram- to build a plant with mechanical availabil- duced 700,000 mt of polypropylene and in face, prolonging service life of equipment pant within these institutions, where there ity of 97%. To achieve this target we have addition two years ago launched the same and protecting against corrosion. Equipment is a prevalence of informal schemes that are to be safe and stable. KPI has purchased technologies in Tobolsk with annual capac- coated with our product can remain opera- hard to change. With the help of NGOs such all of its technology from leading vendors ity of 500,000 mt. Six to eight years ago, tional for over 25 years. as the National Chamber of Commerce, we in the United States. We have visited sev- there were no difficulties with product are slowly trying to reform the overarching eral plants across the world including in the placement. Now problems have arisen and Corrocoat Caspian is unique in that it lo- mentality. Government officials as well as Please introduce us to KPI’s develop- United States and China. are getting worse. But Kazakhstan is con- The subsidiary Corrocoat Caspian was cally produces innovative corrosion-resis- state-owned Samruk-Kazyna management ment in Kazakhstan’s National Indus- tinuing to place its bets on petrochemicals established in Kazakhstan in 2012. Please tant coatings in Kazakstan. Why did Cor- are working to resolve them. Given the cur- trial Technopark. Which export markets will KPI primar- as the new driver of our economy. When begin by introducing us to Corrocoat’s rocoat set up production facilities here? rent crisis, the government needs to bolster KPI is a small company located approxi- ily target? Kashagan operations begin, KPI will have presence here. Initially, Corrocoat was interested in launch- local industry. mately 45 kilometers (km) north of the city The main share of KPI’s production will be be able to source feedstock from a distance Corrocoat itself is a large international com- ing solely an application business in Kazakh- of Atyrau, within a special economic zone. exported to Europe. Kazakhstan will con- of only 15 km, given Kashagan’s proximity pany based in Leeds in the United Kingdom stan. However, because of the good market Where do you see Corrocoat Caspian in The company’s main goal is to build a poly- sume about 50,000 mt of polypropylene, to our site. Currently they plan to produce (UK). It is one of the leading engineering potential in Kazakhstan, we made a decision three years? propylene plant with a capacity of 500,000 or 10% of our total production. We will try electricity by burning liquid, but this is and manufacturing companies in coating. to establish a joint venture to create more Our target is to become the number one sup- metric tons (mt) of polypropylene produc- to sell to China as well, but given Kazakh- quite a luxury. Sooner or later, we will have Corrocoat focuses on industrial coating, than just a service facility. We imported the plier of anti-corrosion coating materials in tion per year. Propane feedstock for pro- stan’s large territory, logistics to China are unlimited reserves of feedstock, and, after which protects industrial equipment, tanks, latest technology and set up a manufactur- Kazakhstan in three years. To achieve this duction will be sourced from different oil extremely costly. Another problem is that 10 years or 15 years, KPI and the special reservoirs and pipelines. In 2012, Corrocoat ing facility. While the company is present in firstly we are engaging the government, fields such as Tengiz and delivered to our western China is not heavily populated, economic zone will be booming. • entered the Kazakh market through a joint more than 30 countries, most are application Samruk-Kazyna and the National Chamber site by rail cars. KPI will process propane meaning we would have to ship to southeast venture. The company was launched at the facilities, and materials are delivered from of Commerce to provide us with support as a to obtain propylene and subsequently via China, which is 5,000 km further and would end of 2013, but due to the seasonal nature of the UK. Today, the only countries where local manufacturer. Secondly, we are work- polymerization, produce 500,000 mt of increase transportation costs even more. the business caused by harsh climatic condi- Corrocoat manufacturing takes place are the ing on a case-by-case basis with all of our polypropylene of various types. Two tech- tions in Kazakhstan, operations began in the UK, United States, India and Kazakhstan. clients. Corrocoat Caspian has passed pre- nology licenses have been acquired, and What are some other opportunities for summer of 2014. Corrocoat Caspian has a license for almost qualification tests for all major international feasibility studies are complete. Sinopec the development of the petrochemical Corrocoat Caspian manufactures 16 of the all former Soviet Union countries except companies. Now it is matter of participating engineering group conducted front-end en- cluster? company’s range of 70 coatings. Every for Belarus. We hope to begin business with in tenders and being competitive. • gineering, which has been verified. KPI has There are many ongoing projects in our product is locally certified, demonstrating Russian companies next year. already conducted reconstruction work on country, and Kazakhstan is full of oppor- high local content. (This refers to the per- Karabatan rail station for the company’s tunities and ideas in the context of petro- centage of goods, works and services of Kazakhstan’s Ministry of Investment and future needs. Railroads to our site are al- chemical production. Last week, Atyrau Kazakhstan origin within the overall cost Development has identified chemicals as a

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 98 - Industry Explorations Industry Explorations - 99 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

Serikzhan ing the 1990s there was a gap in educating well as polymers for oil and gas pipelines. chemicals to national companies. Evonik is specialists in industries such as healthcare We are approaching the Ministry of Invest- interested in pursuing opportunities Turk- Sarbekov and mining, for example. Now, there are ments and Development in the context of menistan, and the textile market in Uzbeki- two main groups of specialists in the coun- their development program, given the plan stan, and has also recently become a part try: an older generation that has significant for cross-country specification, diversifi- of the German Economy’s Union in Cen- experience but no exposure to innovation, cation and investment. We are also nego- tral Asia, which we plan to use as another and a new generation with no experience tiating with another player to become the channel to approach the chemical industry but brilliant knowledge of technologies. second alternative supplier of specialty in the region. • Secondly, the geographical location of the country drives transportation costs up. Ka- zakhstan is located beyond all crossroads, and is landlocked, making it quite difficult to reach logistically. Additionally, the gov- Head, Representative Office, ernment is struggling with infrastructure Kazakhstan development. EVONIK CHIMIA Thirdly, local mentality impedes transpar- ency. For instance, it is not easy to cooper- ate with ministries and agencies, as there is a tendency to slow down processes in or- der to secure some personal benefit: these issues with compliance are absolutely un- acceptable. In terms of transparency, there is more clarity in terms of procedures. A few years ago, a law was passed mandat- ing all tenders to be held online in order to increase transparency. Quite a number of amendments have also been accepted to the national law on state purchases, which also helps companies. In general there is a posi- tive trend, and Kazakhstan is more progres- sive than other Central Asian states. Lastly, Kazakhstan is huge country with a relatively limited market in terms of popu- What led Evonik to establish a representative office in Almaty, lation. Major producers look to the Russian given its strong presence and production facilities in Russia? market, with a population of 140 million, Evonik constantly seeks to diversify and expand globally. Our What trends are driving Evonik’s business in Kazakhstan? before looking to Kazakhstan, with a popu- Kazakhstan office belongs to the company’s eastern European di- The Kazakh government has been effective in promoting quite a lation of only 17 million. Thus, all inves- vision, and is officially part of Evonik Russia, known as Evonik number of national programs. For example, we are currently in the tors view the Russian market as having Chimia. The office here in Almaty was established in 2008 and is second stage of the industrial development program of Kazakh- the most potential. As the result of the first responsible for the whole of Central Asia. Until 2012, we primar- stan. As part of this program, some public funds will be put to- phase of the innovative industrial develop- ily focused on agriculture, specifically in food additives, which wards the continued construction of the shipyard near Aktau. One ment program, from 2010 to 2015, the gov- comprised more than 90% of our business in the region. Since year ago an agreement was signed between Italian company Eni ernment has declared that more than 80% 2013, the main objective has been to diversify our activity. At and KazMunayGas, and the former will begin construction of the of projects were successful, attracting sig- present, we are involved in additional industries: agriculture, min- shipyard, which will allow Evonik the opportunity to market its nificant investment, knowledge and - tech ing, oil and gas, paints and coatings, road construction and general paints and coatings of marine containers and ships. Kazakhstan nologies. Personally I doubt the validity of construction. In Uzbekistan, we are also involved in the textile has a significant fleet of 300,000 tons. Secondly, the upcoming this figure, which should be much less. At industry. Expo 2017 is interesting for us in terms of construction. Polymers, the end of the day there is low market de- paints and coatings are to be used in this industry, spurring demand mand and low export capability, along with To what extent is Evonik involved in the mining industry in for our products. Furthermore, the development of the chemical time needed to grow the pool of local spe- Kazakhstan? park in Taraz is also promising for Evonik. The chemical industry cialists. Evonik has a portfolio of mining products, the main one being in Kazakhstan has a lot of potential, especially given that the state hydrogen peroxide. Kazakhstan imported 20,000 metric tons of has funds to develop it. Where do you see Evonik in the next hydrogen peroxide last year, up by 10% from 2013. This implies three to five years? strong demand and consequently huge potential for Evonik. We What are some challenges that will prevent Kazakhstan’s Evonik will continue to be a strong player also produce cyanide, which is used by 99% of local gold mining chemical industry from growing? in mining, agriculture, paints and coatings, companies in their processes. Evonik is a partner of the Associa- Firstly, Kazakhstan has a lack of specialists and obsolete equip- and construction. We have an expansive tion for Mining and Metallurgical Enterprises in Kazakhstan. ment. Many local specialists migrated to other countries, and dur- product line for oil and gas extraction as

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 100 - Industry Explorations Industry Explorations - 101 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

However, we do see that the government ucts at a very competitive price in Kazakh- VR: So far Linde Gas Kazakhstan is not network which serve a number of custom- is actively working on increasing produc- stan. Apart from distribution of internation- present in the local chemical sector. Most ers located within the same industrial clus- tion levels and investment in the sector. al producers, we also export products from of our customers are in the fields of manu- ter or geography. There are several obstacles that impede local producers. We export drilling fluids to facturing, machinery and metallurgy, and AT: Arcelor Mittal’s ASUs were relatively the growth of the sector. First of all, this is Kyrgyzstan and Tajikistan. we are currently making our entrance in old, which is why Linde was contracted

obsolete equipment, which has been in use We pay very close attention to quality AT the food sector. Though the chemical in- to work on the project. Many companies since the Soviet times, and which does not when working with our suppliers. This is dustry is not quite developed in Kazakh- continue to use air separation units dat- allow companies to implement effective the main priority for our company, because stan, we observe potential in this area. We ing back to Soviet times that need to be production strategies. Fortunately, many our clients deserve only the best products are open for interesting projects and we are modernized. Within the chemical sector, companies have already started to modern- of the highest quality. We often receive of- ready to contribute to the development of however, we do not see a huge interest in ize their equipment. The second problem is fers from producers from different coun- the Kazakh chemical sector. committing to these modernization efforts finding the right staff. It is very difficult to tries and we always conduct very exten- yet. This is largely an issue of mentality, as find qualified staff in the chemical sector, sive research and check their methods of VR How have you seen demand evolve for local customers are not ready for outsourc- therefore training is of key importance for production and test the quality of the final Linde Gas’ products in Kazakhstan? ing; they prefer to operate their own ASUs. our industry. Our company invests a lot in product, and only after we have done all of AT: Since Linde Gas entered the Kazakh different training for our employees. these steps can we begin to work together. market, it has showed stable growth, which How has the recent devaluation of the We are also very careful when we choose we expect to increase in the future as well. tenge affected Linde Gas Kazakhstan’s How important is the mining industry the product itself; we try to choose innova- VR: We definitely see future demand in the business? Maxat for Chemie & Technology? tive products, which are not yet represented Alexandra chemical industry. It is usually challenging AT: Considering we have export markets The mining industry is one of the most on the local market and can be useful for to enter a new market, but, thanks to our as well, we hope that the devaluation will Bekov important sectors for Chemie & Technol- local industry. Tuzhilina & high-quality products and innovative tech- bring good developments. Firstly, our ogy. Currently, our mining clients represent nologies, we will gain the chemical indus- market is now competitive with Russia 35% of our total volume of orders. Our cli- Many mineral deposits in Kazakhstan Veronica Rozhko try’s confidence. again, meaning that our local consumers ents are companies such as Kazakhmys and are located in remote areas and are very will shift from Russian products to local Kaz Minerals. We also closely work with difficult to access. How does infrastruc- As an international company, are there products. This is beneficial, because some Executive Director AT: Finance Manager uranium mining companies. Our products ture or the lack thereof affect your op- specific safety regulations that you have of our customers were buying products VR: Sales Specialist CHEMIE & TECHNOLOGY erations? to follow which are different from those are used at all stages of mining from ex- LINDE GAS KAZAKHSTAN LLP from Russia. We also expect more activi- traction to beneficiation and mineral - pro Underdeveloped infrastructure certainly of local companies? ties from export-oriented local producers. cessing. Mainly, we offer mining compa- poses several challenges for us, and main- AT: There is a certainly tremendous dif- nies acids and drill fluids. Also, we offer ly affects the time of delivery. In turn, this ference between international and local Who does Linde Gas Kazakhstan com- our clients technical solutions, which allow can have a negative effect on operations of standards for everything from transporting pete against here? them to save up to 30% during drilling pro- the mining companies we work with. We liquids, to employees and documentation. VR: We consider ourselves to be the mar- cess. Thus, we do not just offer chemicals always try to work efficiently, process all Linde Gas Kazakhstan adheres to the same ket leader here. Our production unit is to our clients, but allow them to make use orders in record times, and minimize lead standards that The Linde Group mandates modern, efficient, and safe, and we are of our complex solutions. times. Because the cost of our products in- all over the world or the local standards in very competitive. Our main competitors Can you introduce Chemie & Technol- cludes delivery costs, we make sure that we Please introduce us to Linde Gas Ka- case the local standard is higher. Small lo- are in Russia, because locals prefer low- ogy to our readers? Last year, Chemie & Technology took deliver the product in a very short time. Be- zakhstan. What are some important his- cal players on the other hand, are not as priced products. It is much cheaper to de- Chemie & Technology was founded five part in the Mining Week exhibition in sides that, we are also responsible for the torical milestones since the company’s committed to follow safety protocols. liver products from Russia to western Ka- years ago in Almaty, where we have our Karaganda. What products did you ex- quality of the products that we deliver and establishment here in 2009 that have zakhstan, than from our plant in Temirtau. main office and warehouse. Currently, hibit there? we do everything to ease our clients’ work. shaped Linde Gas’ presence today? What are some challenges that impede there are 25 people working for the com- Chemie & Technology is a distributor of a AT: Linde Gas entered the Kazakh market Linde Gas’ performance here in Ka- What new markets is Linde looking to pany. We provide chemical products from German brand ESCO, and we often exhibit What are your plans for strategic devel- in 2013 with a big project – an air separa- zakhstan? enter? world-famous manufacturers to our clients. its products at different exhibitions. Also, opment in the next five years? tion unit (ASU) for Arcelor Mittal’s plant VR: The big challenge for us is to compete VR: Linde is trying to enter Turkmenistan At every stage of this process we carefully we showcased a unique cleaning product Chemie & Technology will continue to in Temirtau. New ASU is huge: its ca- with old ASUs which are still operating in this year and is looking into Tajikistan and monitor the quality of the products, and Glanz. We are the only company in Ka- develop and expand the geography of its pacity is 62,000 normal cubic meters per many industries. Many of them have to be Uzbekistan. technology used for their production, and zakhstan that has the rights for distribution clients. We plan to increase the number of hour. Having such a big plant allows us to replaced by new ones due to safety, tech- if we notice any inconsistencies we make of this product, which is ideal for removing representative offices across the country to serve the Kazakh market and export our nical and economic reasons. Unfortunately Where do you see Linde Gas Kazakh- sure to correct those. We strive to constant- rust from metal surfaces and is therefore an be closer to our clients. We will also look products to Russia. Also we continue to we are observing today that many custom- stan in the next three to five years? ly improve the quality of the products that ideal solution for mining, chemical and oil into providing more products for the min- develop our sales offering in Kazakhstan: ers are reluctant to make changes in this VR: We are going to develop our exports, we supply and the services that we offer to and gas industries. This product can also ing and other industries. We hope to in- Linde Gas brings an ultimate quality ad- area, especially due to large investments perhaps to Siberia, because Linde is not our clients. We also want to help develop be used to clean the insides of pipes and crease the number of products that we offer vantage to the local market by producing concerns. In order to accommodate this, present there yet. This would be appropri- the chemical industry in Kazakhstan as a boilers. and clients that we serve. • high purity gases while having high safety Linde offers his customer supply contracts ate geographically, given that the proxim- whole. standards. that do not require any investment efforts ity of our plant in Temirtau to Siberia. What international brands do you rep- from their side. Linde builds and operates AT: Linde is also considering entering the How do you rate the current state of the resent on the market? Linde Gas’ products are used in a di- gas production units on-site, meaning that cylinders business. Next year, we plan to chemical industry in Kazakhstan? We work a lot with producers from Rus- verse range of applications, in almost all the production plant is placed at or next to launch the specialty gases sales. We have Today, the volumes of production of chem- sia and China. This year we began working industries. How important is the chemi- an individual customer or several produc- extensive plans for the future. • ical products are fairly low in Kazakhstan. with Belarus. We can distribute these prod- cal industry to your business? tion plants may be connected to a pipeline

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 102 - Industry Explorations Industry Explorations - 103 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports Global Business Reports INTERVIEW

Three years ago, BASF began developing BASF, with some other international com- portunity. In 2010, 3M opened a subsidiary infrastructure, 3M works mainly in elec- its activities in polyurethanes, gas treat- panies, has regular meetings with the min- Andrey here, which was very timely and helped us tricity and coating. 3M is currently work- ment, and more recently in mining and istries in order to discuss how to improve increase our presence in the Kazakh market ing on some projects in Pavlodar, offering paints for the decorative and automotive the investment climate, and they do listen Lymar after the crisis of 2008. We strengthened interesting solution such as ACCR. ACCR industries. Currently, we are focusing on to us. Despite some issues, it is easy to our mining and marketing teams and pre- conductors in general double the capacity regional market development and the im- come to Kazakhstan and do business and pared good education projects for the min- of an electricity line in very short time. plementation of a new established country I strongly believe in the country. Kazakh- ing sector. Today, our staff of 30 focuses on concept, which outlines a strategy to triple stan is ranked 137 in the world with regards the infrastructure and mining sectors. Which segments are most attractive for the company’s turnover in Kazakhstan by to ease of doing business. The question is 3M at present? 2020. Within the strategy, we are concen- about the government’s focus for the next Which of 3M’s product lines is most rep- While 3M is doing quite well in mining, trating on four main industries: oil and gas, few years. Will it be Europe, Russia or resented in Kazakhstan? it is dedicated resources to the oil and gas construction, agriculture, and mining. Geo- China? It is likely to be China, meaning General Director 3M products and technologies are improv- sector, which has many untapped opportu- graphically, we are targeting and expand- we may encounter some difficulties. The 3M KAZAKHSTAN ing lives all around us. 3M is the respirator nities. A number of educational programs ing our presence in Astana in order to be resonance and acceptance of products from that allows miners and welders to breathe have also been launched, including a fo- alongside our main customers and decision China in Kazakhstan is better than in Eu- easier; the reflective road sign that shines rum for drilling engineers that 3M hosted makers. Also, we are developing our pres- rope. This is because imports from Europe bright even on the darkest of nights, guid- in Aktau a few months ago and shared our ence Atyrau to cover the oil and gas indus- are taxed at 12% VAT, while agreements ing us safely home; the local anesthetics solutions to improve well productivity. We try. Presently, our company has close con- between Kazakhstan and Russia enable de- 3M has been present in Kazakhstan for that takes away our pain and discomfort in are committed to driving more education Xavier tact with the main oil and gas customers in livery at 0% VAT. over twenty years. How has the company a dentist’s chair. programs for our clients and the industry order to expand our fruitful partnership and evolved over this time? In Kazakhstan, mining, oil and gas, and in- at large. Verfaillie the sale of our gas treatment products, oil What is BASF’s double-digit growth At 3M, we apply science in collaborative frastructure comprise the majority of 3M’s additives, and catalysts. strategy in Kazakhstan? ways to improve lives daily. 3M estab- business. Our mining business is success- What are 3M’s goals for the next three to First, BASF invests in its human resourc- lished the first representative office in -Ka ful because of our personal safety solutions five years in Kazakhstan? Given low commodity prices, are you op- es. The level of education is good here, zakhstan in 1995. The Kazakh market is such as respirators and helmets. 3M bought 3M has ambitious growth targets and many timistic that the mining sector will drive but many Kazakh students do not have very interesting for us because of the coun- Capital Safety and now offers fall protec- plans to drive presence in Kazakhstan. We Managing Director BASF’s growth? the opportunity to travel abroad. BASF is try’s mining and oil and gas sectors. It is a tion solutions demanded by both the con- are optimistic and project double-digit BASF CENTRAL ASIA Mining will be a new challenge for BASF working with the key decision makers to promising country with a great deal of op- struction and oil and gas sectors. Within growth next year. • in 2016. However, we are already in con- help link BASF to Kazakhstan and pro- stant contact with KAZ Minerals and their mote technology transfer from Germany. main projects: Bozshakol and Aktogay. We Secondly, we work to emphasize the qual- are optimistic about the future of the min- ity and sustainability of our product. With ing sector, notwithstanding low prices for Expo 2017 just around the corner, BASF tions in chemistry. With a local presence in Besides membranes and ion exchange commodities, which will change. hopes to be involved with the wind energy. Igor Kazakhstan, we see significant opportuni- technologies, Dow also provides a power- BASF is adapted to up and downturns; it ties to match our technologies to specific ful portfolio of chemicals and solutions to BASF has had a presence in Central Asia is a diversified company with over 220,000 Are there any specific goals BASF would Girnyk market needs as Kazakhstan pursues its address mine water management, including for over twenty years. How has BASF products in its portfolio. In Kazakhstan, like to achieve within the next three to stated goal of becoming one of the world’s tailings and waste treatment, slurry man- evolved in Kazakhstan? our company is positioned as a leader in the five years? top ten oil and gas producers and export- agement, dust control, grinding and mill- BASF was established as a representative construction industry. We also see potential Our main goal is to create brand awareness ers. We view this as a very exciting time ing, flotation and hydrometallurgy, focused office in Kazakhstan in 1992 and was pre- for sales in the agriculture industry, which around BASF’s high quality and technol- for both Dow and the Kazakhstan oil and on maximizing metal recovery utilizing se- sented with crop protection, polystyrol, has room for development. ogy. We do not want to be only known for gas industry as it takes critical steps toward lect chemistries and polymer additives. pharmaceutical, polyurethane systems di- our involvement in construction. BASF global leadership, including development Can you give us an overview of the kinds visions and fine chemistry. In 2005, “De- BASF is one of the few foreign chemical boasts a range of many other products that Country Manager of the Kashagan oil and gas field in the gussa Construction Chemical Company” companies that has production facilities we would like to make visible in the mar- DOW KAZAKHSTAN Caspian Sea, renovation of its three refin- of products that you offer to the mining with trademark “USTA” joined BASF and in Kazakhstan. Are there enough incen- ket. In the next four years, we have many eries, and ongoing expansion of its internal industry in Kazakhstan? became one of the important divisions in tives for foreign companies to begin pro- projects in the oil and gas, pipeline, auto- and export pipeline network. It is important Dow has a long heritage of helping custom- Central Asia. ducing locally? motive, catalysts, mining and crop-protec- to mention that we do not frame our busi- ers extract value from their mining assets, Today the company’s head office and the Investing in Kazakhstan is not easy due tion industries. If everything goes accord- ness within the oil and gas industry only, as with a broad spectrum of solutions that construction chemical production plant are to the local conditions and the size of the ingly, BASF may localize production of Dow offers various products for practically address production, processing and recla- located in Almaty. In addition, the city acts country. The infrastructure is not devel- paint in Kazakhstan. We have a great deal all industries and applications that exist in mation challenges. Our offerings include as a hub for Central Asia countries includ- oped enough for foreign companies to start of plans to be fulfilled within the next few What was behind the decision to enter Kazakhstan. For example, we work closely best-in-class ultrafiltration membranes, ion ing Kyrgyzstan, Uzbekistan, Tajikistan, operating across the country. There are still years and despite the devaluation and diffi- the Kazakh market and how important with the customers from mining industry, exchange resins, polymers and reagents for and Turkmenistan. In Kazakhstan, BASF a shortage of warehouses, railway stations, cult economic environment, BASF is con- is the country to Dow on a global scale? construction and infrastructure, as well as metal recovery as well as the full spectrum has two other offices in Astana and Atyrau. and highways, making it difficult to store tinuing to experience double-digit growth. Dow has been working with customers in agro business and plastics. Moreover, our of water treatment applications and dust Our wide distribution network, proven reli- and deliver goods to customers. To solve Hence, I am confident that we will achieve Kazakhstan for the past 17 years. In 2012 presence here in Astana helps us a lot to ad- control management; mineral processing ability in manufacturing high-quality ma- this problem, Kazakhstan has to be well our 2020 goal. • we announced the establishment of a repre- dress customers’ needs timely and follow polymers used to disperse and stabilize terials, and high-level of service position connected, after which it will be much eas- sentative office in Astana to expand our lo- the market trends, so that we can offer the high-solids mineral slurries; metal extrac- us strongly among competitors in Central ier for foreign companies to locate produc- cal presence and level of regional customer best solutions to our existing and potential tion additives to froth flotation and hydro- Asia. tion here. support to supplement our global innova- customers. metallurgy in precious or rare metals. •

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 104 - Industry Explorations Industry Explorations - 105 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 KAZAKHSTAN MINING, POWER & CHEMICALS 2016 GBR • Industry Explorations • KAZAKHSTAN

INTO THE FUTURE

“For a long time, it was not considered prestigious to work in the mining industry, which is why today there is a serious lack of specialists in this sector. The government understands how crucial it is to develop talent across many spheres, mining, processing and services. We are working hard to change the perception of the mining industry in Kazakhstan; we aim to show Kazakhs that working for a mining company is a prestigious career.”

- Nikolay Radostovets, Chairman, Association of Mining and Metallurgical Enterprises (AGMP) Image: Lubo Novak EDITORIAL Global Business Reports Global Business Reports EDITORIAL

mittee of Industrial Safety along with its regional subdivision be- THE WAY FORWARD FOR KAZAKHSTAN longing to the Ministry of Investment and Development.” Mining and industrial safety have been problems in the past, but Kazakhstan seeks to change this approach, as the industry has In 2012, we identified a five-year program to decrease the AND THE GLOBAL MINING INDUSTRY been both privatized and welcomes private capital from abroad. number of accidents at our facilities. Every year, we invest This provides yet another sign of a positive transformation. A number of issues are affecting mining companies, ranging from low significant amount of money to support this cause. This commodity prices to mining safety to finding well-trained personnel. How Finding Talent money is invested into modernizing industrial processes, Kazakhstan addresses these will shape the future of its creating safe conditions, purchasing of the most innovative Globally, mining companies are experiencing a lack of qualified personal protective gear, etc. Our goal is to improve all the mining industry. personnel, and the same can be said of Kazakhstan. One thing that indicators of industrial safety. is clear is that various incentives and schemes must be implement- ed to encourage young people to study geology. “For a long time, it was not considered prestigious to work in the mining industry, - Bakhtiyar Krykpyshev, Mining Safety cidents at our facilities. Every year, we invest significant amount which is why today there is a serious lack of specialists in this General Director, of money to support this cause. This money is invested into mod- sector. The government understands how crucial it is to develop Kazakhmys Corp. Mining safety is a problematic area for Kazakhstan, which in the ernizing industrial processes, creating safe conditions, purchasing talent across many spheres - mining, processing and services. We past has had a poor record with health and safety in the mining of the most innovative personal protective gear, etc. Our goal is to are working hard to change the perception of the mining industry sector, especially coal. As previously mentioned, the mining sec- improve all the indicators of industrial safety. We strive to achieve in Kazakhstan; we aim to show Kazakhs that working for a mining tor in Kazakhstan is labor-intensive, which increases the chances zero fatal accidents and reduce work accidents by 40%. We are company is a prestigious career,” said Nikolay Radostovets, chair- of workers getting injured. Kazzinc Holdings is one important improving our medical help standards as well,” said Bakhtiyar man of the Association of Mining and Metallurgical Enterprises player that has been strongly committed to improving workers’ Krykpyshev, general director of Kazakhmys Corp. (AGMP). One company with a long history in Kazakhstan and focused safety at its facilities. “SafeWork is a corporate program that has It is not only the local producers that are apprehensive about “We certainly see a problem with finding the right talent, and in- around Ridder, a mono-city, is Kazzincmash. It is not an easy task been rolled out over the last two years in all of Glencore’s assets. mining safety, but increasingly foreign companies with various deed within the Exploration and Mining Works Program 2015- to bring in specialists from out of town, which is why training Historically, these assets have had their own safety policies, and specializations have voiced their concerns. “Arguably, the Soviet 2019, we emphasized the importance of staff issues, training, at- them locally is indeed very necessary. “There are many fami- the SafeWork program is designed to unify safety policy in all influence has installed the thought process that unless rules and tracting young people to work in mining, improving the image of lies where people have been working at our production plant for aspects of the job, i.e. working at heights, electrical installations, regulations are imposed by the government they have no impor- mining professions and increasing the competitive advantage of generations, and we highly support this tradition. We are always with moving objects, etc. Any work fatalities at Kazzinc's opera- tance. Government could be doing a lot more. It is still up to the Kazakhstan on the international arena for engineering talent. In happy to see our employees bring their children and grandchil- tions will be brought to the attention of its entire workforce to individual companies to educate and train personnel to be health this regard, we work closely with the Ministry of Education and dren to the factory. Thanks to the continuous modernization of improve training and prevent accidents from occurring again. The and safety-conscious in the work place,” said George Apostolo- Science of the Republic of Kazakhstan. In the new school year, the our equipment and the technology that we use, we can offer more observation of the SafeWork policy is continuously monitored poulos, general manager of Atlas Copco Central Asia. ministry will start new master’s programs in the fields of geology, interesting positions to our employees,” said Alexandr Anchugin, by Kazzinc and on-the-job safety training is constant,” explained Geomark, a company from Karaganda, has a specific attention hydrogeology and geophysics. We always try to attract students director of Kazzincmash. Nick Popovic, chairman of the board of directors of Kazzinc to industrial safety on mine sites. Rustam Khodzhaev, director of from mono-cities to these programs because they will be the ones Finding qualified personnel has been an ongoing problem for min- Holdings. Geomark, said: “The government has been controlling industrial who will come back to the mining towns and continue to work in ing companies globally and Kazakhstan has been no exception, Despite a poor historical record, companies operating in Kazakh- safety since our independence. The main piece of legislation that the industry. Also in 2015, 60 specialists from Kazgeology will go but as a new generation is entering the sector, their skills are more stan have come to adopt a zero tolerance approach to worker inju- is promoting these requirements is the Law on Civil Protection. through a training process at Rio Tinto, 10 employees will train in line with international standards. With further training being ries and fatalities commonly found in Western countries. “In 2012, Until recently, the Ministry of Emergency Situations was dealing with Geotech, and 16 employees will train with Iluka Resources,” provided, Kazakh companies and universities are addressing the we identified a five-year program to decrease the number of -ac with issues associated with industrial safety. Now it is the Com- said Albert Rau, vice minister of Investment and Development. issue head-on. •

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 108 - Industry Explorations Industry Explorations - 109 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 INTERVIEW Global Business Reports

A large number of the world’s mining There is a general recognition that there companies are listed in Toronto. Canada is are certain skill sets that the county needs world renowned for its mining sector and to import, as it does not have the expertise the country has a great reputation for min- yet. This challenge still exists to some de- ing technology and finance as a result. Like gree in the oil industry though significant all mining companies, Canadian miners are progress has been made there given the always looking for new reserves and op- size of investment that has already been portunities to grow their businesses. Un- made by the multinationals. In terms of the til recently, Kazakhstan was an unknown government’s efforts in developing local commodity to many mining companies content, a similar effort needs to be made as the legislative conditions required for by foreign mining companies. The law on large-scale investment were not present. local content is very complicated and, in This is changing and the new mining laws many instances, misunderstood and im- expected in late 2015 or early 2016 should properly applied. provide some comfort to potential inves- Infrastructure also poses a challenge for the tors in the sector. Conventions like PDAC mining industry, as typically the projects certainly helped to open up Kazakhstan to are located in remote areas with minimal Canadian mining companies by educating access to transport routes. Transport infra- Terrance companies about the potential. structure will have to catch up as will social infrastructure if you assume the growth in Powell Rio Tinto, along with Kazgeology, re- workforces, both foreign and national, that cently invested $6 million into the ex- is needed to exploit any deposits discov- ploration of copper in Karaganda. What ered. The education system and current other steps should the government take industry have their flaws but if investment to encourage similar deals? in the people and institutions are made you Almaty Advisory Board Chairman Exploration is always the first and most im- will see significant results as the Kazakh CANADA EURASIA RUSSIA portant step in any successful venture in the people are only waiting for the opportunity BUSINESS ASSOCIATION extractive industry. Many of the country’s to show their talents. (CERBA) assets were identified in the Soviet days but there is significant interest in and need for There is a significant amount of Cana- new discoveries. Kazakhstan needs inter- dian service providers in Kazakhstan. national mining companies with more up How do these companies enter the coun- to date technologies on hand to accomplish try, operate here and what is the climate this goal. The government needs two things for them? to happen if it wants to catch the interna- CERBA tries to support both Canadian and Can you give a brief introduction to tional mining industry’s attention. One is Kazakh companies in their cross border the Canada Eurasia Russia Business that they need to see that new discoveries business activities. The best thing we can Association (CERBA) in Kazakhstan? being made. The second is a handful of test do is to promote dialogue between compa- The Canada Eurasia Russia Business As- cases for the new legislation that shows the nies that are already doing business in Ka- sociation (CERBA) has a large presence rule of law and sanctity of contract. Once zakhstan and/or Canada. Once the lines of in Moscow and in 2011 it was decided to these two events are married together we communication are open we have accom- bring Kazakhstan in as a new chapter. Be- will see an increase in companies looking plished our mission and look ahead to the ing relatively young and taking into con- to invest in Kazakhstan’s mining sector. next opportunity for us. sideration the smaller Canadian business community here, CERBA in Kazakhstan Kazakhstan is looking to upgrade its How do you see CERBA’s role devel- still has a smaller presence than in Russia mining code. What changes will this oping in Kazakhstan over the next five or its sister chapters in Canada but we are bring? years? seeing growth in our membership. As we Again, the legislation has not been ap- In Moscow, half to two thirds of CERBA’s all know, Kazakhstan has a significant oil proved and signed into law as yet so we members are Canadian companies. In five and gas reputation as well as mining and are still in the waiting phase. However, in years, CERBA Kazakhstan will see the agriculture potential which is spread out preparation for its enactment, we are see- reverse, with more Kazakh companies as across the country. ing more interest in the country’s potential members than Canadian companies. That with people coming to town for prelimi- said, we could see a substantial increase in In March, CERBA participated in the nary discussions. Canadian interest, if the mining industry in annual PDAC mining convention in To- Kazakhstan grows as we hope that it will. • ronto. Have these conventions had an What are some of the major challenges impact on the number of Canadian min- that foreign investors will face in Ka- ing companies coming to Kazakhstan? zakhstan?

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 110 - Industry Explorations Global Business Reports Global Business Reports FINAL THOUGHTS

“Nowadays, the Kazakh government realizes that prospecting and exploration should be a joint effort between private companies and the state. We can see that the Kazakh government is heading in the “American Appraisal sees great potential in Kazakhstan, which it will be actively working to develop; right direction today by preparing and implementing more liberal mining and exploration legislation it is confident that Kazakhstan will become a very business friendly country, and its future looks very for Kazakhstan, allocating funds to invest in risky early-stage project development, prospecting/ positive. New mining legislation is expected to bring in more investors in this sector, but other sectors exploration, and establishing state companies that can facilitate exploration and mining activities on are set to grow alongside it, bringing jobs and further investment to Kazakhstan.” behalf of the government.

- Yerlan Yeszhanov, General Director, - Adil Aissautov, Technical Director, American Appraisal WorleyParsons

“Given the current situation, it is important to note that we are not planning on reducing the output “With a local presence in Kazakhstan, we see significant opportunities to match our technologies to or downsizing. Despite the negative outlook for demand for iron ore materials, we're planning to specific market needs, as Kazakhstan pursues its stated goal of becoming one of the world’s top ten oil maintain production to 32 million metric tons. At the same time, we're planning to increase ferroalloys, and gas producers and exporters. We view this as a very exciting time for both Dow and the Kazakhstan aluminium and Shubarkol coal output.” oil and gas industry, as it takes critical steps toward global leadership, including the development of the Kashagan oil and gas field in the Caspian Sea, the renovation of its three refineries, and the ongoing - Azamat Bektybayev, Vice President, Production, expansion of its internal and export pipeline network. Eurasian Resources Group (ERG)

- Igor Girnyk, Country Manager, Dow Kazakhstan

“We support the change of the system to international JORC. This change should have happened a long time ago. It is a difficult process, and we hope that the results will become visible soon. In December 2014, Kazakhstan accepted an analog of the Russian code for auditing NAEN, ‘Kazakhstan CRIRSCO’. “One cannot discount the natural attributes that Kazakhstan has for renewable projects. A large number The accepted code is an adapted version of JORC, which allows public audit as well as GKZ reports, of foreign investors are also looking at solar and wind and are significantly interested in developing the but under the condition that GKZ reports have priority. Of course, this system would simplify work sector. The new incentive laws passed in 2014 theoretically make it possible to access an interesting for a lot of companies, but at the same time we do hope that JORC is still going to enter the systems return via tax reliefs from some of these renewables projects, but we have yet to see much of the like. of mining companies in Kazakhstan very soon. Having two standards is excessive and complicates the The state has made efforts to make these projects more attractive but more is needed; there is a lot of understanding of the resource base among investors.” interest but extremely limited execution.”

- Georgiy Freiman, Chairman, Board of Directors, - Anthony Nicholas Mahon, Partner, Tax & Legal, GeoMineProject (GMP) Deloitte

“As of today, there are many greenfield exploration projects in Kazakhstan being developed by both “Kazakhstan is one of the most important emerging markets to western institutions where there is local companies and joint ventures, although exploration budgets have been reduced in the last few major appetite for government-supported projects. Having said that, we seized the opportunity and years, mirroring the global economic crisis. Still, the government is encouraging exploration to discover have gathered all components in order to be able to execute our projects. Therefore, KB Enterprises has new deposits and increase the mineral resource inventory of the country. To this end, a few joint signed an agreement with Siemens as an EPC contractor exclusively, in addition to securing the finance ventures with foreign investors were established to undertake geological prospecting and exploration in towards the project.” Kazakhstan, and WAI is extensively involved in one of these projects.”

- Taylan Karamanli, Managing Director, - Ruslan Sevostyanov, General Director, KB Enterprises Wardell Armstrong

“There are still many exploration and development blocks to be licensed in Kazakhstan. The “3M established the first representative office here in Kazakhstan in 1995.The Kazakh market is very government invests in the infrastructure to facilitate private investments. The challenge is that the interesting for us because of the country’s mining and oil and gas sectors. It is a very promising country, mining sector currently faces some barriers and regulatory restraints. Investors want clarity and to be and there is a great deal of opportunity here.” secured in their investment.”

- Andrey Lymar, General Director, - Galymzhan Tajiyakov, Director, Project Finance Group, 3M Kazakhstan" Eurasian Development Bank

KAZAKHSTAN MINING, POWER & CHEMICALS 2016 - 112 - Industry Explorations Industry Explorations - 113 - COMPANY INDEX Global Business Reports Global Business Reports CREDITS

GOVERNMENT AND ASSOCIATIONS PAGES ASSOCIATION OF MINING AND METALLURGICAL ENTERPRISES (AGMP) 18, 50, 107, 109, 115 CANADA EURASIA RUSSIA BUSINESS ASSOCIATION (CERBA) 14, 110, 115 GOVERNMENT OF KARAGANDA REGION 38, 57, 60, 115 MINISTRY OF ENERGY, REPUBLIC OF KAZAKHSTAN 11, 23, 26 MINISTRY OF INVESTMENT AND DEVELOPMENT, REPUBLIC OF KAZAKHSTAN 7, 10, 15, 18, 43, 44, 58, 86, 90, 96, 99, 101, 108, 115 EDITORIAL AND MANAGEMENT TEAM

LEGAL AND CONSULTING COLIBRI LAW 42, 43, 46 DELOITTE 22, 23, 67, 84, 113 EURASIAN DEVELOPMENT BANK 26, 84, 113 Project Director: Katya Koryakovtseva ([email protected]) ILF CONSULTING ENGINEERS 21, 22, 29 MICHAEL WILSON & PARTNERS, LTD. 15, 42, 44 Journalist: Lubo Novak ([email protected]) PWC MINING AND POWER SPECIALISTS, ASSURANCE DEPT. 27 Journalist: Neha Ghanshamdas ([email protected]) SRK CONSULTING, KAZAKHSTAN 12, 55, 83, 84 WARDELL ARMSTRONG 83, 112 WHITE & CASE 13 Executive Editor: John Bowlus ([email protected]) POWER Graphic Designer: Gonzalo Da Cunha ([email protected]) BATYS TRANSIT 26 CENTRAL-ASIAN ELECTRIC POWER CORPORATION (CAEPCO) 20, 22, 25 DET NORSKE VERITAS KAZAKHSTAN 28 KB ENTERPRISES 23, 31, 113 AES CORP., KAZAKHSTAN 22, 24 For updated industry news from our on-the-ground teams around the world, EXPLORATION AND PRODUCTION ARCELORMITTAL TEMIRTAU 34, 38, 39, 45, 57, 60, 85, 89 please visit our website at gbreports.com, subscribe to our newsletter ALTAY POLYMETALS 16, 17, 36, 36, 43, 52, 59 by signing up to our VIP list through our website, or follow us on Twitter: @GBReports. BETPAK DALA 58, 63 EURASIAN RESOURCES GROUP (ERG) 34, 37, 112 EUROCHEM-KARATAU 61, 64, 65, 75 ILUKA RESOURCES 10, 33, 34, 42, 47, 51, 109 Additional copies of this book can be ordered through Elif Ozturk ([email protected]). KATCO JV 15, 62 KAZAKHMYS CORP. 13, 18, 30, 34, 36, 40, 70, 76, 77, 89, 90, 91, 102, 108 KAZPHOSPHATE 34, 44, 61, 65, 96 KAZZINC HOLDINGS 36, 108 KB ENTERPRISES 23, 31, 113 RIO TINTO 10, 12, 15, 34, 49, 53, 59, 67, 75, 82, 86, 109, 110 SYRYMBET 48, 51, 54, 59, 60 YILMADEN HOLDING 61, 66, 56 THANK YOU SERVICES AMERICAN APPRAISAL 112 GEOMARK 45, 108 GEOMINEPROJECT (GMP) 82, 83, 92, 112 We would also like to sincerely thank all the governmental bodies and associations that took time to share their KAZDRILLING 13 KAZGEOTECH 82, 86, 87 insights into the market for their experience and knowledge. KPSP 82, 83, 89 LEICA GEOSYSTEMS AND HEXAGON MINING DIVISION 93 MICROMINE 82, 92 NATIONAL CENTER ON COMPLEX PROCESSING OF MINERAL RAW MATERIALS, REPUBLIC OF KAZAKHSTAN 41, 82, 85 ORICA KAZAKHSTAN 43, 84, 91, 96 MINISTRY OF INVESTMENT AND DEVELOPMENT RJC GROUP 36, 82, 90 OF THE REPUBLIC OF KAZAKHSTAN SGS KAZAKHSTAN AND CASPIAN SUB-REGION 54, 59, 69, 83, 88 WORLEYPARSONS 113 invest.gov.kz

EQUIPMENT AK MACHINERY 35, 72, 79 GOVERNMNET OF KARAGANDA REGION ATLAS COPCO CENTRAL ASIA 2, 35, 70, 72, 73 BORUSAN MAKINA KAZAKHSTAN 35, 71, 72, 74, 75 karaganda-region.gov.kz/eng KAZZINCMASH 68, 77, 109 METSO KAZAKHSTAN 43, 52, 81 SANDVIK KAZAKHSTAN 35, 70, 72, 73, 76 ASSOCIATION OF MINING AND METALLURGICAL ENTERPRISES (AGMP) THRANE TEKNIKK 71, 78, 82 agmp.kz VOLVO GROUP KAZAKHSTAN 80

CHEMICALS CANADA EURASIA RUSSIA BUSINESS ASSOCIATION (CERBA) 3M KAZAKHSTAN 99, 105, 112 BASF 94, 96, 97, 104 cerbanet.org CHEMIE & TECHNOLOGY 72, 95, 96, 102 CORROCOAT CASPIAN 99 DOW KAZAKHSTAN 96, 105, 113 EVONIK CHIMIA 97, 100, 101 KAZAKHSTAN PETROCHEMICAL INDUSTRIES (KPI) INC. 76, 97, 98 LINDE GAS KAZAKHSTAN LLP 15, 97, 103

This list contains those companies interviewed during the course of research for this publication and as such represents only a limited selection of the companies operating in the power, mining and chemicals industry of Kazakhstan. It should not be considered a comprehensive guide. GBR holds an exclusive and extensive database for Kazakhstan and the wider region. For further information on Industry Explorations - 115 - KAZAKHSTAN MINING, POWER & CHEMICALS 2016 database access packages, please contact [email protected] or call +44 20 7812 4511.