sign in sign up
<<
Home , Access Industries, Aktobe, Arkalyk, Atyrau, Balkhash (city), Ekibastuz

Kazakhstan’s mining industry Steppe by Steppe

TABLE OF CONTENTS

Introduction...... p74 This report was researched and prepared by Key Minerals, Companies and Projects...... p80 Global Business Reports (www.gbreports.com) for Exploration...... p83 Engineering & Mining Journal. Services and Equipment Supply Chain...... p86 Global Issues...... p91 Editorial researched and written by Katya Koryakovtseva and Lubo Novak. For more details, please contact [email protected].

Cover photo courtesy of the Office of the Governor, region.

A REPORT BY GBR FOR E&MJ

September 2015 Mining IN

Introduction Kazakhstan’s mining industry is set to grow to $30 billion by 2017

Mining and processing facilities at Kazphosphate’s deposit in Karatau basin. Photo courtesy of Kazphosphate.

Kazakhstan, the largest land-locked coun- 40 million metric tons (mt) in proven re- Rio Tinto has decided to stay and contin- try in the world and mostly covered by flat serves and has the world’s ninth largest ues to conduct exploration activities. If they steppe, has a bright future ahead. Although, proven gold reserves and the world’s largest are successful and the Kazakh government the economy relies heavily on oil and gas proven zinc deposits. Almost all gold min- commits to further improve the investment and has been hit with lower oil prices, it ing companies and properties have been climate for the mining industry, more inter- still grew by 4.3% in 2014. However, this fully privatized in Kazakhstan. The country national players can be expected to enter is expected to slow to 1.5% in 2015 with is estimated to contain 30% of the world’s and re-enter the market, which is Kazakh- a recovery happening in 2016 and 2017 reserves of chrome, 25% of manganese, stan’s ultimate goal. according to the World Bank. In 2002, 10% of iron ore, 10% of copper and 13% The Kazakh government has allocated Kazakhstan was the first CIS country to be of lead and zinc. Kazakhstan is also the close to $1 billion to aid exploration before labeled investment-grade by a major credit largest producer of as of 2009, 2019 and is looking to develop mining laws rating agency. Its GDP currently stands at and, in 2013, was responsible for 38% of similar to those found in and Cana- about $200 billion making it the largest in global production. To top all this, Kazakh- da. Additionally, Kazakh national companies Central . Kazakhstan pursues a multi stan’s substantial mineral resources include will invest another $3.3 billion in geologi- vector foreign policy approach meaning that the world’s largest vanadium, bismuth and cal exploration in areas with good potential. it aims to develop friendly relations with all fluorine deposits, and the country is also Tau-Ken Samruk, which consolidates all of of the world’s powers. accounts for richly endowed with , bauxite, the state-owned mining holdings with the 22.7% of exports with and , phosphate, titanium and tungsten. goal of increasing efficiency and investment at 8% each. On January 1, 2015 the Treaty Despite these prodigious resources, Ka- in exploration, will be responsible for much on the Eurasian Economic Union (EAEU) zakhstan has seen little exploration in the of this expenditure. Partnering with Tau-Ken came into force. The Eurasian Economic last 30 years, with the last large-scale ex- opens doors to dealing directly with the gov- Union has an integrated single market ploration happening in the 1950s. The So- ernment which can certainly help speed up a of 176 million people and a GDP of over viet era data is still available and, although new entrant’s approval process. $4 trillion. The union introduces the free of excellent quality, it is not always com- Although Russia has been Kazakhstan’s movement of goods, capital, services and plete. The government has recognized that main partner historically, China is currently people and provides for common transport, Kazakhstan, already harnessing its oil and the main off-take market for its mining ex- agriculture and energy policies. Kazakhstan gas resources, can become a major mining ports, even though the recent minor slow- also finalized negotiations to join the World destination that could rival countries such down in China is causing some uncertainty Trade Organization (WTO) and has become as , Australia and Russia; however, among Kazakh companies. “In 2014, the a full-fledged member on July 27, 2015. new exploration projects and substantial share of export to China was about 80% In 2017, its capital, Astana, will host the changes to its mining laws as well as the of the total volume. Today, this share has International Exposition, EXPO 2017, help- investment environment are needed. decreased to 64% and we see that the situ- ing to further increase the country’s image Overall, the lack of new exploration is ation has changed in China mainly due to on the world stage. the biggest problem facing Kazakhstan’s internal politics and external factors. In this Kazakhstan has long been overlooked as mining industry. One recent announcement, light, we are looking for new off-take mar- a major mining destination, but with vast however, may encourage others to enter the kets,” said Bakhtiyar Krykpyshev, general untapped riches, it seems destined to be- country. Rio Tinto and Kazgeology verbal- director of Kazakhmys Corp. come the next mining hotspot. The mining ized plans to invest $6 million in the explo- Kazakhstan’s mining industry is set and metals sector of Kazakhstan already ration of copper porphyry ore in the Korgan- to grow in value, reaching $30 billion by contributes around 20% to its GDP and tas area in the Karaganda province. While 2017 already taking the declining commod- represents about 19% of overall exports. It other mining majors have left Kazakhstan ity prices into account. Coal, copper and is the fourth largest copper producer with after encountering significant challenges, gold are expected to be the main drivers of

74 E&MJ • September 2015 www.e-mj.com Mining IN Kazakhstan

www.e-mj.com E&MJ • September 2015 3 Mining IN Kazakhstan

ing the Bozshakol and Aktogay deposits in players, are still rather concerned with price Kazakhstan and Bozymchak in Kyrgyzstan. than quality when it comes to the equip- Corp. Kazakhmys is working on projects in ment they use. This causes a continued in- Zhezkazgan, and Karaganda re- terest in equipment from Russia and China, gions. Zhezkazgan area is the impor- but a recent trend has shown that Western tant one for the company as it accounts for equipment suppliers, given the right flexibil- 75% of the total volume of production. Re- ity in the financing solutions they provide, structuring of the company has not changed can count on Kazakhstan to be a significant the quality of the work environment and HR source of business for them. These provid- approach. The main goal of Corp. Kazakh- ers include Atlas Copco, Borusan Makina, mys now is the increasing of profitability of AK Machinery, Tamoz Machinery, Sandvik non-core project and working on new proj- amongst others. As the interest grows in us- ects,” said Bakhtiyar Krykpyshev, general ing more efficient equipment that requires director of Kazakhmys Corp. less maintenance and with significantly Bakhtiyar Krykpyshev, general director, longer durability, Kazakhstan presents an Kazakhmys Corp. Similarly, ERG has undergone its own reorganization. “In terms of internal pro- interesting opportunity for international growth. Kazakhstan will need substantial cesses, the company is now going through equipment suppliers not yet present in this foreign investment to make this a reality. a transformation. We adopted a different country. Not only capital, but also the technology approach to corporate governance; current- and technical know-how will be necessary ly a lot of attention is allocated to tactical Mono-cities and to bring about these developments. strategy and operations management. Apart Interconnectedness with Russia Inadequate infrastructure is another from that, the company moved away from As previously mentioned, mining in Kazakh- reason why Kazakhstan lags behind other one, two and five year planning. There is stan is still labor intensive, but due to the mining destinations. The country is well de- instead a special program developed in ERG low cost of labor, this fact has been chang- veloped in its urban centers, but as many which allows for modelling various market ing only slowly. One remnant of its new deposits are located in remote areas, situations and measure the impact of fluc- past has been the once prosperous small a comprehensive infrastructure plan must tations in commodity prices on the entire towns that today require significant invest- be put in place. Transport routes, both road company’s operations,” said Azamat Bekty- ment. Mining deposits around the world and rail, will be needed as well as sources bayev, ERG’s vice president for production. are often found in remote sites and com- of power and water. Besides these large players, there are munities of miners and their families sub- As Kazakhstan prepares to undertake a number of other significant companies sequently spring up around these locations. changes to its legislation, new explorers are present in the mining sector in Kazakhstan. In Kazakhstan, the government wants to expected to enter the country and in combi- Some of these include international names focus its search for minerals around single- nation with its natural riches, Kazakhstan is such as ArcelorMittal, Cameco and Rio industry cities, so-called mono-cities. Towns on the road to great prosperity. Tinto, which is currently in the exploration like are becoming uninhabitable due stages. In addition to international players, to depleting reserves of bauxite and the pos- Market Structure there are a number of local Kazakh compa- sibility of companies like ERG leaving the The state of the mining industry in Kazakh- nies that have an equally important role to area. Roughly 1 billion mt of iron ore was stan can be characterized as a privatized play. Some names in this category include discovered north of Arkalyk, in a town called version of previously state-owned enterpris- Bogatyr Coal, Kazakhaltyn and Kazphos- Yesil, and now the state mining company es from the Soviet era. The main compa- phate. In addition to this, just as in other Tau-Ken Samruk is looking to develop the nies on the market are Kazzinc, now 70% mining jurisdictions, there are a number of deposit and possibly bring the 1,500 baux- owned by and 30% by Samruk- exploration companies present. These in- ite miners to the new location over a period Kazyna, Kazakhstan’s sovereign wealth clude a mix of both domestic and interna- of eight years, the time when bauxite is sup- fund; Kazakhmys Corp.; KAZ minerals; tional players such as Kazax Minerals, Orsu posed to run out. In 2012, President Naz- ERG, previously ENRC; and Kazatomprom, Metals, Frontier Mining, Altay Polymetals, arbayev instructed the government to devel- the national uranium mining company. EuroChem, but also established internation- op similar programs for the development of These players, although still man-power al players looking to set up their presence mono-cities elsewhere. A total of 27 towns intensive in their operations, have been in Kazakhstan such as Iluka Resources of were selected with a combined population continuously investing in their production Australia and Kores, a Korean government- of more than 500,000. The largest ones processes to increase efficiency, particularly owned entity. to participate are , Balkhash and in light of the ongoing slump in world com- On the services and equipment supply Zhezkazgan in , modity prices. They are also restructuring side, Kazakhstan is continuing to attract in region, Rudniy in Kostanai re- to increase performance. “In 2014, we wit- new companies seeing good future pros- gion, in Mangistau region. These nessed a restructuring, as a result of which pects in the country. Already long-present towns will receive significant support and Kazakhmys Corp. was split into two compa- in Kazakhstan, companies like Kazgiprots- investment to help their economies. “There nies - a public company KAZ Minerals and vetmet, Iskander, Gornoe Buro and Antal are 60 mono-cities in Kazakhstan, and sup- a private company Corp. Kazakhmys. The are complimented by the interest of other port and promotion of these cities, as well biggest change brought about by this split is EPCM service companies like TOMS of Rus- as further development of mining facilities, the projects that each company is working sia who are keen to expand within Kazakh- has been one of the top priorities for the on. KAZ Minerals is now working on several stan’s mining regions such as Karaganda. government of the past couple of years. The projects in the east, and are also develop- Kazakh companies, especially the smaller development of these cities relates directly

76 E&MJ • September 2015 www.e-mj.com Mining IN Kazakhstan

sia, Belarus, and Armenia, a region with opened a representative office - TOO RJC a population of 176 million. In fact, a lot Karaganda. Geological exploration has a of Russian companies, bitten by sanc- great potential and it opens many opportu- tions imposed on Russia over its actions nities for local and international companies. in , are looking to Kazakhstan as RJC aims to carve its niche in the sphere a good place to expand or move their op- of servicing geological exploration projects erations entirely. On the other hand, low in Kazakhstan,” said Andrey Kharlashin, di- oil prices have greatly contributed to the rector of geology at RJC Group. deteriorating value of the Russian ruble Kazakhstan’s Soviet legacy in terms of making Russian goods cheaper and thus mono-cities and its interconnectedness with ready to flood the Kazakh market. This Russia present a number of challenges for has increased competition for Kazakh the advancing nation, which if exploited firms struggling to meet lower prices from smartly can be turned into advantages. abroad. The weak Russian ruble has also Albert Rau, vice minister, Ministry of Investment had some welcome benefits for Kazakh and Development of the Republic of Kazakhstan. Environmental Standards in companies. “A positive factor for us is the Kazakhstan to the development of a competitive mining current situation with the Russian ruble, “Subsoil users in Kazakhstan are subject to industry,” said Albert Rau, the vice minister which has helped us to decrease our cost extensive environmental protection regula- of Investment and Development. of transportation and thus exports to Eu- tion. The Ministry of Environmental Protec- The case of Temirtau, a center of coal ropean markets became more profitable,” tion of the Republic of Kazakhstan (MEP) is mining in the Karaganda region, is explored said Krykpyshev of Kazakhmys Corp. the principal State authority in the sphere more in depth in the coal section. Russian companies like RJC Group have of environmental protection. Among other It is not only the government that is re- had a very positive experience in Kazakh- things, it issues environmental permits and sponsible for helping local people, but pri- stan and plan on further expanding here. licenses and establishes the limits for envi- vate companies can make a significant “In 2011, RJC participated in Minex Cen- ronmental emissions. Individuals and legal impact on the communities where they oper- tral Asia, where we were approached by Ka- entities that use the environment (e.g., sub- ate. “People are our greatest asset, and we zakhmys Exploration who offered us to work soil users) are subject to State environmen- realize that we have to invest not just into with them at several deposits. This allowed tal control. MEP carries out such control by training of our staff, but also in improving the us to enter the Kazakh market. In order to organizing State environmental inspections. quality of their lives. Unlike most of the min- optimize our operations and focus on fur- Various aspects of business activities are ing projects in the country, we employ only ther development of the local market, we subject to environmental requirements. For local people. So we do not have to fly-in and fly-out workers to do basic jobs. Our work- ers come from the nearby Terekty . We invested $34.5 million in electrification of the village, where we have constructed and reconstructed multiple power-supply facilities. We constructed more than 6,000 m² of accommodation for our future employ- ees, as well as sports facilities, a canteen, a swimming pool, etc. The reconstruction of the school and kindergarten is still in progress. Various study groups and activi- ties were organized and musical and sports equipment was purchased for the children. The works on redevelopment of the streets of the Terekty village are being carried out as well. Additionally, a regular water supply was implemented; garbage containers and garbage removal trucks were purchased for the removal of household waste. More new jobs for residents of the village and the sur- rounding area are constantly being created,” said Ruslan Yun, chairman of the supervi- sory board of Altay Polymetals. Russia’s presence in Kazakhstan should not come as a surprise to any- body as Kazakhstan and Russia are long term partners dating back many decades. Furthermore, Kazakhstan looks to benefit tremendously from being a part of the Eurasian Economic Union along with Rus- www.e-mj.com E&MJ • September 2015 77 Mining IN Kazakhstan example, a positive State environmental ex- zakhstan’s Way – 2050: One Goal, One oritized for Kazakhstan. Achieving the right pert evaluation must be obtained in relation Interest, One Future” in which he described policy and regulatory settings will help en- to projects involving an environmental im- the mining sector as vital to the country’s sure the long term development of Kazakh- pact before such projects may begin. Enter- economy but lacking in foreign investment. stan’s highly prospective minerals sector prises engaged in environmentally hazardous Michael Wilson & Partners, a law firm op- and Iluka looks forward to working with the business activities are subject to the manda- erating in Kazakhstan, reports that a Joint government as it undertakes reform of the tory requirement of obtaining environmental Committee of the relevant Ministries pre- mining code,” said Alison Morley, country insurance covering potential damage as a pared a draft Concept of the new Subsoil manager of Iluka Resources in Kazakhstan. result of environmental contamination,” ac- Use Code later that year. The expected There are, indeed, great expectations cording to Baker & McKenzie. timeline is: “the Concept will be approved for the new Code, as highlighted by Albert Despite having detailed laws related to by the by mid- Rau, the vice minister of Investment and environmental protection, these standards 2015, and the draft Subsoil Use Code (the Development: “The main new feature of are still behind other international mining ju- “Code”) itself will then be prepared and re- the law is the simplified process of granting risdictions. Kazakhstan’s environmental laws ferred to the Parliament of Kazakhstan for rights, based on the Australian method, for are often poorly enforced and companies in further approval by 2016, so that the Code unexplored pieces of land (not more than the past have often been more focused on is in place and takes effect during 2016,” two square kilometers per one block). We increasing profits rather than sustainable de- according to Michael Wilson & Partners. expect to see the first contracts based on velopment. However, this trend is changing Some amendments to the existing sub- this scheme in the second and third quarter and companies, especially those with foreign soil laws were made in 2014, according of 2015 and to auction at least 100 areas shareholders, are becoming concerned with to Michael Wilson & Partners: “The exist- in total this year. The law will also simplify environmental protection and are often the ing Law on Subsoil and Subsoil Use was access to geological data. We managed to champions of applying policies similar to amended in 2014, with effect from 2015 to dramatically decrease the time required to their countries of origin; this is in turn spear- implement new and to amend existing defi- obtain such information from 240 days to heading efforts by the government to follow nitions, namely (but not limited to) mostly one day. Moreover, we simplified the proce- suit and get more serious about the environ- unexplored territories, and subsoil use rights dure for granting exploration contracts and ment. “We are not using any dump trucks, associated therewith; auction procedures; small deposits to remove extra administra- but instead our conveyor belts can move sample subsoil use contracts; technological tive barriers. Overall, the new law will in- just like dump-trucks, which also reduces mineral formations and strategic resources. crease transparency in decision-making and our capital costs. Metso has designed and For example, mostly unexplored territories remove administrative barriers on all levels. produced the largest crushing unit (LT-200) are defined as territories which have prelim- These changes should boost the develop- specifically for Koktaszhal. This installation inarily valued forecast resources. The explo- ment of junior companies and simplify pro- is safe for the environment and reduces ration rights for such territories are granted cedures for all mining companies.” carriage by truck at the open pit mine. The in a simplified manner. Auction regulations However, the new Code alone will not structures weigh about 800 mt, but nev- were introduced as simplified procedures to act as a magic wand to reawaken Kazakh- ertheless can be easily moved around the choose an investor with the highest signing stan’s mining sector. “Arguably, legal acts mine,” said Yun, chairman of the supervisory bonus proposal provided that the same met alone cannot produce a surge of explora- board of Altay Polymetals. all auction prequalifying obligations.” tion activity in Kazakhstan. Global com- Technological improvements introduced Some of the major changes have already modity prices and new investments are in a number of mines across Kazakhstan been incorporated into the Concept, which major contributors towards stimulating the can add up to have a significant positive im- include: “’First Come, First Served’ basis to mining industry. If commodity prices are pact on the environment compared to using apply for the right to explore, develop and depressed and capital expenditures for a older technologies. These kinds of initiatives mine currently vacant and unallocated ter- new mining projects are high, there will be can lead to improved environmental stan- ritory (mostly unexplored); economic in- little movement in the market. Harmoniza- dards across all industries in Kazakhstan. centives: land and property tax exemption, tion of Kazakhstan’s Mining Code will be of the application of international accounting great benefit when there is an upturn in the Overhauling Kazakhstan’s Sub- standards for tax purposes, no signing and mining market. When the upturn occurs, soil Regulations commercial discovery bonuses, royalty ex- we anticipate investor interest predomi- Kazakhstan’s subsoil regulations continue emptions, etc.; open access to all available nantly from the Asian or Gulf regions,” said to be a major impediment for the country’s geological data and information,” according Umid Aripdjanov, partner at Colibri Law. mining industry to grow and attract foreign to Michael Wilson & Partners. “A further change will be the creation of a investment. Although minor changes have Most of the majors, like BHP Billiton and financial and arbitration center in Astana. already been implemented, the current regu- Vale, have come and gone, but Kazakhstan It is planned to invite 500 foreign English- lations are still cumbersome and need up- is working hard to lure them back along speaking judges/arbitrators with English grading. In 2014, lawmakers put forth an with smaller players such as Iluka Resourc- law governing the arbitration, giving inves- ambitious plan to bring Kazakhstan’s subsoil es that have only recently ventured into Ka- tors more confidence to file a claim,” added regulations into line with other international zakhstan. “The development of a regulatory Aripdjanov. mining jurisdictions. In consultation with law regime that is stable, transparent, and takes As these changes are taking place, an- firms operating in Kazakhstan, this article full advantage of the experience and exper- ticipation and great expectations are build- will outline both the recent and proposed tise of companies with global reach, such ing among investors and, indeed, when the changes to the country’s subsoil regulations. as Iluka, represents an important step in at- upturn in the global mining industry occurs, In 2014, Kazakhstan’s President Naz- tracting the type of foreign investment that Kazakhstan should be well positioned to deal arbayev launched a program called “Ka- the President and Prime Minister have pri- with higher demand for its mineral wealth.

78 E&MJ • September 2015 www.e-mj.com Mining IN Kazakhstan

www.e-mj.com E&MJ • September 2015 7 Mining IN Kazakhstan

Key Minerals, Companies and Projects Kazakhstan is in the top 10 countries for several major minerals

The recently acquired Voskhod Chrome has been breaking performance records in output and efficiency. Photo courtesy of Yildirim Group.

Kazakhstan has vast reserves of a wide range Kazakhstan’s national nuclear company, of service for analysis of the mineral raw of minerals and metals. Virtually all elements as Kazakhstan is very keen to increase its material sector and transparency of extrac- of the periodic table are present in a coun- technological base. One major player in the tive industries of the Kazgeoinform National try with a relatively small population. This uranium business in Kazakhstan is Betpak Center for Geological Information of the section showcases some of them in greater Dala (South Inkai, Akdala mines), a joint Ministry of Investment and Development. detail as well as highlights new and exciting venture of Kazatomprom and Uranium One, There were 50.4 mt of gold produced projects currently being undertaken. which owns 70%. Betpak Dala extracted in Kazakhstan in 2014. Approximately 13% of the total amount of uranium mined $755.5 million was invested in gold mining Uranium in Kazakhstan in 2014. “It was planned to last year of which $35.6 million went to- “Kazakhstan contains 12% of the world’s produce 1,000 mt/y of uranium at the Ak- wards exploration. Kazzinc represented the uranium resources and an expanding min- dala mine and 2,000 mt/y of uranium at the lion’s share of this with 33%, Altynalmas ing sector, producing about 22,830 mt in South Inkay mine. Since 2012, JV Betpak with 15% and Kazakhaltyn and Vavarin- 2014, and planning for further increase be- Dala LLP reached design capacity produc- skoye both at 11%. Projections for 2015 fore 2018. In 2009, it became the world’s tion and began to extract 3,000 mt/y of ura- were expected to reach $846.9 million of leading uranium producer, with almost 28% nium. The Akdala mine was the first mine in which $40 million would go towards geo- of world production, then 33% in 2010, the world which extracted in one year 1,000 logical exploration. The Bozshakol mine 36% in 2011, 36.5% in 2012, and 38% in mt of uranium by method of drill hole in-situ currently being developed and scheduled to 2013. Kazakhstan has a major plant mak- leach (ISL),” said Aleksander Uvarov, gen- start operations in the last quarter of this ing nuclear fuel pellets and aims eventually eral director of Betpak Dala. year should also boost gold production as to sell value-added fuel rather than just ura- Overall, Kazakhstan is certainly looking to besides large deposits of copper, it also nium. Of its 17 mine projects, five are wholly benefit from nuclear power plant construc- contains highly valuable by-products of owned by Kazatomprom and 12 are joint tion happening globally and can further in- gold. Gold is now becoming an important ventures with foreign equity holders, and crease its market share as the number one aspect for companies previously focused on some of these are producing under nominal producer of uranium. other minerals. capacity. In 2013, 9,402 mt uranium was attributable to Kazatomprom itself – 16% of Gold Copper world production, putting it slightly ahead of Kazakhstan’s proven gold reserves are Kazakhstan is currently behind other cop- Cameco, Areva and ARMZ-Uranium One,” 2,300 mt as of last year. There are 325 per extracting countries like Chile, Austra- according to the World Nuclear Association. gold deposits, of which 94 are in opera- lia, Peru and China in terms of exploring Kazakhstan currently has no operational tion and 117 in exploration. Most reserves their reserves. On-balance, proven reserves nuclear reactors after their only one in Ak- are found in Eastern Kazakhstan, Akmola, last year were 39 million mt, mostly con- tau was decommissioned in 2001; however, Karaganda, and Kostanai regions. The main centrated in East Kazakhstan and Kara- the government plans to begin construction companies operating in gold extraction are ganda. Kazakhmys controls about 72% of of two new plants in 2018. Besides Russia, Kazzinc, Kazakhmys, Polymetal, Kazakhal- contracted copper reserves according to Dr. Kazakhstan is also cooperating with the likes tyn, Varvarinskoye, Altynalmas Gold, Metal Dzhantureyeva. As mentioned above, KAZ of Japan, China, , and . Trading and Maikainzoloto. Projected re- Minerals is currently developing its Bozsha- China in particular presents an important ex- serves are estimated as high as 9,000 mt. kol copper mine, which is the largest single port market as 55% of Kazakh uranium was Already explored deposits in central and mine development in the CIS region by both exported there in 2014. International play- eastern Kazakhstan will require deeper drill- scope and volume of production. The mine ers, including Areva, Cameco, Toshiba and ing while there are potential deposits to be will nearly double KAZ Minerals’ current Uranium One, are also present and all are found in northern and southern regions ac- production levels and has a projected lifes- required to collaborate with Kazatomprom, cording to Dr. Elvira Dzhantureyeva, head pan of 40 years. KAZ Mineral’s second proj-

80 E&MJ • September 2015 www.e-mj.com ect, Aktogay, is also on track to begin production of its first oxide copper cathode in the fourth quarter of 2015. Despite record low copper prices, companies about to go into production feel confident that their operations will still be profit- able. “The unique technology used at Koktaszhal allows us to main- tain profitability even at current copper prices. For the first time in the history of the mining industry not only in the CIS, but also in the world, a 100% cyclic-flow line system will be used in the development of the deposit by open-cut mining. There are several features that make Koktaszhal unique not just in Kazakhstan, but in the whole of the CIS region. First of all it is the low production cost compared to conventional methods, which allows us to save up to 50% on the cost of production,” said Yun, chairman of the supervisory board of Altay Polymetals. New entrants to the market are not yet in the production stage, but are actively involved in copper exploration. One such example, as previously mentioned, is Rio Tinto. Overall, $1.15 billion is the forecast for 2015 in terms of investment in copper production, of which $16.9 million will go towards exploration.

Tin Tin is currently in short supply as the electronics industry in Japan and China consumes roughly 50% of the world tin supply. Consump- tion has been beating production for the past several years, as old mines close and reserves are becoming depleted. The latest numbers by the US Geological Survey estimate the world tin supply to be 4.8 million mt, which is a decline in reserves since 1990. This has pushed up the price of tin and new deposits and production capaci- ties are badly needed. One major development in Kazakhstan’s and, for that matter, the world’s tin market has been a company that is a shining ex- ample of how local businesses have successfully navigated Ka- zakhstan’s business landscape and brought about thriving projects. Syrymbet, the exploration and soon-to-be production company of the Syrymbet tin deposit in northern Kazakhstan, controls the larg- est undeveloped tin deposits in the world. Tengiz Bolturuk, CEO of Syrymbet said: “In 2012, I was brought in to properly assess the resource, which we confirmed by infill drilling to be one of the larg- est undeveloped tin deposit in the world. We invested heavily and subcontracted to reputable companies in the mining world such as AMEC, AMC, SGS, ALS and Golder Associates. We will know the fixed numbers in mid-summer when the Pre-Feasibility Study is completed. At that point, we will know the exact amount of tin, copper, fluoride, and tungsten that are present and recoverable, and we will know the total amount and quality of each product we will be able to produce. The updated Joint Ore Reserves Committee (JORC) report will soon be released, and the mine design will be done by AMC. From there we will select the best economically and technically viable option and move on to the feasibility study, which will begin by the end of September 2015 and should be completed by February 2016. We hope to start preliminary mine stripping and plant construction in the middle of next year, and production by the end of 2017.” Syrymbet going into production will signify a much needed relief to the short supply of tin on the world markets.

Coal Kazakhstan has enormous coal reserves with 37.5 billion mt of recoverable coal, the biggest in and representing 3.8% of the world total. The country has more than 400 coal deposits of which a third are classified as brown coal or lignite deposits. Karaganda has traditionally been Kazakhstan’s main coal produc- www.e-mj.com E&MJ • September 2015 81 Mining IN Kazakhstan

Nurmukhambet Abdibekov, akim (governor), Dmitry Valishev, general director, EuroChem- Tengiz Bolturuk, CEO, Syrymbet. Karaganda Region. Karatau. ing region and to the northeast of it are the Kazakhstan has enormous coal reserves and begin production of phosphate rock. Ekibastuz coalfields, some of the largest in and these can be used for both export and We are planning to finalise construction Kazakhstan. The other locations include to power up the country’s industrial base. of the chemical plant by 2018 and begin Maykubinsky as well as Kushokinskoe, Bor- production in 2019,” said Dmitry Valishev, linskoe, Shubarkol, Karazhyrinskoe fields Phosphates general director of EuroChem-Karatau. and several other smaller deposits. Russia Kazakhstan is in the top 10 of countries Kazakhstan’s considerable reserves of is the largest export market, followed by with significant phosphate reserves. Ka- phosphate are attracting new investors lead- Ukraine. However, since independence, Ka- zakhstan’s long history with phosphates ing to diversification of its market players. zakhstan’s coal production has decreased dates back to the Soviet times when it was by 35%. Some of the causes of this can be the center of production for the region. The Chromium and Manganese attributed to a poor safety record, but the main producer is Kazphosphate with an an- Kazakhstan holds the world’s second larg- more important issue is the lack of foreign nual capacity of 120,000 mt/y. Most of the est reserves of chromium behind South Af- investment in this sector. deposits are in the Karatau basin. Kazakh rica and also has the third largest reserves Kazakhstan’s largest coal producer, companies are also interested in making of manganese. ERG is the main player in Bogatyr Coal, owned by the American more value-added products and are slowly this market in Kazakhstan. “Kazchrome company Access Industries Inc., produces moving away from the dig-and-ship mental- represents the ferroalloys division which about 35% of Kazakhstan’s total coal out- ity. “Kazphosphate is looking to upgrade its comprises four mining objects and two put and develops northern Kazakhstan’s processing capabilities in order to create a metallurgic plants. Chrome ore extraction Bogatyr and Severny coal fields. It is also range of value-added products, which will is carried out in ’10 years of Kazakhstan’s Kazakhstan’s largest exporter to Russia. allow us to export them to new markets,” independence,’ Molodezhnaya and Yuzhny This coal is mostly used in power plants said Mukash Iskandirov, general director of mines. Manganese ore is extracted in Tur in southern Russia. Production of coal in Kazphosphate. mine. At ferroalloys plant we com- Kazakhstan is expected to reach 150 mil- In 2013 Russia’s EuroChem received pleted construction of the fourth smelting lion mt/y by 2020 and Karaganda will play a mining license to develop phosphate de- shop. The cost of construction is estimated a crucial role. “Unfortunately, mining fa- posits in Zhambyl region which may affect to have been about $850 million,” said cilities do not operate at 100% capacity, Kazphosphate’s dominant position in the Azamat Bektybayev, ERG’s vice president which also means that we will be able to market. “There are 45 explored phosphate for production. step up our production if necessary,” said deposits in the south of Kazakhstan; Ka- The 2013 acquisition of Voskhod Nurmukhambet Abdibekov, governor of zphosphate is working on six of these depos- Chrome, a chrome mine and processing Karaganda region. its. EuroChem has a license for the develop- plant in northwestern Kazakhstan, by Is- One of the biggest investors in Temirtau, ment of two deposits. We are happy to see tanbul based Yildirim Group from Russian a small mining town in Karaganda is Arce- new players coming to Kazakhstan, because mining giant represents a significant lorMittal and the company has a great inter- we understand that they improve the overall development. “Voskhod Chrome’s integra- est in further development of this industry. economic wealth of the country. We think tion process into YILMADEN Holding was “ArcelorMittal Temirtau initiated an exten- that in the near future we will see more play- flawlessly executed, and the results have sive program to modernize its production ers from Russia and other countries entering progressively improved almost every single processes and increase efficiency. Since the the market,” added Iskandirov. month, with record-breaking performance entire economy of Termirtau depends on EuroChem has ambitious plans in Ka- in mine output, plant efficiency, machine this facility, this has a great positive effect zakhstan. “We are developing mining of uptime and finally sellable product output. on the well-being of the town and the re- phosphate ores and we will continue the de- Intense collaboration was achieved between gion. In 2015, the company finalized recon- velopment and construction of the deposit Yildirim’s mining team and the already exist- struction of the third blast furnace, and now until 2018 when we will reach our produc- ing mechanized mining contractor at Vosk- the power of the furnace is 20% more than tion capacity of 640,000 mt/y. Current de- hod,” said Alp Malazgirt, CEO of YILMADEN what it used to be before, which will allow velopment of the base for raw material will Holding. Yildirim’s investment signifies an the company to produce up to six million mt allows us to do so. We want to finish the increased interest from investors outside the of steel a year,” added Abdibekov. first phase of the project by the end of 2015 CIS and this trend is likely set to continue.

82 E&MJ • September 2015 www.e-mj.com Mining IN Kazakhstan

Exploration Still underexplored, but slowly attracting important international players

Equipment used in the conduct of airborne geophysical surveys. Photo courtesy of KazGeotech.

The biggest problem that remains by far, as As mentioned before, one major com- position to commence grass-roots explora- mentioned in the introduction, is the lack pany conducting exploration activities is Rio tion,” said Gary Hodgkinson, director of of exploration happening in Kazakhstan. Tinto. “Our global strategy is to build local Central Asia district at Rio Tinto. One of the reasons for this was the imposed partnerships; this supports development of Iluka Resources, a Perth-based compa- moratorium on new exploration in 2008 to the local industry and we benefit from local ny, in possession of the largest global mar- prevent speculation with Kazakhstan’s min- knowledge. In some jurisdictions local joint ket share of zircon production and a major eral properties. This has since been lifted, ventures are mandatory by government leg- producer of high grade titanium dioxide, but new exploration remains weak. islation, a scenario with which we are com- has also set its sights on Kazakhstan. Hav- As most of the current reserves are be- fortable. Our objective in Kazakhstan is to ing only recently established a presence in coming depleted, Kazakhstan needs to ur- run a profitable mine that will give healthy the country, Iluka’s new country manager, gently increase its exploration activity. One investor return. In 2010, we commenced Alison Morley, has said: “Iluka has been en- of the key developments in recent years has negotiations with Tau-Ken Samruk; after gaging with Kazgeology since its very first been the creation of Kazgeology, a state- lengthy negotiations, in 2013 we stepped visits to Kazakhstan in March 2013 and owned company responsible for geological back from the opportunity as no viable com- the relationship has developed substantially exploration in Kazakhstan. “Geological ex- mercial arrangement could be reached. Af- since that time. Kazakhstan is a new juris- ploration remains one of the least developed ter consultation with government officials, it diction for Iluka, different from those where sectors in Kazakhstan. The government was suggested we work with Kazgeology as it has traditionally operated, so it is impor- and industry accept the fact that Kazakh- their mandate mirrored our aspirations for tant that the company draw on credible, stan is an under explored country. In the the Kazakhstan project. Negotiations with well-regarded sources of in-country exper- past 20 years, companies have been rely- Kazgeology have been concluded and an tise. Iluka has signed a number of memo- ing on Soviet geological information, which agreement signed for an exploration project randums of understanding with Kazgeology regardless of its high quality, is not enough in the Korgantas area, Karaganda province, with the aim of benefitting from its consider- to truly open the potential of the country. central Kazakhstan. Discussions are on-go- able local knowledge and access to geologi- After the collapse of the , there ing with Kazgeology for a further project in cal data. This relationship will also provide was no exploration in the country, as com- central Kazakhstan - Balkhash-Saryshagan. Kazgeology the opportunity to observe and panies were more interested in developing Once projects are agreed, we will be in a learn from Iluka’s highly experienced explo- other industries and technologies. Luckily, ration and mining professionals in the field. now the situation has changed. First of all, In addition to Kazgeology, Iluka is expecting the government created ‘Kazgeology’ - an to sign agreements with Kazakhstan govern- organization responsible for geological ex- ment agencies to facilitate on-ground explo- ploration in the country. Secondly, a spe- ration later this year.” cial state organization was created, and In addition to Rio Tinto and Iluka Re- now the government also spends money on sources, Kores or Korea Resources Corp., geological exploration. All of these changes a Korean government-owned company is make it easier for private enterprises to take another player interested in Kazakhstan’s part in geological exploration, and, at the potential. The low level of exploration in same time, there is a realization that now Kazakhstan is certainly an ongoing issue, these companies have the rights to those but as the government is keen on attract- deposits that they are exploring,” explained ing foreign investors, the country may have Nikolay Radostovets, chairman of the As- a very different industry makeup 10 years sociation of Mining and Metallurgical En- Gary Hodgkinson, director Central Asia district, down the road in terms of juniors and other terprises. Rio Tinto. exploration companies. www.e-mj.com E&MJ • September 2015 83 Mining IN Kazakhstan

12 E&MJ • September 2015 www.e-mj.com Mining IN Kazakhstan

www.e-mj.com E&MJ • September 2015 13 Mining IN Kazakhstan

Services and Equipment Supply Chain An already well serviced market with additional investment opportunities

Boomer 282 is a twin-boom hydraulic face drilling rig at work. Photo courtesy of Atlas Copco.

As Kazakhstan is looking to attract new in- Sandvik entered the Kazakhstan market by i.e. Sandvik and Caterpillar. It is difficult to ternational players to join the ranks of its acquiring Tamrock, one of the world leaders define precisely Atlas Copco’s market share main domestic players like Kazzinc, ERG, at the time in supply of equipment for min- in Kazakhstan, there being many different Kazakhmys Corp. and Kazatomprom, ser- ing operations whose office was established sectors of equipment: for example, surface; vices and equipment suppliers are never far in Kazakhstan. Through this acquisition, underground; drilling consumables; and behind. Kazakhstan has also been moving Sandvik initially entered the mining sector in products Atlas Copco offers but its competi- away from the dig-and-ship mentality of the Kazakhstan with equipment for underground tors do not, and vice versa. Sandvik, due to past to focus on more value-added goods. excavation although its current portfolio has its longevity in the market, is ahead of Atlas “Kazzinc is not only integrated, but is also a extended to surface drilling, blasting, crush- Copco on underground equipment; but At- one-third custom smelting operation,” said ing, screening equipment and its support. las Copco is ahead of Sandvik for the sur- Nick Popovic, chairman of the board of di- Arguably, Kazakhstan has the fastest grow- face sector and drilling consumables. Over rectors of Kazzinc Holdings. ing resource market in Asia and the former the three sectors, Atlas Copco has a mar- Already boasting a presence of success- Soviet Union countries which is attracting ket share of 35%, plus or minus 3%. Atlas ful operation, local providers like Kazgi- Sandvik among others,” said Dmitry Voro- Copco’s after-market support is a great aid protsvetmet, Vostokshahtostroy, Iskander zhtsov, general manager of Sandvik. for maintaining its client base and securing and Vostok Prom Geo have a clear advan- Atlas Copco has extensive experience new clients,” said George Apostolopoulos, tage in terms of being domestic which fa- in the Kazakh market and has introduced general manager of Atlas Copco. cilitates forming partnerships and knowing cutting edge technology to Kazakhstan. As the needs of Kazakhstan’s companies the local culture. However, these domestic “In 2013, Atlas Copco expanded its prod- are changing, the desire for quality prod- companies must not feel too comfortable uct portfolio by acquiring MEYCO Equip- ucts is also rising and this presents a good as tough international competition has not ment. Due to the downturn in mining activ- growth potential for Western equipment only already established itself in Kazakh- ity, there will be some rationalization and providers looking to expand to new markets. stan, but further players are already eyeing changes to the product line. The MEYCO the market as it could become the next des- factory has been transferred to Sweden with Transportation and Heavy Goods tination with a mining boom. the competence center remaining in Aus- Equipment As local companies are more skilled in tria. Atlas Copco has sold a MEYCO Potenza In 2014, President Nazarbayev introduced the Kazakh customs, it may be a good idea to Tajikistan and also introduced this tech- “Nurly Zhol” (Bright Path), a new economic for foreign players to partner with local ones nology in Kazakhstan at Ust-Kamenogorsk,” policy that envisions massive state invest- in order to increase their chances of success said George Apostolopoulos, general man- ment in infrastructure over the next several in penetrating the market. ager of Atlas Copco. years. This is in response to geopolitical There has been some concern over the challenges such as low oil prices and sanc- Equipment Supply entrance of Chinese equipment providers tions on Russia. The funds for the projects Kazakhstan’s equipment supply market has and their impact on the market in terms of will originate from Kazakhstan’s National been characterized by companies being increasing competition; however, this may Fund, similar to Norway’s Fund, more concerned with price rather than the be truer for other Central Asian nations created with the sole purpose of saving for quality and durability of the needed equip- rather than Kazakhstan. “Chinese competi- a rainy day. The fund has so far accumu- ment. However a change is underway as tion in Kazakhstan has not impacted much lated $76 billion from Kazakhstan’s exports companies are adopting Western methods on Atlas Copco’s mining business, but has revenues. The infrastructure plan looks to of operating. bitten and is dominant in , the develop transport networks and logistics in- Today some of the main equipment pro- rationale being a historic relationship be- frastructure to connect the country’s macro- viders are, indeed, Western. Some examples tween China and Uzbekistan. Competition regions through roads, railways and even are Sandvik and Atlas Copco. “In 1997, in Kazakhstan is of an international source, airlines. The greatest focus will be given to

86 E&MJ • September 2015 www.e-mj.com implementing major road projects: Western China – Western ; Astana – ; Astana – Ust-Kamenogorsk; Astana – Ak- tobe – ; Almaty – Ust-Kamenogorsk and Karaganda – Zhezkazgan – ; Atyrau – . The government is also looking to explore opportunities to build or lease terminal facilities and dry ports and sea-ports in China, , Russia and the according to the Astana Times. More specifically for railways, The European Bank for Reconstruction and De- velopment (EBRD) and a number of com- mercial banks are providing a syndicated financing package of $300 million in sup- port of a comprehensive modernisation and restructuring program of Kazakhstan Zholy (KTZ), the country’s rail operator, ac- cording to the Astana Times. In 2014, a railway connecting Kazakhstan, Turkmeni- stan and Iran was inaugurated opening up access to the Middle East and its ports in Iran for Kazakhstan and . Iran and Turkmenistan, on the other hand, gain access to ports in China through railway connections leading through Kazakhstan. What has also received significant amounts of attention has been China’s New Silk Road project which aims to connect China to Eu- rope by reviving the ancient trading routes. While Kazakhstan is undergoing a num- ber of exciting changes on the infrastructure front, companies operating as heavy goods equipment providers in the country are also expanding and are likely to grow further in both number and size as the industry con- tinues to develop. Transportation and heavy goods equipment providers in Kazakhstan include Tamoz Machinery, Liebherr, Volvo, Turkuaz Machinery, AK Machinery and oth- ers. One leader that stands out and has been present in Kazakhstan since 1999 is Borusan Makina, the representative of Caterpillar. “Borusan is a Caterpillar (CAT) dealer in Kazakhstan and Kyrgyzstan, and is part of a Turkish for CAT op- erating in , , Georgia, and the far east of Russia. Borusan is one of the biggest dealers of CAT in the CIS region. In 2011, we established a Components Re- build Center (CRC) in Karaganda, and in 2013, we completed our equipment rebuild shop and further expansion is planned. Borusan enjoys over 50% market share in the mining sector for equipment supply within the model size with which we are in competition. We have an excellent custom- er portfolio for greenfield projects for vary- ing commodities which allow for peaks and troughs,” said Aman Shakenov, mining di- vision director at Borusan Makina Kazakh- stan. “Our market share of over 50% has re- www.e-mj.com E&MJ • September 2015 87 Mining IN Kazakhstan

the companies operating in the country are MICROMINE, RJC Group, Geovia (part of Dassault Systèmes), and GeoMineProject. It has been noted that international soft- ware providers should lower their prices for smaller Kazakh companies as they may find them somewhat out of their price range. “The biggest issue related to the integra- tion of new technologies and software in Kazakhstan is the poor awareness of these technologies among the older generation of specialists. At the same time, young spe- cialists that have the skills to work with new technology do not have the experience Abdurasul Zharmenov, general director, National Aman Shakenov, mining division director, Center on Complex Processing of Mineral Raw of working at mine sites, thus they have no Borusan Makina Kazakhstan. Material of the Republic of Kazakhstan. experience in integration of such technolo- mained constant between 2010 and 2015; gies,” explained Georgiy Freiman, chairman our Center was to improve this situation, we anticipate that it will stay at this figure of the board of directors of GeoMineProject. ensure scientific development, strengthen for the next five years. Outside of Turkey, To address this problem, companies can the scientific and technical potential of Kazakhstan is one of the most important in- become involved with education and train- the country and thus aim for technological vestments for Borusan. One example is the ing. “MICROMINE also works with local breakthroughs in Kazakhstan. At the begin- expenditure of $30 million for our compo- service companies and educational institu- ning of the process, there was not enough nents rebuild/equipment rebuild complex in tions where MICROMINE supplies solutions capital to support all the scientific projects Karaganda. Since 2010, delivery times for free-of-charge to benefit students studying within the Center; similarly, our clients, CAT mining equipment have improved due geology of mining. For example: in the com- both private and governmental organiza- to the opening of two CAT facilities in Rus- ing months, MICROMINE will be traveling tions, also did not have the money to in- sia - Tosno, St. Petersburg and . to East Kazakhstan’s technical college to vest in our projects. Thus, we came up with As these trucks come from within the Cus- instruct lecturers on its solutions. When a an idea to also create production facilities toms Union, they have a price advantage company purchases a MICROMINE solution within our Center to turn scientific ideas over our competitors. Delivery of equipment and lacks in-house expertise, a training pro- into actual products. Today, this aspect is enhanced by the excellent railway infra- gram is obligatory to maintain standards,” is one of our key competitive advantages, structure in Kazakhstan,” added Shakenov. said Arman Anapiyaev, business develop- especially compared to other scientific or- However, the sheer size of the country ment manager at MICROMINE. ganizations. Firstly, we are now acting as does present a challenge for a number of International software providers not al- producers, and thus can create perfect companies. One example is the Almaty- ready in the country should keep Kazakh- solutions, and think of every single detail based distributor of chemical solutions, stan in mind as the country is well on its when it comes to developing new products. Chemie & Technology. The company offers path to become the next mining hotspot. Secondly, we implemented dozens of proj- acids and drill fluids used at all stages of ects, and developed innovative solutions in production. “Underdeveloped infrastructure Innovative Solutions Kazakhstan which are now also being used certainly poses several challenges for us, Despite the country finding itself in need across the world. Thanks to this we can and mainly affects the time of delivery. In of foreign investment both financial and now communicate better with our clients turn, this can have a negative effect on op- technological, Kazakhstan’s people are well and we now speak the same ‘language,’” erations of the mining companies we work educated and hungry to succeed. Since the said Abdurasul Zharmenov, general director with. We always try to work efficiently, pro- Soviet times, the country has fallen behind of the National Center on Complex Process- cess all orders in record times and minimize in terms of innovation and creativity, but, ing of Mineral Raw Material of the Republic lead times. Because of the cost of our prod- nevertheless, pockets of local innovation of Kazakhstan. ucts includes delivery costs, we make sure continue to thrive. One example of locally Another interesting provider of innovative we deliver the product in very short time,” researched and produced innovative solu- services that has just recently entered the said Maxat Bekov, executive director of tions is the National Center on Complex Kazakh market through a joint venture with Chemie & Technology. Processing of Mineral Raw Material of the Kazgeology is the Canadian company Geo- As Kazakhstan aims to further upgrade Republic of Kazakhstan. The Center is com- tech. The new venture, named KazGeotech, its infrastructure and heavy goods equip- mitted to helping the mining industry in Ka- is a provider of geophysical airborne surveys ment providers are expanding in the coun- zakhstan develop. They strive to cooperate and, despite being in the country for only try, the mining sector certainly looks to with both local and international players about a year, is already greatly in demand benefit from improvements in both trans- and enjoy substantial success in providing by the most important companies. “The portation infrastructure and wider service their technology to their clients. “Our center technology KazGeotech uses is patented by offerings from equipment providers. unites academic and industrial institutes in Geotech: ZTEM (Z-Tipper Axis Electromag- the sphere of mining and mineral process- netic) system; and VTEM (Versatile Time Mining Software ing in Kazakhstan. It was considered that Domain Electromagnetic) system. KazGeo- Mining software is usually provided by the Soviet organizations were not working tech has recently introduced a fixed-wing foreign companies, although some local efficiently in terms of industrial application aircraft survey for Rio Tinto in Kazakhstan,” or Russian ones do play a part. Some of of scientific developments and the role of said Said Sultanov, director of KazGeotech.

88 E&MJ • September 2015 www.e-mj.com Thrane Teknikk is yet another example of an innovative solutions provider, one that has had a long presence in Russia, but has only entered the Kazakh market fairly re- cently. “Thrane’s portfolio has three main products: sensor based sorting for ore, fine screening and paste technology. Sensor based sorting for ore offers bigger capac- ity and considerable savings by sorting out waste rock before it enters the beneficiation plant. The next step in the beneficiation plant is milling - traditionally used with cy- clones; however, this method generates low efficiency and Thrane has now introduced a Azer Mammadov, managing director, SGS fine screening concept to replace cyclones. Kazakhstan and Caspian Sub-region. The energy saved from the screening con- cept will give a 30% to 50% increase in ca- SGS also offers the Belarus-Kazakhstan- pacity, or from a green perspective, liberate Russia Customs Union conformity assur- the energy for other uses,” said Nils Thrane, ance certificate. This has proved a popular the company’s president. service, especially since the Eurasian Eco- Kazakh companies and institutes are nomic Union continues to have a positive themselves initiating improvements with a impact on the whole of CIS. “The key ad- wide range of applications, notably in Ka- vantage for our customers obtaining such zakhstan’s biggest industries such as oil certificates rests with overcoming technical and gas and, increasingly, mining. barriers upon trade in the Eurasian Econom- ic Union (Kazakhstan, Russia, Belarus, Kyr- Engineering, Laboratory and gyzstan and Armenia). The common rules Consulting Services and requirements practiced on the territory There is a slow but steady trend among of the EEU allow use of these certificates in companies in Kazakhstan to use EPCM any EEU country without any additional au- providers, which has not been the case thorization procedure. At the moment, not historically. Local companies like KPSP all requirements for this certification are be- are partnering with international ones that ing harmonized but intensive work is being have extensive experience. These partner- conducted to form and set common require- ships are crucial to help develop Western ments,” added Mammadov. practices in Kazakhstan. “There are large Yet another step to help bring in out- companies that have access to the newest side investors to conduct exploration is technology and have the capacity to invest. the transition of Kazakhstan from its own Shareholders of KPSP decided to bring the GKZ to the JORC standard in line with the company to a new level and to begin col- international community. “In December laboration with Fluor - a large international 2014, Kazakhstan accepted an analog of engineering firm. Fluor was happy to work the Russian code for auditing, NAEN - ‘Ka- with us and now we are working together zakhstan CRIRSCO’. The accepted code is on the TCO project. For us this is a very an adapted version of JORC, which allows new format of work and we are very much public audit as well as GKZ reports, but looking to earn the respect of our American under condition that GKZ reports have the partners,” said Abzal Akhmetzhanov, first priority. Of course, this system will simplify deputy general director of KPSP. work for a lot of companies, but at the same Another area of expertise necessary to time we do hope that JORC is still going develop and grow the market is testing and to enter the systems of mining companies laboratory services. SGS has a well estab- in Kazakhstan very soon. Having two stan- lished presence in Kazakhstan. “We may dards is excessive; moreover such a system say that geochemical tests are in fashion, complicates the understanding of the re- which is attributed to the active geologi- source base among investors,” said Freiman cal performance of local mining companies of GeoMineProject. including junior companies funded by for- There are a number of consulting com- eign enterprises. Though in terms of rev- panies present in Kazakhstan that provide enue and the bottom line performance, the services ranging from exploration to mine trade inspections as well as technological closure. These companies are an impor- inspections are more attractive,” said Azer tant element in developing the industry Mammadov, managing director of SGS Ka- and their presence and expertise in due zakhstan and Caspian Sub-region. diligence and other services is required by www.e-mj.com E&MJ • September 2015 89 Mining IN Kazakhstan the international players looking to invest in Kazakhstan. Kazakh Professional and Financial Services companies understand that adhering to international standards is The limited options provided by the Kazakhstan Stock Exchange of vital importance to show the world mining community that they (KASE) have been of particular concern among investors in the coun- can conform to its high standards. “SRK provides expert opinion try’s mining industry. Historically, the KASE has been used as an and technical solutions based on internationally recognized best instrument to offer shares by the government in larger companies. practice. If technical advice on local requirements is needed, SRK “We would normally become involved in financing at the Initial Pub- collaborates with local design institutes that are more specialized lic Offering (IPO) stage. Currently, there is little activity for us in this in meeting local design requirements. These local requirements sphere. The Kazakhstan government is planning to make its Stock differ significantly from international approaches, but we have be- Exchange more effective by insisting that companies who list over- come quite familiar with managing the two approaches in parallel, seas and have their major assets in Kazakhstan list on the country’s to minimize cost for the client and avoiding duplication of work Stock Exchange, with the rationale being to add value to the Kazakh- where possible. A good example of this is in the field of geotechni- stan stock market,” said Aaron Crouch, audit partner at Deloitte. cal engineering. Precisely calculating the final safe pit slope for an “The local market is still underdeveloped as the Kazakhstan Stock open-pit project can result in a major saving of stripping costs,” Exchange is still not in a position where it can accommodate startup said Tony Thornton, general director of SRK Consulting. companies, although the Exchange is looking at ways to accommo- Ruslan Sevostyanov, general director at Wardell Armstrong date this. Mid-tier mining companies are still struggling to raise lo- agrees: “The mine design and mineral resource estimation stan- cal finance. The local banking system is not robust or experienced dards and methodologies currently used in the FSU were inherited enough to provide bespoke financing packages for developing mining from the Soviet era and, having originally been tailored to Soviet companies,” said Tony Thornton, general director of SRK Consulting. economic realities, and do not sufficiently cover the economic as- Kazakhstan boasts a very small, but thriving private equity mar- pects of a mining project being developed in the modern economic ket. Centurion Resource Group has actively pursued investors from environment. This has led to a situation when FSU companies abroad, especially the , to invest in projects in Kazakh- seeking foreign investments have to significantly rework and amend stan. One of their investments was BAST’s Maksut copper-nickel their project designs to meet international standards. Therefore, our project, which was the first small cap equity company listed on the role in Kazakhstan as a consultant is mainly to use their geological, KASE. Investors have enjoyed a 40% return on their capital and the mining, metallurgical and environmental expertise to advise their production at Maksut is expected to begin in the fall of 2015. clients on how to ensure international compliance of their busi- One way to acquire financing besides the KASE or commercial nesses and meet the requirements of international investors.” banks can be through the Eurasian Development Bank (EDB), A variety of service providers are already in the country assist- founded by Russia and Kazakhstan in 2006 and now including ing both producers and explorers, but as the industry continues to many Central Asian nations as its members. “One of the bank’s first grow, others should continue to enter this already expanding sector. projects was the development of the Zarechnoye Uranium Deposit, implemented by a joint venture between Russian and Kazakhstan entities. The EDB provided $63 million to finance the project. Current production capacity of the mine is about 1,000 mt/y of uranium. Later in 2006, the EDB, in syndicate with two German banks - West LB and Bayerische Hypo- und Vereinsbank, opened a $120 million credit facility to finance the development of the Vosk- hod chromium deposit in Aktyubinsk oblast. The EDB’s share was $60 million,” said Galymzhan Tajiyakov, director of Project Finance Group at the Eurasian Development Bank. The European Bank for Reconstruction and Development (EBRD) has invested roughly $7 billion in the local economy. Half of these investments focused on the private sector including loans to mining projects. Some of the projects agreed to this year have been a 70 mil- lion euro loan to the first solar plant in Kazakhstan and a 42.5 mil- lion euro loan to upgrade Astana airport’s infrastructure. This brings EBRD’s investment in Kazakhstan to $420 million in 2015 alone. The lack of financing options should not put off international in- vestors as these are bound to develop along with the industry. There are, of course, other issues that the government has the power to influence to help create a more accommodating business climate. These include stable tax regulations. “Action by the government for the further development of legislation to provide more guarantees on stability of legislation in respect of subsoil use and taxation in particular. The government should establish an absolute limit for the maximum tax burden for a mining company, which would provide for more assurance to investors that regardless of different interpre- tation of tax legislation there will be an absolute limit above which their investments will not be taxable,” said Sergey Dementyev, audit partner at KPMG Kazakhstan and Central Asia. Changes like these would signal further improvements to the business climate and help boost investors’ confidence.

90 E&MJ • September 2015 www.e-mj.com Mining IN Kazakhstan

Global Issues Kazakhstan is no exception to problems affecting the industry worldwide

Sunset behind the pyramid portion of the Palace of Peace and Reconciliation in Astana. Photo by Lubo Novak.

There are a number of universal issues af- the number of accidents at our facilities. Geomark, a company from Karaganda, fecting mining companies nowadays. These Every year, we invest significant amount has a specific attention to industrial safety range from low commodity prices to mining of money to support this cause. This on mine sites. Rustam Khodzhaev, direc- safety especially in less developed regions money is invested into modernisation of tor of Geomark, said: “The government has to finding well trained personnel. This sec- industries processes, creating of safe con- been controlling industrial safety since our tion delves into greater detail covering two ditions, purchasing of the most innovative independence. The main piece of legislation of these main problem areas currently fac- personal protective gear etc. Our goal is promoting these requirements is the Law on ing the industry. to improve all the indicators of industrial Civil Protection. Until recently, the Ministry safety. We strive to achieve zero fatal ac- of Emergency Situations was dealing with Mining Safety cidents, and reduce work accidents by issues associated with industrial safety. This is a problematic area for Kazakhstan, 40%. We are improving our medical help Now it is the Committee of Industrial Safety which in the past has had a poor record standards as well,” said Krykpyshev of along with its regional subdivision belong- with health and safety in the mining sector, Kazakhmys. ing to the Ministry of Investment and De- especially coal. As previously mentioned, It is not only the local producers that velopment.” the mining sector in Kazakhstan is labor- are apprehensive about mining safety, Mining and industrial safety has been a intensive and this increases the chances of but increasingly foreign companies with problem in the past, but the country seeks workers getting injured. Kazzinc is one im- various specializations have voiced their to change this approach as the industry has portant player that has been strongly com- concerns. “Arguably, the Soviet influence been both privatized and welcomes private mitted to improving workers’ safety at its has installed the thought process that un- capital from abroad. This is yet another sign facilities. “SafeWork is a corporate program less rules and regulations are imposed by of a positive transformation. which has been rolled out over the last two the government they have no importance. years in all of Glencore’s assets. Historical- Government could be doing a lot more. It Finding Talent ly, these assets have had their own safety is still up to the individual companies to Globally, mining companies are experienc- policies and the SafeWork program is de- educate and train personnel to be health ing a lack of qualified personnel and the signed to unify safety policy in all aspects and safety conscious in the work place,” same can be said of Kazakhstan. Various of the job, i.e. working at heights, electri- said Apostolopoulos of Atlas Copco. incentives and schemes must be imple- cal installations, with moving objects, etc. mented to encourage young people to study Any work fatalities at Kazzinc’s operations geology. “For a long time, it was not con- will be brought to the attention of its entire sidered prestigious to work in the mining workforce to improve training and prevent industry, which is why today there is a seri- accidents from occurring again. The obser- ous lack of specialists in this sector. The vation of the SafeWork policy is continu- government understands how crucial it is to ously monitored by Kazzinc and on-the-job develop talent across many spheres - min- safety training is constant,” explained Nick ing, processing and services. We work hard Popovic, chairman of the board of directors on changing the perception of the mining of Kazzinc Holdings. industry in Kazakhstan; we aim to show Ka- Despite a poor historical record, com- zakhs that working for a mining company panies operating in Kazakhstan have is a prestigious career,” said Radostovets of come to adopt a zero tolerance approach the Association of Mining and Metallurgical to worker injuries and fatalities commonly Enterprises. found in Western countries. “In 2012, we “We certainly see a problem with find- identified a five year program to decrease Rustam Khodzhaev, director, Geomark. ing the right talent, and indeed within the www.e-mj.com E&MJ • September 2015 91 Alexandr Anchugin, general director, Nick Popovic, chairman of the board of directors, Kazzincmash. Kazzinc Holdings. Exploration and Mining Works Program Conclusion 2015-2019, we emphasized the importance Kazakhstan is holding a number of events, of staff issues, training, attracting young such as the Astana Mining and Metallurgy people to work in mining, improving the im- Congress in June 2015, Mining World Cen- age of mining professions and increasing the tral Asia in September 2015, and Minex competitive advantage of Kazakhstan on the Central Asia in April 2016 to increase its international arena for engineering talent. In visibility on the world stage. To become a this regard, we work closely with the Minis- booming mining destination a lot of work try of Education and Science of the Republic remains to be done, ranging from legislative of Kazakhstan. In the new school year, the and regulatory framework to ensuring contin- ministry will start new master’s programs in ued political stability in the foreseeable fu- the fields of geology, hydrogeology and geo- ture as well as the development of infrastruc- physics. We always try to attract students ture in the more remote regions. The Kazakh from mono-cities to these programs because government is taking positive steps toward they will be the ones who will come back to change and is working hard to present itself the mining towns and continue to work in the as an investment friendly destination. Once industry. Also in 2015, 60 specialists from an upturn in the prices of commodities oc- Kazgeology will go through a training process curs hopefully in the not-too-distant future, at Rio Tinto, 10 employees will train with Kazakhstan is looking to greatly benefit from Geotech, and 16 employees will train with an improved investment climate as a result Iluka Resources,” said Rau, the vice minister of its government’s hard work. of Investment and Development. Once the Mining Code is finally imple- One company with a long history in mented, Kazakhstan will only keep creat- Kazakhstan and focused around Ridder, ing more opportunities and rewards at the a mono-city, is Kazzincmash. It is not an same time. “Again, the legislation has not easy task to bring in specialists from out of been approved and signed into law as yet town and that is why training them locally so we are still in the waiting phase of this is indeed very necessary. “There are many evolution process. However, in prepara- families where people have been working tion for its enactment, we are seeing more at our production plant for generations, and and more interest in the country’s potential we highly support this tradition. We are al- with people coming to town for preliminary ways happy to see our employees bring their discussions. People assume that what is children and grandchildren to the factory. coming next is going to be an improvement Thanks to the continuous modernization of and they are imagining what their pres- our equipment and the technology that we ence here might look like. This is a positive use, we can offer more interesting positions trend for Kazakhstan,” explained Terrance to our employees,” said Alexandr Anchugin, Powell, Almaty advisory board chairman of director of Kazzincmash. the Canadian Russia Business As- Finding qualified personnel has been an sociation. Kazakhstan is open for business ongoing problem for mining companies glob- and , for their part, are hoping the ally and Kazakhstan has been no exception, message is getting out there. It is of cru- but as a new generation is entering the sec- cial importance to bring back the majors as tor, their skills are more in line with interna- well as the juniors. When the time is right, tional standards. With further training being Kazakhstan will be ready to claim its right- provided, Kazakh companies and universi- ful spot among the world’s foremost mining ties are addressing the issue head-on. jurisdictions.

92 E&MJ • September 2015 www.e-mj.com