Kazakhstan Mining - GB Reports · 2018. 2. 18. · Sales of ferrous metallurgy (mining and converting industries) have increased from $2.7 bil-lion in 2003 up to $3.86 billion in

Kazakhstan MiningEven though significant challenges remain to bringthe investment climate into line with recognizedinternational standards, mining in a post-SovietKazakhstan has evolved into a leading example ofeconomic reform and growth within the CIS region.

A REPORT BY GBR FOR E&MJ

2010DECEMBER 2010

This report was researched and compiled by Global Business Reports(www.gbreports.com) for Engineering & Mining Journal. Editorialresearched and written by Alisdair Jones ([email protected]),Ramona Tarta ([email protected]) and Eugene Yukin([email protected]).

TABLE OF CONTENTSKazakhstan—Not Just Another Stan......................................................................56Transition to Independence and Economic Growth ..............................................56Kazakhstan’s Mining Industry in 2010 ..................................................................57Interview with Deputy Prime Minister A.O. Issekeshev ........................................58Interview with Vice Minister of Industry and New Technologies Hon Albert Rau ....60Market Structure....................................................................................................62Kazakhstan’s Sub soil Regulatory Framework ......................................................64Tax and Royalties Regime ......................................................................................66Environmental Standards in Kazakhstan ..............................................................68Key Minerals, Companies and Projects ................................................................68Exploration in Kazakhstan......................................................................................81Tau-Ken Samruk—Kazakhstan’s National Mining Champion................................82Kazakhstan’s Services & Equipment Supply Chain ..............................................82Drilling ....................................................................................................................84Engineering ............................................................................................................85Laboratory and Consulting Services......................................................................86Professional and Financial Services ....................................................................88Equipment Supply ..................................................................................................89Transportation & Heavy Goods Equipment ............................................................90Mining Software......................................................................................................92Plant Construction ................................................................................................92The Role of Russia in Kazakhstan’s Mining Industry ............................................92Kazakhstan’s Move Downstream............................................................................94Conclusion ..............................................................................................................94

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At the summit of Central Asia, straddlingregional superpowers Russia and China tothe north and east respectively, sits the vastand resource rich nation of Kazakhstan.Despite Kazakhstan’s mining industry suf-fering a significant retrenchment in bothinvestment activity and production outputthroughout the global financial crisis’ mostacute period in 2009, the mining sector isnow forecast to enjoy high rates of sustainedgrowth over the short to medium term.

As the planet’s ninth largest country,covering 2,717,300 km2, Kazakhstandominates its Southern Central Asianneighbors both in terms of land mass andmineral wealth. Despite Kazakhstan’s fullportfolio of mineral resources being farfrom fully understood, proven resource fig-ures are truly staggering (Table 1). Of great-est interest are Kazakhstan’s world leadingreserves of uranium, chromite, zinc, cop-per, gold and manganese. Despite Kazakh-stan’s position as a de facto landlockedcountry and suffering from extremes of cli-mate, its mineral wealth has colossalpotential for development. “Kazakhstan notonly contains huge reserves, but also thequality and content of the deposits areexcellent,” said Bulat Uzhkenov of theKazakhstan Geological Committee. “Ex-ploration in this country is also quite devel-oped which provides a sturdy base for newexploration. At the same time, there arestill huge reserves of mineral resources that

have not been explored yet. As a resultKazakhstan has great potential in terms ofits mineral endowment.”

These circumstances have galvanized arush of both domestic and internationalinvestment over the past 15 years.

Transition to Independenceand Economic Growth Following the disorderly break-up of theUSSR circa 1991, the once thrivingKazakh mining industry was thrown intodisarray, suffering a sudden and steepdecline. Anecdotal evidence of widespreadlosses in both human and industrial capi-tal throughout the industry abounds on theground as Kazakhstan’s economy painfullyadapted to the shocks of Perestroika, trans-forming from a centrally planned model tothat of a market economy. Widespread

structural and economic reforms, such asprivatizing state owned industries, and thecourting of foreign direct investment (FDI)have been at the heart of Kazakhstan’seconomic resurgence since this post-inde-pendence period of instability. Thesechanges were implemented by incumbentPresident Nursultan Nazarbayev, with aclear focus upon supporting promisingindustries such as mineral extraction. Aformer miner himself at Karmetkombinat(today’s Arcelor Mittal steel plant),President Nazarbayev continues to stronglysupport growth in the mining sector, driv-ing the industry forward with a series ofchallenging expansion targets, notably thedoubling of production by 2015.

The pragmatic approach employed bythe Kazakh Central Bank throughoutKazakhstan’s transition period has enabledthe state to clear external debt and accu-mulate significant foreign reserves. Thishas helped to stabilize the Kazakh invest-ment climate as well as insulating thebroader economy from the whims of globalcommodities markets. This, and the resur-gence in global commodities prices, arethe key catalysts behind Kazakhstan’sgrowing importance as a global supplier ofminerals and a hub of mining activity.

By 1998, the vast majority of the min-ing industry had been privatized. Never-theless, there still remains a significant rel-ative output gap between resource wealth

KAZAKHSTAN MINING

Table 1—Kazakhstan’s major

mineral resources (1,000 metric tons)

Reserves Quantity World rankingChromite 00,350,000 1Copper 00,040,000 4

Manganese 00,600,000 3Gold 00,000,002 9

Iron ore 17,000,000 7Lead 00,004,800 1

Uranium 00,000,900 2Zinc 00,034,000 1

Source: USGS 2006

Bogatyr Komir—open-pit coal mine in Ekibastuz, Kazakhstan.

Kazakhstan—Not Just Another ‘Stan...


and output when leading mining nationsare analyzed in comparison. Given increas-ing demand in emerging Asia, combinedwith Kazakhstan’s strategic geographicalposition, such an output gap representssignificant opportunities for internationalinvestors, juniors and mining houses alike.

“Kazakhstan has been lacking attentionfrom international investors in a range ofindustry sectors that the country is inherent-ly strong in,” said Artur Krivov of theKazakhstan British Chamber of Commerce(KBCC). “Mining stands out as a sector thatwould benefit significantly both investorsand mining companies operating in theregion. This is not only with relation to theextractive industry, but also very much withprocessing of minerals as well. One ofKazakhstan’s key priorities is to expandupon our mineral processing industries; ura-nium in particular presents an excellentopportunity to develop upon this. One of thebiggest points we are trying to make as achamber is you have to stop looking atKazakhstan as just a place where you extractthe resources you need and then leave.Rather, investors should look at Kazakhstanas more of a long-term investment proposi-tion to create added value. Kazakhstan ispositioned ideally to export to its neighbors

such as India and China; these are theworld’s fastest growing economies.”

Kazakhstan’s MiningIndustry in 2010 After oil and gas, the mining industry inKazakhstan is the second largest economicsector when evaluated in terms of dollar rev-enues. In 2009, mining represented 19.6%of Kazakhstan’s national GDP and US$21.3billion worth of economic output. Althoughthe mining sector’s growth trajectory hasshared a similar pattern of turbulence tothat of the global economy during the recentfinancial crisis, growth in the mining sectoris expected to recover strongly with rates ofaround 7% by 2011. Given mining’s profileas a typically capital intensive industry,employment numbers in the industry areproportionally low relative to dollar output atjust 2.4% of Kazakhstan’s workforce.Currently, total employment in Kazakhstan’smining sector accounts for approximately205,000 jobs out of a national workforce inthe region of 8.5 million. Employment isspread throughout the value chain rangingfrom logistics and equipment suppliers, tofront end exploration geologists.

Perhaps Kazakhstan’s greatest weak-ness as a nation and investment destina-

tion is the country presents a number ofnegative stereotypes associated withCentral Asia and the former Soviet Unionto international investors and prospectiveminers. The deficit in reliable informationregarding Kazakhstan’s business environ-ment has inadvertently disguised whatmany enlightened observers regard to bethe genuine jewel in the crown of the wholeCIS region. “Kazakhstan is developing astrong and efficient resources sector,” saidDavid Woodall, CEO of Altynalmas. “When

DECEMBER 2010 • E&MJ 57www.e-mj.com

KAZAKHSTAN MINING

David Woodall—president of Ivanhoe’s Gold Operations,CEO for AltynAlmas, the subsidiary in Kazakhstan.


you visit Kazakhstan you will find a countrydeveloping what, in my view, has thepotential to become one of the world’smajor resources countries. If you under-stand what has been achieved in 20 yearssince independence, one can only imaginewhere Kazakhstan can be in another 20years…a real jewel in Central Asia.”

Beyond Kazakhstan’s outstandingresource portfolio, the country boasts oneof the strongest economies in the CIS andone of the most stable investment climates.Since independence Kazakhstan has con-sistently risen up the ranks of the WorldBank’s Ease of Doing Business Rankings

and is currently ranked at 63rd positionfrom 183. Post-independence reformsthroughout the Kazakh economy combinedwith very strong government support forgrowth within the mining sector have givena significant boost to the country’s invest-ment offering. In particular, PresidentNazarbayev has renewed his economic cre-dentials with a raft of proposals related tothe mining sector such as renewed legisla-tion and ambitious targets to double min-ing production and expand the economy’sdownstream industrial base by 2015.Kazakhstan’s increasingly proactiveapproach toward its key industries has

perked interest from recognized globalplayers such as Rio Tinto, who is now ramp-ing up its operational interest in the coun-try. “Kazakhstan is a fascinating countrywith huge potential in the minerals sector.Kazakhstan has not had its day yet; webelieve this will come in the not too distantfuture, and Rio Tinto hopes to be a part ofthat,” said Chris Welton of Rio Tinto.

Although post-independence Kazakh-stan has evolved into a leading example ofeconomic reform and subsequent growthwithin the CIS region, significant chal-lenges remain in order to bring the invest-ment climate into line with recognized


KAZAKHSTAN MINING

What initiatives does the Ministry plan to implement to assist the

Kazakhstan mining industry to modernize its technological base?

In general, during the recent years the mining and smelting indus-try has been enjoying a boom, which was not interrupted even bythe global economic crisis. Since 2003 production volumes ofmetal ores have increased by 350%. Sales of ferrous metallurgy(mining and converting industries) have increased from $2.7 bil-lion in 2003 up to $3.86 billion in 2009, and non-ferrous metal-lurgy (mining and converting)–from $1.9 up to $5.35 billion.

In 2009, investments into minerals based industries ofKazakhstan amounted to US$21 billion (12 times higher than in1996). Of that, $4.6 billion was invested into mining and conver-sion of solid minerals. The greatest volume of investments, next tohydrocarbons, goes to the polymetallic and ferrous metals indus-tries; then uranium, coal, gold, copper and aluminum follow.

The investments are directed into the technical modernizationof mining companies and construction of new high added-valueenterprises. Kazakhstan and transnational mining and smeltingcompanies working here, despite the crisis, managed not only topreserve the production, but also to continue implementing invest-ment projects.

In the near future, the government will approve the Mining-Smelting Industry Development Program in 2014. The target of theprogram is the provision of raw materials for the production of high-technology and science-intensive finished products (mechanicalengineering, construction, aircraft, space and defense industry).Upon the implementation results of this program we expect 107%growth of gross value added for metallurgy products.

There exists legislation to encourage the transfer of new tech-nologies and a number of state instruments help to stimulate andsupport companies carrying out modernization.

What steps will the Ministry of Industry and New Technologies

take to reduce the time frames for obtaining permits in Kazakh-

stan mining industry?

The Ministry of Industry and New Technologies undertakes meas-ures against bureaucracy and corruption. The Ministry methodi-cally works on unifying licensing legislation, reducing timeframesfor consideration of applications for geological survey, mining anddevelopment of reserves, and also on reducing the list of activitiessubject to licensing.

How do you estimate the perspectives of the long-term growth of

the Kazakhstan mining industry? Which minerals are most impor-

tant for the industry from the long-term perspective?

The increasing of oil, coal and metals production is not a goal initself as the President mentioned many times. Mineral resourcesare considered as raw materials for further processing. East-Kazakhstan titanium and magnesium are supplied to external mar-kets not in the form of ore, but as alloys as demanded by Airbusand Boeing plants.

What is your message to the international mining society and for-

eign investors?

We have civilized rules of play, able man power, an attractive taxlegislation and well-developed infrastructure–including water sup-ply, electric power, communications etc. Believe me, in someother countries you can only dream of such conditions. We areabsolutely open to bilateral dialogue with business.

Interview with Deputy Prime Minister of Republic of Kazakhstan, Minister of Industryand New Technologies Mr. A.O. Issekeshev

The Hon. Minister Asset Issekeshev—Minister of Industry and New Technology, now sepa-rated from the oil and gas.



international standards. Of greatest con-cern are Kazakhstan’s relatively antiquatedtransportation infrastructure, managementinefficiencies, technological obsolescence,increasing levels of government interfer-ence in private sector enterprise, local con-tent requirements, bureaucratic and micro-managing approaches to project approvalsand monitoring, as well as what would be

regarded by international standards as anexceptionally harsh approach to dealingwith infringements of the law. Suspectedspeculation on mining properties is a par-ticular area of Kazakh law investors shouldbe very much aware of.

As a result of these factors, mining out-put in Kazakhstan remains significantlybelow the country’s potential given its vast

mineral resource endowment and ideal prox-imity to some of the world’s major emergingmarkets for commodities demand.

The nation’s key challenge now is to raisethe investment climate to international stan-dards for investment and production then toflourish. While Kazakhstan’s world-classuranium reserves have elevated the countryto an international leader in production,


KAZAKHSTAN MINING

Interview with Vice Minister of Industry andNew Technologies Hon Albert Rau“Please introduce us to the role of the Ministry of Industry andNew Technologies within Kazakhstan’s mining sector.”AR: “The Ministry of Industry and New Technologies is responsi-ble for all of Kazakhstan’s mineral resources except for oil and gas.There are many facets to the Ministry of Industry and NewTechnologies’ mandate from technical requirements and stan-dards involved in new investments to trade and export governance.

Sub soil usage very much forms the basis of Kazakhstan’seconomy; there is a big government initiative to increase mineralproduction by 100% over the course of the next five years. Withinthis context, the Ministry of Industry and New Technologies gov-erns the development and investment into all of Kazakhstan’s subsoils (excluding oil and gas), as well as the construction and indus-trial development of the country.

“Can you please provide us with a brief overview of the regulatoryframework encompassing Kazakhstan’s mining industry?”AR: “Parliament has just recently accepted some changes inKazakhstan’s sub soil usage laws. President Nazarbayev is expect-ed to sign this off imminently. These changes make the legalframework for investors into Kazakhstan’s sub soils clearer. We willprovide official documentation to investors with regards to theproperties they are prospecting and developing. This change willenable them to achieve financing more efficiently than before.

For the past two years, there has been a moratorium on theissue of new exploration licenses due to speculation in the marketplace. This is expected to be lifted by President Nazarbayevtogether with his signing off of parliament’s recent changes toKazakhstan’s sub soil usage laws. This change will open up arange of new investment opportunities in Kazakhstan’s vast min-eral resource base.”

“Why was the moratorium on exploration activity introduced?”AR: “I must confess, we had a lot of work to do in terms of devel-oping an effective regulatory framework that would protect theinterests of Kazakhstan as a country, while simultaneously ensuringmining companies and investors found Kazakhstan an attractiveproposition to come and do business with. In essence we wanted todevelop a model that would remove speculation from the market.Two years ago, we had many companies purchasing and bidding forexploration permits that had no intention of undertaking develop-ment of Kazakhstan’s mineral resources. Their objective was to holdproperty rights they could later sell at a profit; this damages theeconomic growth potential of Kazakhstan. This area of businessactivity was a priority for President Nazarbayev to stop, thus theintroduction of the moratorium. In a review of existing contracts,around 10% have been stopped for further investigation.”

“How important is innovation to Kazakhstan’s mining and indus-trial sector?”AR: “Innovation and the introduction of new technologies intoKazakhstan’s mining industry is one of the key priorities for ourministry and government. Kazakhstan has vast resources, howev-er, it could achieve more efficient production ratios overall with theimplementation of the world’s leading processing technology. Partof our strategy is to attract foreign companies and investors withaccess to the world’s leading technologies. This will have a netpositive effect on Kazakhstan’s mining sector through the positivedispersion of state-of-the-art technology across the industry. Frompersonal experience working on copper projects with British part-ners, I can confirm this is a very effective means of rapidly devel-oping Kazakhstan’s innovative approach to mining, as well asallowing our industrial base to grow and diversify the economy.President Nazarbayev has just inaugurated the opening of a newaluminum electrolysis factory in Pavlodar; this demonstrates thegrowing industrial capacity and technological development ofKazakhstan’s mining related industrial base.”

“How do you assess the key strengths and points of attraction forinvestors coming into Kazakhstan’s mining industry?”AR: “Kazakhstan’s greatest strength is our political stability andcontinuity. Our labor force is highly trained and relatively low costand our resource base is vast, offering a huge array of opportunitiesfor new entrants into the market. Kazakhstan’s one standout weak-ness is our status as a landlocked country; this hinders our abilityto export bulk minerals such as iron ore at globally competitiveprices. President Nazarbayev has suggested a canal link to bedeveloped between the Caspian Sea and Black Sea in order toresolve this challenge; we will see how this develops over time.”

“How do you expect the mining industry in Kazakhstan to developbetween now and 2020?”AR: “We are presently looking at the period from now until 2014.There are a number of initiatives under way such as PresidentNazarbayev’s objective to double production and the Ministry’sbroad based objectives to increase investment into the sector aswell as boosting manufacturing and industrial activity that evolvesout of the sector. We are currently working on our strategic plan forthe next five years; this will be announced very soon.

Our objective is to ensure industrial and technological devel-opment evolves from Kazakhstan’s base mining industry. If wewere just to export raw materials, our resource base will one dayrun out in the future and we would be left with nothing; this wouldbe a huge mistake. Currently, Kazakhstan imports around US$5billion worth of equipment every year that is used in the miningindustry; we want to reduce this figure, while at the same timeincreasing our industrial capacity and economic diversity.”



numerous other commodities such as cop-per, chromite, manganese and gold haveexcellent potential for development withinthe right regulatory framework. AlmatDaumov of leading law firm Grata offers asnapshot of the Kazakh sub soil approvalsprocess. “The approvals procedure isbureaucratic; this is because there are awide range of issues that have to be signedbetween the government and investors. Themost important issues are the investmentobligations of investors, as well as the socialobligations of investors contributing to theregions they have operations in. Third interms of importance are local content obli-gations; these are relatively new and are notyet very clearly defined in terms of preciserequirements and definitions. Quite oftenthe market cannot provide the levels ofskilled labor required for particular projectsin certain regions. There can be strict penal-ties for not meeting local content require-ments; this is often considered a violation ofsub soil usage agreements.”

Market Structure In terms of production, Kazakhstan’s min-ing market is effectively divided into fourclear sub-sectors. Principally there are thefour main domestic producers: ENRC,Kazzinc, Kazatomprom and Kazakhmys.Next are an increasing number of recog-nized international mining players includingArcelor Mittal, Areva, Cameco, Severstal,Ivanhoe Mines and Rio Tinto that haveeither established operations, or are juststarting to make headway into the market.Lesser known, although far from insignifi-cant Kazakh firms such as Gornoe Bureau,

Yuzhpolimetal and Bogatyr Komir accountfor Kazakhstan’s third tier of mining firmsactive in iron ore, lead and coal respective-ly. Kazakhstan also has a relatively smallmix of international and domestic juniorfirms predominantly active in gold and cop-per exploration such as Frontier Mining,Sunkar Resources, Central Asia Resources,Hambledon Mining and Orsu Metals.

From a services sector and equipmentsupply perspective, Kazakhstan has onlystarted to come onto the radar for many ofthe industry’s established engineering firmssuch as Hatch, Amec, Bateman, BoartLongyear Drilling Services and LeightonHoldings. Regardless of this, Kazakhstanhas a relatively strong domestic services

sector with a number of incumbent firmssuch as Kazgiprotsvetmet, Vostokshah-tostroy, Iskander, Topaz and BaitauPartners supplying a range of vital servicesto the industry since the early 20th century.

“I think service and engineering com-panies have not yet seen the full develop-ment of Kazakhstan. In addition, servicecompanies who work in the sphere of con-struction of large projects; engineering andtechnology are not widespread. There aresignificant opportunities available withinthis niche sector of the country’s miningindustry,” said Nikolai Radostovets, presi-dent of the association of mining.

Kazakhstan’s equipment supply marketis pervaded by a division in managementand procurement perspectives between theincumbent short term purchases of cheapRussian or Chinese equipment and themore conventional international approachof investing more on capital expendituresover the course of production life cycles. Asthe Kazakh mining industry’s presence onglobal stock markets continues to increase,so does the requirement for world classequipment standards. Within this context,the market is beginning to see a shift awayfrom traditional Soviet era procurementstrategies toward one more concerned withlong term productivity and efficiency; pre-dominantly at the behest of the internation-al investment community. Such a culturalshift within the local market combined withambitious national production targets pres-ent a significant range of opportunities forinternational suppliers not yet established,or exporting into the Kazakh market place.


KAZAKHSTAN MINING

Jumbo drill at Kazzinc, a major fully integrated zinc producer with considerable copper, precious metals and lead credits.The company’s core operations are in Kazakhstan, mainly in East-Kazakhstan Region. It employs more than 22,000 peo-ple in mining, ore dressing, metallurgy, power generation and mechanical production. (Photo courtesy of Kazzinc)

Head frame at Kazzinc Malevski mine. (Photo courtesy of Kazzinc)



Kazakhstan’s Sub soilRegulatory FrameworkThe constitution of Kazakhstan and Edictof the President of 1996 denotes all subsoil mineral resources are owned by theKazakh state. Following a mid-2010 gov-ernment re-shuffle, responsibility for subsoil mining related commodities has beentaken out of the Ministry of Mines andEnergy’s portfolio, and placed into thenewly created Ministry of Industry and NewTechnologies. It is widely believed thischange will herald faster development inKazakhstan’s national industrial base, uti-lizing the mining industry as a platform, aswell as developing a more coordinatedstrategy in terms of innovation and techno-logical standards within the mining sector.The establishment of a sustainable down-stream industry is one of the new ministry’sfundamental objectives in line withKazakhstan’s 2030 economic master plan.

The key article of law governingKazakhstan’s mining industry is the Sub soil

and Sub soil Use Act, recently modified andadopted in July 2010. This law regulatesrelations arising in the sphere of sub soil useand is aimed at protecting the interests ofthe Republic of Kazakhstan, as well as facil-itating the rational and comprehensive studyand use of sub soil within the country.According to the Sub soil Use Act, one mayobtain sub soil usage rights in three particu-lar ways; either directly from the state,through purchase or transfer from anotherentitled sub soil user, or through legal suc-cession from the reorganization of entitiesalready possessing sub soil usage rights. Theprocess for acquiring sub soil usage rights iseither through direct negotiation or an opentender depending upon market conditions,government participation, as well as vendorand purchaser circumstances. Mineralexploration contracts are valid for six years,and are eligible for renewal for up to twoadditional periods of two years. Contracts forproduction are valid for up to 45 years andcombined exploration and production

licenses are valid for up to 31 years; all ofwhich are issued on a case by case basis.

Other key provisions of the 2010 actare; the Kazakh government has pre-emp-tive rights/first refusal to purchase any subsoil license at market prices should theasset come up for sale. Newly establishednational mining champion Tau-Ken Samrukwill be wholly responsible for such purchas-es if deemed attractive or strategically nec-essary by state authorities. Local contentrequirements form a significant area of theSub soil Act 2010. As such, procurementof goods, work and services for sub soiloperations shall be from Kazakh sources ifthey satisfy the technical requirements out-lined by the purchaser. Open tenders forequipment and services contracts are piv-otal to the local content requirements in theKazakh mining market. Another key provi-sion is that upon termination of a particularsub soil contract, all geological informationshall be transferred into Kazakh state own-ership. A sub soil user shall transfer, free ofcharge, all documents and other materialforms of geological information to theauthorized agency for sub soil studies anduse. In the vast majority of cases this will bethe State Geological Committee.

It is rather early to understand what theprecise implications of the July changes tothe Sub soil Usage Act will be, howeversome initial positive and negative outcomesfor mining companies and investors can benoted. The changes have brought a greatdeal more clarity with regards to theprocesses and procedures for transfer ofusage rights between different private enti-ties, as well as the Kazakh state. Thisincrease in detail is envisioned to reducethe arbitrary nature within which decisionsare taken and laws interpreted at a statelevel. The Sub soil Usage Act 2010 alsoprovides clearer information with regards toexactly which documents are required to beheld and submitted by mining firms at var-ious times throughout their project lifecycles. Some of the more negative interpre-tations with regards to recent changes con-cern the stability regime for laws enshrinedin sub soil usage contracts, as well as theability of statutory governing bodies to uni-laterally terminate contracts in the cases oftwo violations of the contractual agreementin question. The Previous Sub soil UsageAct required substantial violations of obli-gations under said contract prior to any uni-lateral termination. In effect, recentchanges have made it easier for stateauthorities to cancel sub soil usage con-


KAZAKHSTAN MINING

Bogatyr Komir—pit dragline loads overburden into railcars.



tracts for minor infringements. The scope ofthe stability regime has been narrowed,excluding both tax and customs regulationson top of previously excluded environment,national security and health and safety leg-islation. As a result, agreements enshrinedin signed contracts are subject to changesin Kazakh law, thus creating confusion andunpredictability for business models libel tochanges in the broader legal environment.

When compared with international cen-ters of mining excellence such as Australiaor Canada, Kazakhstan’s regulatory environ-ment in general is considered bureaucratic,over burdensome and complex with regardsto the import of capital goods and local con-tent requirements. When regional compar-isons are made, it is fair to say although notas expedient as Kyrgyzstan’s regulatoryframework, Kazakhstan’s legal regime is themost sophisticated in terms of providing longterm guarantees for investors. It is importantto note the trajectory of change in Kazakh-stan is increasingly one toward the free mar-ket model familiar to developed marketeconomies. Following a European Bank ofReconstruction and Development loan of€500,000 in December 2009, Kazakhstanhas undertaken a significant review of thelegislation in place for the mining industry.Jason Stirbinskis, managing director ofCentral Asia Resources, elucidates upon thebenefits of working alongside local partnersin managing Kazakhstan’s regulatory frame-work. “The level of reporting and bureaucra-cy in Kazakhstan is significant, it is all logi-cal but significant. You really need someoneto help you work out what you do and don’thave to respond to urgently, and how to nav-

igate the system. The best way to do this isby working alongside a local partner. Ourpeople and the knowledge we have ofKazakhstan are a huge advantage for CentralAsia Resources.”

Of greatest interest to exploration firmsand mining interests considering Kazakh-stan’s mining market is an expectedremoval of the moratorium on new explo-ration activity introduced in 2008.Following rampant speculation on Kazakhmining properties from the beginning ofthe century, President Nazarbayev intro-duced a moratorium on exploration activi-ties in lieu of the development of sufficientlegislation to prevent this practice. GivenKazakhstan’s vast mineral wealth and theexploration technologies available to lead-ing junior firms, such a legislative change

presents a boon to the international mar-ket, potentially opening a new frontier forcompanies interested in diversifying theirsupply bases away from increasingly taxintensive established markets. At the timeof going to press, it was widely anticipatedthis change would be imminent.

Tax and Royalties RegimeIn reaction to the significant downturn inproduction and investment following theglobal financial crisis, President Nazar-bayev signed into law the Amendmentsand Additions to the Acts on Taxation. Thispolicy’s fundamental aim was to ease thecost burden on mining firms by maintain-ing corporate tax rates at 2009 levelsthrough to 2012. Significant job lossesthroughout 2009 resulting from scalingback production galvanized the govern-ment into offering tax incentives for firmsmaking a loss that didn’t lay off workers.

Looking forward, the trend of reform isincreasingly looking at a more progressivetaxation and royalties regime, wherebyfixed taxes drop over time, however royal-ties related to output increase in line withglobal commodities prices. Corporateincome tax rates will drop from 20% in2009 to 15% in 2011. Concurrently a newroyalties’ regime will be introduced calledthe Mineral Extraction Tax, whereby pay-ments will be calculated according to whatparticular mineral is being extracted andits market price at the time. It is expectedthe MET will increase the overall royalties’burden for mining companies operating inKazakhstan. It is important to note howev-er, Kazakhstan’s tax regime for the miningindustry is increasing from what would be


KAZAKHSTAN MINING

Liebherr equipment, part of the renewing project the company is currently undertaking, a commitment to use top-notchtechnology for increased productivity. (Photo courtesy of Bogatyr Komir)

ENRC—Controlled explosions at Donskoi GOK, Kazchrome, Khromtau.



considered a very low base relative to inter-national standards. “There is still work forus to do with regards to improving theinvestment climate in Kazakhstan; the gov-ernment and the president are workinghard on this. We are now showing our abil-ity to attract major industry players such asRio Tinto, JOGMEC and Vale,” said SamrukBolat Svyatov, CEO of national miningchampion Tau-Ken.

Kazakhstan’s tax regime falls very muchinto coordination with the broader govern-ment objective of stimulating downstreamindustry and the production of manufac-tured goods. For instance, the ExcessProfits Tax has been revised to encourageprocessing as well as export, as opposed tosimply just export of raw materials. Thegovernment has also introduced a range oftax incentives for international investors toestablish processing divisions to comple-ment their existing mining operations.

Environmental Standards in Kazakhstan Kazakhstan’s environmental regulations lagsignificantly behind recognized internation-al standards. Implementing good interna-tional industry practices (GIIP) remains asignificant challenge for the mining indus-try of Kazakhstan. Kazakhstan’s miningindustry would benefit in particular fromimproving procedures to prevent contami-nation from tailings, waste rock dumps andsmelters. The Kazakh environmental codeis very detailed and prescriptive. Althoughthis provides for a comprehensive regulato-ry base, laws are often interpreted literallyas opposed to being adopted in spirit. It is

important to note Kazakh companies in thepast have looked at the lowest commondenominator in terms of environmentalpractices and protections, as the scope ofinternational finance and shareholderrequirements have an ever increasing influ-ence on the way that operations inKazakhstan are undertaken, these issuesare becoming an ever increasing focus fromthe leading players throughout the valuechain. This shift in priorities carries with ita huge opportunity for the world’s leadingconsultancies such as SRK Consulting,currently in the process of establishing itsKazakh headquarters in Almaty.

Key Minerals, Companiesand ProjectsUraniumIn an ever increasingly energy hungry glob-al economy whose emerging environmentalconscience continues to steer generationtechnologies away from traditional carbonintensive means, forecast increases indemand for clean energy fuels such as ura-nium are extremely exciting for uraniumrich countries such as Kazakhstan. As of2009, according to the World NuclearAssociation in London, there are 436nuclear reactors in operation worldwide,43 reactors under construction, 108 reac-tors in design phase and 266 reactordesigns under review. China currently has24 nuclear plants under construction, with100 scheduled to be completed by 2030.India has plans to construct two plants ayear between now and 2020 in order tobring a further 24 nuclear power plantsonline. All in all, it is expected there will an

extra 400 nuclear power plants in opera-tion around the globe by 2030. Uraniumfrom decommissioned Russian nuclearweapons presently accounts for 30% ofcivil nuclear power fuels. With this valu-able resource set to expire in 2012,demand for Kazakhstan’s rapidly expand-ing uranium sector is bound to increase.

Kazakhstan’s total assured uraniumresource equates to approximately 1.6 mil-lion metric tons (mt), giving Kazakhstan thesecond richest uranium reserve in the worldafter Australia. It is generally agreed these1.6 million mt are concentrated in six ura-nium rich provinces. Just three of theseregions are currently engaged in produc-tion, predominantly using the in-situ leach-ing method, however with a small propor-tion of shaft mining also in place. The Shu-Sarysu province in South Central Kazakh-stan accounts for 60.5% of Kazakhstan’suranium reserves, with key mining activitiestaking place at the Uvanas, Mynkuduk,Kanzhugan, Moinkum, Akdala, Buddenov-skoye and Inkai mines. All mining opera-tions in Shu Sarysu province employ the in-situ leaching methodology of uraniumextraction. The Northern Kazakhstan pro-vince that encircles Astana represents16.5% of Kazakhstan’s total uraniumreserves, with key mining operations takingplace at the Vostok deposit. Shaft miningmethos alone account for production atVostok. Syrdarya province in Kazakhstan’sdeep-south represents 12.4% of Kazakh-stan’s total uranium resources, major min-ing operations currently underway are atNorthern and Southern Karamurun, Irkoland Khorassan. In-situ leaching is the pre-


KAZAKHSTAN MINING

The Ulba Metallurgical Plant Joint-Stock Company is engaged in production of hi-tech uranium, beryllium and tantalum products, for the needs of the nuclear power industry. One of theleaders of the world, a unique facility with decades of tradition in Kazakhstan. Located in Ust-Kamenogorsk, one of the Kazatomprom facilities. (Photo courtesy of Ulba Metallurgical Plant)



dominant method employed throughoutoperations in Syrdarya. The Caspian,Balkkash and Lli provinces account for1.8%, 0.4% and 6% of Kazakh uraniumreserves respectively; as of yet no uraniumproduction is under way in these regions.

Kazakhstan’s uranium extractive sectoris widely regarded as the country’s mostdeveloped mining sub-sector. 2009 sawKazakhstan achieve its long held ambitionof becoming the world’s leading uraniumproducer, achieving output in the region of14,000 mt, a 60% year-on-year increasefrom 2008. As well as capitalizing uponsuch growth with a further 30% increaseexpected for 2010 up to around 18,000mt, a key strategic interest for national ura-nium giant Kazatomprom is to furtherdevelop downstream capacity within thenuclear fuel cycle. Leading internationalfirms such as Areva and Cameco are work-ing in partnership with Kazatomprom inorder to help achieve the stated goal ofmoving the industry downstream.

“Further developing downstreamcapacity is an important part of Kazatom-prom’s strategic focus,” said KazatompromVice President Sergey Yashin. “The agree-ment is if you want access to Kazakhstan’suranium resources then you should give ussomething in return that will benefitKazakhstan over the longer term. Kazatom-prom can mine uranium independently;however we are focused upon developingKazakhstan’s technological base. We havemajor partnerships with companies such asCameco and Areva. Kazatomprom’s focusupon technology transfer is best demon-strated in the plant we have under con-struction in Ust-Kamenogorsk designed to

process raw uranium into more developedenergy producing products.”

In terms of international participation inthe Kazakh uranium sector, a significantproportion of the globe’s established playersare already present in the market. Of great-est note are Areva (Southern Mynkuduk andTortkuduk mines), Cameco (Inkai mine),Sumitomo Corp. (Western Mynkuduk mine),Toshiba (Khorassan-2 mine) and UraniumOne (Karatau and Akdala mines). All inter-national players in the market are requiredto work in partnership with Kazatomprom inorder to develop both technological capaci-ty and ensure production is in line withKazakhstan’s legislative requirements.Yashin highlights Kazatomprom’s andKazakhstan’s ambitions for the industry by

leveraging international partnerships. “Thegoal for Kazatomprom is to participate in allelements of the nuclear fuel cycle, either byinvesting in Kazakhstan or internationally.We want to use our own uranium to havecoverage throughout the entire nuclearvalue chain; not only to sell to Westinghouseor Toshiba, but to use uranium to provideend services ourselves. Kazatomprom iscurrently working on the construction of aprocessing plant alongside Toshiba, as wellas an enrichment plant alongside RusAtom.The next stage is the construction of fuelassemblies alongside Areva; this will pro-duce the final product. Kazatomprom isalso working alongside Japanese andChinese companies to produce pellets, aswell as in partnership with Russian compa-nies to build a small scale reactor. All ofthese projects significantly increaseKazatomprom’s technological potential. Weaim to complete all of these projects by2016. The most important thing is enrich-ment as this significantly increasesKazatomprom’s status and profitability. Weplan to have our agreement with RusAtomconcluded by the end of next year. Weexpect to have a nuclear power plant fin-ished in Kazakhstan by the year 2020.”

GoldAs uncertainty in the global economy con-tinues to linger and gold prices continue tobreak records, the world’s relatively un-tapped gold mining regions such as Kazakh-stan have become of increasing interest.NYMEX gold prices have increased byalmost 500% since 2000, from $250 to


KAZAKHSTAN MINING

AIDD (Australasian Independent Diamond Drilling) working on drilling operations at Bakyrchik project, a large undergroundgold resource, 70% owned by AltynAlmas. Total measured, indicated and inferred resource, indicates 62.5 million mt at6.6 grams/mt gold based on a 3 g/mt gold cut-off.

Managing Director Jason Stirbinskis and an exploration manager inspect core at Central Asia Resources. (Photo courtesyof Central Asia Resources)



more than $1,300 this year. Kazakhstanhas not been excluded from the resultantgold rush seen throughout the world’s goldrich regions.

According to the United States Geo-logical Service (USGS), Kazakhstan has theworld’s ninth largest proven gold reserves

with 1,900 mt. In terms of output, howev-er, Kazakhstan barely makes it into theworld’s top 20 gold producing nations witharound 20 mt/y according to the BritishGeological Survey. President Nazarbayevhas set out a clear target for gold productionin Kazakhstan to reach 70 mt/y before

2015; raising the spectre of significantopportunity for international investment intoKazakhstan’s lucrative gold mining market.

Kazakhstan’s two major gold depositsare Vasilkovskoye (Kazzinc) with approxi-mately 360 mt and Bakyrchik (IvanhoeMines Altynalmas) with approximately 277mt; both of which are subject to very excit-ing development projects as this reportgoes to press. In terms of metallurgy,Kazakhstan’s gold deposits are complexpoly-metallic ores often presenting signifi-cant challenges during processing stagesof production. Much of Kazakhstan’s goldis produced by copper and zinc producerssuch as Kazzinc and Kazakhmys as a by-product of refining processes breakingdown the complex poly-metallic ore bodiestypical of Kazakhstan’s geological profile.

The Bakyrchik deposit in particular haspresented a number of challenges toAltynalmas’ innovative team led by goldmining Executive CEO David Woodall. “TheKyzyl gold project has one of the most met-allurgical complex gold ores. The mainchallenge with our deposit is we havearsenic grades as high as 1.4% and carbongrades as high as 4%,” said Woodall.

By working with an international team ofmetallurgical and chemical experts, Alty-


KAZAKHSTAN MINING

Kazakhmys South mine Zhezkazgan complex. (Photo courtesy of Kazakhmys)



nalmas has successfully modified a flu-idized bed roasting technology that will reaphigh enough gold yields in order to make theenormous Bakyrchik gold deposit profitableto mine. “The company started investigat-ing various metallurgical techniques toachieve economic recovery of the gold fromthis deposit,” said Woodall. “To date wehave tested BIOX, hydrometallurgy, singlestage oxidative roasting, two-stage oxidativeroasting as well as the two stage fluidizedbed roasting technology. We began withexisting parameters in terms of past goldprocessing; this was related to technologiesdeveloped by the world’s major gold compa-nies. We started there and initially failed togo beyond a 70% recovery range. We keptchanging the testing parameters until weachieved a recovery range of between 78%and 92% gold recovery in bench scale test-ing. This gave us confidence to build a pilotplant. We took this proposal to theAltynalmas board and were given approvalfor the construction of a pilot plant inColorado. The pilot plant test work has nowreduced the gold recovery range to between86% and 90%. This was a really groundbreaking achievement. We are now confi-dent at achieving an 88% gold recovery.

“The company is planning to commenceconstruction in the second quarter of2011,” said Woodall. “We have just com-pleted a pre-feasibility study and are nowmoving into a feasibility study and detaileddesign that will be completed in quarter oneof 2011. First gold production is expectedin quarter two of 2013 and full productionis expected in quarter four of 2013. We willhave nearly 600 staff working at the Kyzylgold project with more than 95% of theseemployees being local Kazakhs. Our first

full year of production is expected to yieldaround 12.5 mt of gold. We are looking toincrementally add around another 100,000oz/y. By 2015 we will be aiming to producearound 15 mt/y of gold. This very much sitsin line with President Nazarbayev’s target ofachieving national gold production of 70mt/y. We do not want to stop here; thedeposits are shown to exist to at least 1,200m. Our plan is use the previously developedinfrastructure in the form of two 550 m con-crete lined vertical shafts to develop a sec-ond mining front and target a productionlevel of more than 20 mt/y of gold.”

Kazzinc’s Vasilkovka mining complexalso has the capacity to raise presentKazakh gold production by approximately100% from today’s volumes with a pro-posed processing capacity that will enablethe production of 15 mt/y of gold by 2011.“Kazakhstan’s gold industry is predomi-nantly refractory in nature and the mainimpediment to development over the pastdecade or two has been the limited suc-cess of various technologies with refractoryore bodies,” said Kazzinc President NickPopovic. “With the combination of hydro-metallurgical and pyro-metallurgical tech-nology, mineral processing has the upperhand. We believe we can bring value to thetable whether it is by outside purchases,joint venture agreements or off-take agree-ments. We are totally flexible. Kazzincintends to have discussions with manyestablished players in order to either pur-chase ores, or to help optimize profits bymutual agreement.”

Kazakhstan’s significant gold reserveshave also aroused the interest of interna-tional junior firms. “I am beginning to see agreat deal more interest from Australian

players in Kazakhstan; I am not sure for thereasons, however there is certainly anincrease in interest at the moment,” saidJason Stirbinskis of Central Asia Resources.

It would be fair to conclude Kazakh-stan’s increasingly favorable regulatoryregime coupled with the country’s vast min-eral resources are the reasons stimulatinginterest from established mining centers.

Perhaps the most established juniorfirm operating in Kazakhstan is Hamble-don mining, a UK-based AIM-listed goldproducer with interests in Kazakhstansince 1998. Hambledon’s key operation isthe Sekisovskoye deposit, an open-pit mineand underground development comple-mented by a multi-functional processingplant at the same site. “Hambledon is cur-rently producing gold from an open-pit atan annualized rate of around 30,000 oz/y,but this will rise significantly when we startto process ore from underground, which isaround three times higher grade,” saidHambledon Director Nick Bridgen. “Wehave capacity to process up to 1 millionmt/y of ore depending on its hardness. Theopen-pit will be exhausted in about threeyears’ time and then we will treat the low-grade ore we have been stockpiling. We arenow developing the underground mine,from which we expect to extract about500,000 mt/y, so when the open-pit andlow grade ore is exhausted, we will have upto 500,000 mt surplus milling capacity.Our plan is to use this capacity to processores we source externally, in fact, we havealready started to buy ore from third par-ties. It makes sense for us to develop thisbusiness as there are a number of smalldeposits throughout Kazakhstan that can-not justify building their own processing


KAZAKHSTAN MINING

Dr. Alexander Yakubchuk—director, COO for Orsu Metals,precious and base metals company (TSX & AIM listed).

President Nursultan Nazarbayev—being shown latest Kazzinc investments in Ust- Kamenogorsk by Nick Popovic, CEO ofKazzinc. (Photo courtesy of Kazzinc)


facilities, but can produce good grades ofore. Our Sekisovskoye plant is able to treata wide variety of ores and concentrates. Wehave another processing plant calledOgnevka, which is currently on care andmaintenance. This is a flotation plant thatcould treat most base metal or sulphidegold ores. We are currently reviewing whatto do with this facility. We expect to beginunderground mining at the end of nextyear; this will significantly increase our pro-duction by around 70,000 oz/y which,together with the remaining productionfrom open-pit and any production frombought-in ores should bring our total tonearer 100,000 oz/y. In terms of otherexpansion plans, we are currently in nego-tiations with the government with a view toacquiring a number of new gold deposits.”

Central Asia Resources, Orsu Metals,Frontier Mining and Alhambra Resourcesare among some of the other junior firmswith on-going interests in Kazakhstan’sgold sector. As gold prices remain high andKazakhstan’s immense mineral wealth isscheduled to become available to interna-tional investors through the removal of thepresent moratorium on exploration that isin place, the expectation is that activity inKazakhstan’s junior gold market is set toexperience significant sustained levels ofgrowth over the medium term. “Given theexisting mineral wealth of Kazakhstan, andtaking into account the ambitions of thecurrent government, I believe with the rightapproach Kazakhstan has every opportuni-ty to transform itself into a global miningdestination of great significance,” saidAlexander Yakubchuk, COO, Orsu Metals.

CopperAs the prospects of major discoveries in theconventional copper producing regions ofLatin America continues to diminish, theforecast for emerging sources of copper sup-ply such as Kazakhstan increases greatly.

With some 40 million mt in provenreserves according to the USGS, Kazakh-stan is within the top five copper richnations of the world. Copper productionestimated to be around 400,000 mt for2010 places Kazakhstan at 10th positionglobally for copper output, translating intoa significant opportunity which is startingto be taken notice of by the world’s leadingcopper players such as Rio Tinto.

Kazakh copper production is overwhelm-ingly dominated by domestic behemothKazakhmys. With 16 open-pit and under-ground mines, 10 concentrators and two


KAZAKHSTAN MINING


smelting and refining complexes, Kazak-hmys produced 320,000 mt of copper in2009, representing around 80% of Kazakh-stan’s total output for that year. Kazakhmys’strategic objectives in Kazakhstan arefocused upon new constructions of process-ing plants as well as the upgrade of existingfacilities and the continued expansion ofoutput with mine developments such asBozshakol and Aktogay projects that willcome into production in 2014 and 2015respectively. “The main thing to note aboutKazakhmys is it has developed as an inte-grated company—more so than most othercopper miners around the world,” said OlegNovachuk, Kazakhmys CEO. “All of our oreis processed through to finished metal,which allows us to capture more value andmakes us less vulnerable to external shocks.And for us, being integrated includes run-ning our own coalfields and power stations,so that we are not dependent on others forour power. Security of power supply is goingto be even more important in the future.”

In 2005, Kazakhmys listed on theLondon Stock exchange. “This givesaccess to capital and a wide range ofexpertise. We have a strong board and thecombination of international corporate gov-ernance and local knowledge is powerful,”said Novachuk.

Kazzinc is Kazakhstan’s second largestcopper producer with approximately60,000 mt production in 2009. TheMaleevsky underground mine in EasternKazakhstan represents approximately 85%of Kazzinc’s total copper output. Kazzinc ismaking a US$700 million investment incopper smelting facilities. “The policy of

President Nazarbayev has been for a longtime to focus on the complete recovery ofall possible resources that can be extractedfrom the ground,” said Popovic. “Thanks tothe natural deposits Kazzinc controls, thecompany is now more poly-metallic thanany other mining company in Kazakhstan.Once we have the Ust-Kamenogorsk coppersmelter and refinery up and running, thefacility will be the world’s most complexnon-ferrous and metallurgical plant with acopper, lead and zinc smelter, all on anindustrial scale. When it comes to process-ing, however, our aim is not only to recoverall possible metals, but to also recover allmetal by-products, whether these are zinc,copper, lead or gold.”

In terms of new players into Kazakh-stan’s copper market, of greatest interest isRio Tinto’s very recent entrance in partner-ship with national mining champion,Samruk-Kazyna. A memorandum of under-standing signed between the two compa-nies in June 2010 lays the foundation forRio Tinto’s exploration interests inKazakhstan’s copper reserves. “We believeKazakhstan has the type of geologicalmake up to challenge countries like Peruand Chile in terms of their copperresource,” said Rio Tinto’s Global Head ofExploration Eric Finlayson. “The Oyu Tolgoidiscovery was a game changer in terms ofpeoples’ expectations for copper reservesin this part of the world. We believe theprospects for copper in Kazakhstan arevery good. Kazakhstan is very stable interms of safety for our people, the infra-structure here works quite well, the Kazakhworkforce is very highly trained, the com-

mercial framework works well for us andthe government is very supportive of themining industry here.”

Chromium and ManganeseRobust growth in India and China’s con-struction sectors has translated into signif-icant increases in demand for ferroalloys.Ferroalloy output will have to double in thenext decade if it is to keep up with expect-ed growth in stainless steel production. On-going power outages in South Africa’s fer-roalloy production sector leave the Kazakhmarket well placed to capitalize from theexpected increases in demand.

At 300 million mt, Kazakhstan’schromium reserves are the second largestin the world behind South Africa’s.Manganese reserves stand at 600 millionmt placing the country’s reserve in thirdplace globally. ENRC is solely responsiblefor Ferroalloy production in Kazakhstanwith 2.4 million mt of chromium and 1.3million mt of manganese ore extracted inthe first half of 2010. Chromium extractionincreased by 25% from 2009 and man-ganese extraction by 39%, reflecting sus-tained increases in global demand.

Very much aware of the huge potentialin Kazakhstan’s vast ferroalloys reserves,Russian mining conglomerate Mechelrecently entered the market on the back ofits acquisition of London based OrielResources. Mechel is currently developinga US$250 million mine at Voskhod, and is


KAZAKHSTAN MINING

Kairat Kelimbetov—CEO of Samruk-Kazyna, WealthSovereign Fund of Kazakhstan.

Felix Vulis—CEO of ENRC, a leading diversified naturalresources group with integrated mining, processing, ener-gy, logistical and marketing operations. The Group’s assetsare mostly located in the Republic of Kazakhstan and com-prise Kazchrome, Zhairem GOK, SSGPO, Aluminum ofKazakhstan, Kazakhstan Aluminum Smelter (KAS),Eurasian Energy Corp. (EEC) and ENRC Logistics.

Oleg Novachuk—CEO of Kazakhmys, one of the two FTSE100 Kazakh Mining companies.


undertaking feasibility studies for the con-struction of a smelter at the mine site. “Ifyou look at both the mineral and humanresources, Kazakhstan’s mining sector isextraordinarily well placed for a sustainablegrowth trajectory. I am confident aboutChina’s near term prospects for growth andKazakhstan’s mining sector will inevitablybenefit from this economic performance,”said Felix Vulis, CEO of ENRC.

CoalWith almost 34 billion mt of coal,Kazakhstan ranks eighth globally in termsof proven reserves with 3.5% of the overalltotal. Kazakh coal reserves are centered onthe Northern regions of Pavlodar andEkibastuz. With production at 96 million mtin 2009, Kazakhstan ranks eighth globallyin terms of annual production. Kazakhstan’scoal portfolio is dominated by bituminous and anthracite reservesaccounting for 30 billion mt, with the remaining 4 billion mtaccounted for by sub-bituminous and lignite forms of the blackrock. Coal production declined by approximately 10% in 2009 asthe knock on effects of the global financial crisis were felt, withexport volumes to key export markets such as Russia declining.

Despite recent concerns regarding Kazakhstan’s external coalmarkets, both foreign direct and domestic investment into the sec-tor has continued relentlessly. Kazakhstan’s largest coal producer,Bogatyr Komir, was recently acquired in a takeover deal by UCRusal of Russia and National Welfare Fund Samruk-Kazyna fromAllied Industries of the United States. ENRC has increased itsinterest in strategic coal miners such as Shubarkol Komir with a25% stake purchased in February 2009. Arcelor Mittal retains aflat level of investment into its Kazakh coal mining operations atUS$150 million per year amid safety concerns surrounding gasleaks at its Karaganda operations. Overall, Kazakhstan’s coal min-ing industry has a clear focus upon modernization and the imple-mentation of new technologies. “Bogatyr Coal places a strongfocus upon the implementation of new technologies in our opera-

tions so as to contin-ue to raise produc-tivity,” said ViktorShchukin. “Each ofour excavators canmine from 25,000up to 30,000 mt ofcoal per day.Between 2006 and2018, we will beinvesting US$600million in technolog-ical upgrades in ouroperations. As aresult of this invest-ment production willincrease by 8 mil-lion mt/y, enablingBogatyr Coal to con-tinue to meet the

demands of the 17 power stations and industrial enterprises inRussia and Kazakhstan. Bogatyr Coal sources much of its equip-ment abroad; in particular, our drill rigs come from Atlas Copco.”

Established in 2008, SaryArka Energy provides an excellentexample of innovation in Kazakhstan’s coal mining sub-sector. ADutch-Kazakh joint venture, SaryArka aims to develop the Zhalyndeposit into an economically viable mine. Where many companieshave tried and failed before, General Director Yakov Mamontovoutlines the core challenges the company has faced and theirvision for the deposit moving forward. “The Zhalyn deposit is not


KAZAKHSTAN MINING

Yakov Mamontov—general manager, Saryarka Energy LLC.

Saryarka—loading coal from mine into haul truck.


large but it is difficult to work. A total of11 companies have attempted to developthis deposit before us and failed. The rea-son this deposit is so difficult to develop isbecause of the large amounts of water. Atthe depth of 2.5 m you find a lot of under-ground water. No one believed that itwould be possible to extract the coal fromhere and they thought that we would fail aswell. We have showed our critics if thecompany is qualified and experienced thenyou can always overcome difficulties. Wegot the contract and we received thelicense for sub soil use on January 22,2009. The government contract gave usone and a half years for preliminary work,for the second year the result had to be100,000 mt for production, then 300,000mt, and by 2012 it is supposed to reach500,000 mt. According to the contract, in2010 we were supposed to be extracting100,000 mt, but we are going to extract650,000 mt of coal this year already. Lastyear, we applied to the government and tothe ministry to change the contract so theterms can be changed and expected pro-duction amounts to be increased. Our cur-rent production numbers were supposed tobe reached only in 2013, so we are wayahead.”

Iron OreKazakhstan’s iron ore reserves are posi-tioned at seventh globally according to theUSGS with approximately 17 billion mt ofproven reserves. Despite the country’swealth in reserves, output is relatively mod-est and wholly dominated by ENRC sub-sidiary SSGPO. SSGPO produced 21 mil-lion mt of iron ore in the first half of 2010,

a 46% increase from 2009, reflectingresurgences in global demand.

Established as an iron ore start up 10years ago, Gornoe Buro provides an excel-lent example of the ever increasing interna-tional focus of Kazakhstan’s next generationof mining companies. “We are currentlylooking into going global. We have receivedsome good proposals from India, Afghani-stan and many South African countries. Ourmain focus for export markets is primarymetals concentrate. Moreover, we also see alot of opportunities in exporting steel over-seas to China, Iran, or Pakistan where thereis a huge demand for metals. We aim tobecome the first company in Kazakhstanwhich will export metals produced from theore abroad,” said Adbraman Yedilbayev,general manager, Gornoe Buro.

PhosphatesAlthough occupying a relatively small pro-portion of Kazakhstan’s mineral productionmarket at around 3%, Kazakhstan’s hugephosphate reserves have a positive outlookgiven the renewed focus on this valuablemineral following takeover maneuvers byboth Vale and BHP Billiton in recentmonths. Mukash Iskandirov, general direc-tor of market leading firm Kazphosphate


KAZAKHSTAN MINING

Abdraman Yedilbayev—general director of Gornoe Buro,owner of several projects and awarded for research stud-ies. Bapy, its iron ore deposit in Karaganda is one of thenewly developed mines in Kazakhstan.


best summarizes the phosphate marketsturbulent past and positive outlook withinthe context of the company. “On the basisof existing mines and plants, Kazphosphatewas established in 1999. Now we have twomain mining complexes in Karatau andZhanata city. We have six mines overall, twounderground and four open-pit mines. Ourestimates show that we have approximately1.9 billion mt of phosphate in these mines,but overall the phosphate amount in the

whole Karatau basin is estimated to be 15billion mt. In these areas there are about45 deposits and Kazphosphate is currentlyworking on only six of them. Kazphosphatealso has two plants for the production ofphosphoric fertilizers, with an annualcapacity of 600,000 mt/y. We have thelargest production of yellow phosphorus inthe world; there are only five other coun-tries where yellow phosphorus is produced.Our production of phosphorus is 120,000

mt. We also produce technical phosphateswith an annual production of 120,000 mt.We transport all of our materials using ourown railroads and trains. Kazphosphate isan export-oriented company. About 75%-95% of our materials are exported to rough-ly 27 countries in the world. Our largestimporters are European Union countries,then Russia and then China.”

The opportunities presented by such awealth of phosphate reserves have not been


KAZAKHSTAN MINING

Mukash Iskandirov—general manager of Kazphosphate. Kazphosphate—state of the art production facilities. (Photo courtesy of Kazphosphate)


overlooked by junior companies such as Sunkar Resources. Sunkar’sshare price has doubled in recent months as the market wakes up tothe huge potential the company’s Chillisai reserve encompasses.Kazakhstan's huge quantities of sulphur by-product from the oilindustry serve to maintain cheap cost structures for Sunkar. “Sunkarhas a formal obligation to mine 10 million mt/y,” said Serik Utegen,CEO of Sunkar Resources. “This rate of production is only economi-cal when you have fertilizer manufacturing facilities adjacent to yourmine site. Sunkar at full production and processing capacity will pro-duce over 1.7 million mt/y of fertilizer, more than 2% of present glob-al consumption. We are quite wary about ramping up to full scaleproduction immediately given the quite crowded market for the glob-al supply of phosphate fertilizer. We plan to incrementally increaseour production until we reach half capacity in 2014 and then fullcapacity in 2017. We expect to be the market leaders in Kazakhstanfollowing our first stage of production. The Kazakhstan Governmentnow has a very clear focus upon the development of a strong agro-chemicals industry in the country. The demand for phosphates inKazakhstan’s agricultural industry is 500,000 mt of P2O5 nutrientper year. Kazakh domestic producers presently provide about100,000 mt of this demand, leaving 400,000 mt of demand reliantupon imports. Sunkar Resources will be very well placed to satisfythis demand from domestic production. All of our analysis has shownthis business to be extremely lucrative; the price of fertilizer is cur-rently expected to hover between US$350 and US$450/mt. At thisprice, we will be expecting to make significant profits with export tothe Western Chinese market. The cost structure of our business is sounique and competitive internationally that we are able to ensure aprofit given our comparative advantage of production cost relative tothe price defined upon international markets.”

Lead and ZincReserves of zinc and lead in Kazakhstan are approximately 30 mil-lion and 10 million mt respectively. Kazakhstan's lead reserves arethe largest in the world. Reserves are concentrated in EasternKazakhstan around Ust-Kamenogorsk as well as in SouthernKazakhstan in close proximity to Shymkent. Both zinc and lead pro-duction in Kazakhstan are dominated by major domestic firmsKazzinc and Yuzhpolimetall. Kazzinc production for 2009 was300,000 mt of zinc and 80,000 mt of lead. Kazzinc is driven by astrategy of advanced industrialization, employing some of the world’sleading technologies to ever increasingly improve the efficiency andproductivity with which Kazakhstan’s complex poly-metallic ores canbe processed. “Kazzinc definitely has further expansion plans,” saidPopovic. “This year we are finishing two projects: the Vasilkovskygold mine is one plant that we have commissioned this summer, andthe copper smelter and refinery is being commissioned at the end ofthis year. These two projects have a total investment value of $1.4billion and this is only the first page. The next page is pursuing ourtwo main branches of development—the development of the raremetals side and of the base metals side.”

Bauxite and AluminaAluminum production in Kazakhstan was left relatively unaffectedby the global financial crisis given the long-term nature of con-tracts between suppliers and their markets. Current bauxite outputfor 2010 stands at around 5 million mt from a relatively smalltotal known reserve of 360 million mt. ENRC’s Aluminum ofKazakhstan division is dominant in production of both bauxite andaluminum throughout the country.


KAZAKHSTAN MINING


Exploration in Kazakhstan “The biggest potential for Kazakhstan is ingeological exploration,” said Popovic.“Despite the massive geological drive thattook place during Soviet times, there was a15 to 20 year period following the break-up of the Soviet Union when stagnation fol-lowed. Money was not available for geolog-ical exploration. In the initial stages, mostcompanies considered there was enough intheir portfolios without a need for moreexploration. However, most companiestoday are public one way or another and alarge mining base is in the interest of themining companies themselves. Whereasbefore geological exploration was in thesole domain of the government, now it ismore in the interest of the private sector toparticipate in exploration. The establishedplayers in Kazakhstan including Kazzincare not the first tier of companies involvedin geological exploration, and that doesleave a vacuum for other companies toclaim a stake in this ever growing andexciting mining sub-sector.”

Despite Kazakhstan’s enormous miner-al potential, exploration activity today isvery limited and the number of active jun-ior companies very low relative to vibrantcontemporaries such as Peru or Chile. The

three most pervasive reasons for such alack in exploration activity are the highcosts associated with Kazakhstan’s lack ofinfrastructure, difficulties in accessingfinancing following the global financial cri-sis and the moratorium on new explorationactivity introduced in 2008 to prevent ram-pant speculation in Kazakhstan’s mineralproperties.

Paradoxically the global financial crisissignificantly lowered costs for exploration,but also pulled any available finance awayfrom willing suitors in the market.Exploration costs in Kazakhstan remainextremely high as equipment shortages arewidespread throughout the industry andcommon use infrastructure is very limited.The imminent lifting of Kazakhstan’s mora-torium on exploration, however, is expectedto set off a wave of activity from alreadyestablished juniors in the market and inter-national firms with a close eye uponexpected changes. Despite their strongposition in the market, green field explo-ration from Kazakhstan’s major playersremains relatively weak. “On average com-panies spend huge amounts of capital toexplore new sites, but in the end will onlyfind one of them to be profitable,”Yakubchuk. “The average chance is 1%

and the key is to find such a prospect thatwill eventually pay back all the costs forexploration. However, many companies inKazakhstan do not want to risk exploration,especially in greenfields. The governmentneeds to know what is going on in thecountry. Most importantly the bureaucraticsystem has to start working faster and moreefficiently.”

New national mining company Tau-KenSamruk has been established with theintention of both raising awareness ofKazakhstan’s excellent mineral potential aswell as easing the process for new entrantsinto the market to undertake explorationactivities on sites of interest. Chris Weltonof Rio Tinto outlines how the company’srelationship with Tau-Ken Samruk hasinfluenced their exploration strategy. “RioTinto is fully committed to running anintensive grass roots exploration program inKazakhstan, as well as looking for partner-ships with junior firms. Rio’s agreementwith Tau-Ken Samruk outlines explicitlyour commitment to put exploration dollarsin the ground. We have structured ouragreement to enable significant investmentin exploration throughout Kazakhstan.Needless to say we will still be looking atknown resources here. It is important to


KAZAKHSTAN MINING


note exploration costs in Kazakhstan arevery high and continue to increase. This issomething that Kazakhstan will have tolook at in order to ensure sustained invest-ment in the exploration market. Highexploration costs generally result in a dropin quality, before prices level out as com-petition in the market increases.”

Tau-Ken Samruk—Kazakhstan’sNational Mining ChampionBy resolution of the Kazakh governmentJanuary 15, 2009, Tau-Ken Samruk wasestablished as Kazakhstan’s national min-ing champion with three clear objectives.Primarily, Tau-Ken was established to con-solidate the Kazakh government’s miningholdings under the auspices of one entity.Tau-Ken aims to improve efficiency in themining regulatory process for approvals andraise awareness and investment in the sec-tor. “There are significant competitiveadvantages from working with Tau-KenSamruk,” said Bolat Svyatov, Tau-Ken CEO.“Companies that work alongside Tau-KenSamruk can negotiate directly with the gov-ernment for new exploration prospects, aswell as working outside of the current mora-torium on exploration activity. Tau-KenSamruk’s development strategy is very

closely linked to that of the government.This means companies working alongsideTau-Ken Samruk will be closely aligned withthe government of Kazakhstan’s strategicaims for the industry. It also aims to bringincreased exploration activity from interna-tional investors, working with strategic part-ners to raise technological standards andbetter understand the vast resource wealthheld within Kazakhstan’s huge landscape.On top of this Tau-Ken Samruk wants towork alongside international companies todevelop new technologies tailored toKazakhstan’s geological profile.”

Tau-Ken Samruk has already made sig-nificant strides toward further raising inter-est and investment in Kazakhstan’s miningindustry, with flagship deals alongside RioTinto, Bateman Engineering and JOGMECof Japan. Zhandos Abishev, director ofmining at Kazakhstan’s national sovereignwealth fund Samruk-Kazyna, outlines Tau-Ken Samruk’s ambitious strategic outlook.“Tau-Ken Samruk’s objective is not only toattract capital, but new technologies andmanagement methods also. Kazakhstanhas very complicated poly-metallic geolo-gy; we want to attract new technologies toadapt to these conditions. We have on-going negotiations with international com-

panies such as Rio Tinto and BatemanEngineering in order to achieve this. Ouraim is for Tau-Ken Samruk to be one of theworld’s top 10 mining companies by theyear 2020.”

Kazakhstan’s Services andEquipment Supply ChainIn terms of services and equipment supply,the Kazakh market has traditionally beendominated by domestic firms servicing thevertically integrated models of the big four(ENRC, Kazakhmys, Kazzinc and Kazatom-prom), and their former Soviet Unionbrethren. However, as the Kazakh miningmarket opens up to international financeand investment, international standardsand Kazakhstan’s huge potential as a min-ing center are increasingly drawing atten-tion from established international playersthroughout the mining industry’s ancillaryvalue chain.

Investment opportunities abound as thenumber of industry leading firms fromCaterpillar to Liebherr increasingly showinterest in working alongside Central Asia’smost exciting mining projects. “In-creasingly we are seeing significant expan-sion in our customer base from mid-tierKazakh firms seeking finance on interna-


KAZAKHSTAN MINING


tional financial markets. Kazakhstan’s cap-ital markets are relatively under-developedat present, thus galvanizing finance hungrymining firms to look further afield,” saidTony Thornton of SRK Consulting. “SRK iswell positioned to assist with the due dili-gence process required for such transac-tions. SRK is establishing an office herewith a strategic focus upon working withmid-tier Kazakh companies to raisefinance from international financial centerssuch as London and Hong Kong.”

Largely unknown to the internationalmarket, Kazakhstan boasts some ex-tremely impressive domestic services firmsinvolved in key areas of the mining servicechain. Kazgiprotsvetmet, Vostokshah-tostroy, Iskander and Vostok Prom Geo, aresome extraordinarily skilled firms withclear potential to expand into regional andinternational markets, as well as welcom-ing international investment partnerships.Such companies have a clear advantage inthe Kazakh market as local firms. “Thereare many advantages to being a 100%local company. Most importantly we knowthe local mentality of the people,” saidVladimir Gamayunov, managing director ofdrilling contractor Iskander. “We take intoaccount the Soviet attitude some compa-

nies and people still have here. Workingwith such companies is challenging for for-eign companies and we have an advantagein this respect.”

As international financiers have in-creasingly become interested in Kazakh-stan’s mining market, due diligence re-quirements for listings such as Kazakh-mys’ and ENRC’s on the London Stock

Exchange are increasingly placing directrequirements for an increase in equipmentstandards and internal procedures on theKazakh mining industry. In turn, this newdrive for an increase in standards has cre-ated significant opportunities for interna-tional services and equipment providers todrive rapid growth within the Kazakh min-ing market. “Kazakhstan with its climaticconditions and its wide outspread country-side forms a challenge not only for equip-ment designers but also for the completeproduct support chain,” said ReimundFassbender of Liebherr Export AG. It alsoforms a fantastic opportunity for suppliersof capable equipment.

The uranium sector in particular hasbeen highlighted by numerous internation-al players such as Hatch and BoartLongyear as a key interest area with sig-nificant growth potential. “Hatch workswith a variety of minerals. Currently we areparticularly interested in uranium. This issomething we want to pursue in Russiaand Kazakhstan. Our specialty in uraniumis strong and we are participating in vari-ous tenders in Kazakhstan in order to startoperating in this sector,” said Hatch’sGeneral Director for Russia and CIS AndreiTorgashev.


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Vladimir Gamayunov—executive director of Iskander.


DrillingMany of Kazakhstan’s most prospectiveregions were intensively drilled throughoutthe Soviet era and today’s drilling contract-ing market is dominated by several domes-tic players; notably Iskander, Topaz, VostokProm Geo and Volkovgeology. Regardless ofdomestic dominance in the drilling market,established international firms such asBoart Longyear Drilling Services andAustralian Independent Diamond Drilling(AIDD) are showing an ever increasinginterest in Kazakhstan. “The competitionis very high in this market and we havemany companies competing for contractsthat are also increasing their drillingfleets,” said Sergey Martishev, deputydirector of Vostokprom Geo. “Many drillingcompanies are modernizing in order to becloser to Western companies. This markethas its opportunities and difficulties. In thelast four months, for example, we know ofseveral companies that have come in andstarted working here. We feel the competi-tion in each tender that we participate in.We charge more for drilling, but we com-plete our projects faster.”

Martishev insists upon the quality serv-ice levels Kazakh companies such asVostokprom Geo are capable of delivering.“One of our recent successes has beenworking for Kazzinc, where we were able todrill a hole 2 km and 11 m deep in 84working days. That means we drilled 1,800m in one month and with one drilling rig.In the former Soviet Union, no one hasbeen able to drill to such a huge depth inthe last 25 years. We have tried to take thebest experience from both of Russian andWestern technology.”

“The decision was taken to come intoKazakhstan following the significant up-turn in mining activity that occurred in2007,” said Zelimkhan Barakhoyev, gener-al director of AIDD. “We now have threedrilling rigs in operation in Kazakhstan andaround 80 members of permanent staff.We have plans to increase the fleet of rigsto 11 by the end of next year. We have arange of contractors that fly in from a num-ber of international locations such asSouth Africa and Australia that assist withour more complex operations, ensuringthat we maximize our fleet usage as well ashelping to train the local staff AIDDemploys.”

As the government of Kazakhstan con-tinues to drive forward ambitious growth tar-gets in both mining production and explo-ration, the services market is extremely

attractive for established international play-ers. “Kazakhstan will be extremely impor-tant for Boart Longyear moving forward,”said Glushko. “I believe Kazakhstan offersgreater opportunity than Russia and is a sig-nificant move for us in terms of consolidat-ing a presence in the vast potential ofCentral Asia. Moreover, the educationallevel of the drillers that we have interviewedso far in Kazakhstan has been of anextremely high quality, with an excellentmining education.”

Despite the relatively high skills levelsof Kazakhstan’s drilling workforce, the keylimitation for drilling contractors to ensuresustained growth in Kazakhstan’s drillingcontractor market is the availability ofKazakh drillers to fill the high volume ofvacancies opening up in the market. Bothinternational and domestic companieshave to develop innovative recruitmentprocesses in order to attract Kazakhstan'sbest talent. Martishev highlights the expe-riences that Vostokprom Geo has had work-ing alongside Ust-Kamenogorsk’s Tech-nical University. “I am very satisfied withthe students we have worked with. Thispartnership has not only provided the stu-dents the opportunity to see how thedrilling work is on the ground, but it hasalso provided Vostokprom Geo with a greatrecruitment tool and the knowledge that weare getting the very best people into ourcompany.”

Given the vertically integrated operat-ing models used by Kazakhstan’s majormining players such as ENRC, Kazakhmysand Kazatomprom, the scope for signifi-cant growth in engineering and construc-tion services has been relatively limited upuntil now. “Some of the large companiesaround Kazakhstan have their own miningconstruction departments and they onlywork with those, but we are a private com-pany and we are willing to offer our servic-es to anyone who needs our assistance.This gives us the flexibility to work all overKazakhstan and with any client. Although


KAZAKHSTAN MINING

Kazgiprotsvetmet.

Kayrbek Kenzhalin—JV of leading construction contractorVostokshahtostroy and Australian world-class of CentralAsia Resources.


there is a free market, I would not say thatwe have that many competitors,” saidKayrbek Kenzhalin, president ofVostokshaktostroy.

However, given the exciting growth fore-casts for Kazakhstan’s mining industry andthe increasing focus upon internationalstandards, numerous established playerssuch as Bateman, Hatch, AMEC Minprocand Leighton Asia are now showing height-ened interest and presence in the market.

Engineering Having been established for more than 60years, Vostokshahtostroy is the clear mar-ket leader in terms of mine construction.The company has vast experience workingalongside Kazakhstan’s technical institutesin designing and approving constructionplans for many of the country’s most pro-ductive mineral deposits. “Vostokshah-tostroy prefers to work with larger interna-tional companies because their approachto negotiations is very different than whatyou can expect from local companies inKazakhstan,” said Kenzhalin. “Inter-national companies bring with them aWestern standard of negotiation that is veryhelpful when it comes to partnerships andwork arrangements. Many companies herein Kazakhstan have inherited the Sovietmentality of doing business, and thismakes it difficult to conduct business withthem. I think our own company is still inthe process of forming our distinct identity.I cannot say we are a fully Western compa-ny, but we are constantly striving for thebest standards of work and business.”

Established in 1947, Kazgiprotsvetmet(KGTSM) is a leading Kazakh engineeringfirm, which collabortes with Kazakhstan'sleading mining firms on a significant pro-portion of the country’s most exciting minesite developments. KGTSM provides a fullrange of engineering services from devel-opment schemes, feasibility studies, engi-neering proposals, to complex projectdesigns encompassing local enterprise,infrastructure, energy, transport and envi-ronmental impact assessments. KGTSM iswidely acknowledged to be a key driver ofimprovements of technological and proce-dural standards in Kazakhstan’s miningindustry working alongside well establishedinternational players such as Metso,Outotec and Siemens. Some of KGTSM’smost notable project achievements ofrecent times include the construction ofthe Bozshakolskogo mining and processingcomplex for Kazakhmys in association with


KAZAKHSTAN MINING


Aker and Fluor, as well as the continuedwork with ENRC to increase iron ore pro-duction to 60 million mt/y. KGTSM’s activ-ities are not confined to Kazakhstan alone,with operations in Russia, Ukraine andKyrgyzstan to complement the services onoffer in the Kazakh mining market. “Therewas immense growth after the crisis andwe see a lot of investment coming into themining sector recently,” said TokanChaizhunussov, KGTSM’s president. “Weimmediately saw an increase in theamount of work on various types of proj-ects. Requests for work have come in at afast pace, so much that in order to takecare of all our clients’ needs we have hadto use subcontractors.”

From an international perspective,Bateman Engineering has led the chargeinto Kazakhstan’s lucrative engineeringmarket. Having established its first CISoffice in Moscow in 1994, the companyhas now set up office in Almaty. Now work-ing in tandem with Tau-Ken Samruk,Bateman has a clear strategy to developinto one of the leading engineering andproject management players in Kazakh-stan’s mining market. “The reason wesigned the MoU with Tau-Ken Samruk wasnot only to develop our operations withinthe country, but to also identify ways ofhow Bateman can help Kazakhstan raisetechnological standards. As we continue toundertake projects in Kazakhstan, we willbe using our best-practice technologiesand techniques, and, naturally, our Kazakhpartners will be able to master these tech-nologies and benefit from our experience,”

said Yuri Gavrilov, Bateman’s director forthe CIS region.

Kazakhstan’s particularly complex met-allurgical profile makes the importance ofhaving well established and internationallyrenowned laboratory services vital to thecontinued growth and transparency of themining industry. The Kazakh laboratorytesting market today is dominated by threeplayers: Topaz, SGS and Alex StewartKazakhstan. “Today SGS provides tradition-al Testing Inspection and Certification (TIC)services to the Kazakh market’s nationalleaders in mining and metallurgy,” saidSGS Kazakhstan’s Managing DirectorAlexander Voznyuk. “SGS forecasts a sub-stantial increase of international compa-nies’ investment activity in the mining sec-tor. As more and more international compa-nies come to Kazakhstan, SGS believesthere will be new opportunities on the hori-zon for them and for SGS as a top levelservice provider. SGS is well positioned tostay on the top of this growth trajectory,offering our local experience in synergy withthe knowledge of our top international min-ing experts working for the SGS Group.”

Topaz is a unique Kazakh company,comprising numerous smaller Kazakh com-panies in a cooperative that offers an entireend to end service offering to the Kazakhmining industry. General Director BulatBagadaev, who is also the president of theassociation of Kazakhstan GeologicalCompanies, provides an overview of Topaz’shistory and unique service offering. “Topazwas established in 1929 by various smallercompanies who decided to group together

and merge into one company. In Soviettimes many deposits in the Altai region andother areas of Kazakhstan were developedby our company. After the fall of the SovietUnion, the process of privatization beganand not many companies were able to sur-vive. In 1996, our company became evensmaller and that is when I became the pres-ident. Since that time the company hasgrown substantially. Now we work on theterritory of all of Kazakhstan and we alsowork in Russia. We are one of the only com-panies that operate in the full spectrum ofmining work from the exploration stage toall types of drilling work. Despite theincreasing competition, we are not going tolet go or give ground in the mining sector.In order to remain a leader in the drillingsector, we recently began a modernizationcampaign of all of our equipment by switch-ing to newer and more technologicallysophisticated western equipment. We arealso modernizing all of our lab facilities inorder to expand and strengthen our labservices to the mining sector. As our finan-cial profits increase, we intend to developall the separate departments in our compa-ny to the point where they can become sep-arate companies. I think these actionstogether will put our company at the fore-front of the mining market.”

Laboratory and Consulting Services The Kazakh mining consultancy sector isdominated by three established interna-tional players, these being SRK Consulting,IMC Montan and Wardell Armstrong. WhileWardell Armstrong already has an estab-lished branch office in Kazakhstan, SRK is


KAZAKHSTAN MINING

Bulat Bagadaev—general manager of Topaz Geologicaland head of the Drilling Association in Ust-Kamenogorsk.

Bolat Svyatov, CEO of Tau-ken Samruk and Eric Finlayson, global head of exploration at Rio Tinto—signing a MoU inAstana, at the Astana Mining & Metals Conference.


in the process of setting up office, IMC Montan continues to runits Kazakh operations from Moscow. Tony Thornton, Kazakhstancountry manager for SRK Consulting explains the attractions of theKazakh market and the company’s reasons for now establishing aphysical presence in the country. “In a nutshell, Kazakhstan has avast untapped resource base that is very attractive for develop-ment. Kazakhstan is definitely an emerging market, which nowhaving had a dramatic birth into the global market economy facesa number of challenges to make the most of what is here. SRK hasthe international experience of similar sorts of emerging marketsthat enable us to perform well in such an environment. SRK hasbeen engaged on a number of projects in Kazakhstan over recentyears, establishing a branch office here is now a natural part ofthat evolution.”

Increasing demand for recognized consultancy services in theKazakh mining market are being driven by the pre-requisites ofinternational finance and the various due diligence processesrequired to achieve such investment. “IMC Montan’s main busi-ness is scoping, pre-feasibility and bankable feasibility studies,”said John Bacharach, director of IMC Montan. “These studies aredone for various reasons such as when a company decides todevelop a new deposit, when acquisitions are made, or when acompany wants to receive external bank and international financ-ing. When this happens, the banks and institutions often demandan international independent study by a recognized entity and thatis a large chunk of our work. Our other direction is independentresource and reserve valuations which are often needed for attract-ing finance. The third direction of our company is technical sup-port to the industry, improving productivity, reducing costs, andintroducing new technologies.”

“The paramount reason for the use of international consultan-cies in Kazakhstan is that Kazakh companies now realize theyneed to adhere to international standards in order to achievefinancing, particularly following the global financial crisis.Everything mining companies now do in Kazakhstan has to bebankable in order to achieve investment and finance,” said JuliaBoiko, CIS regional manager at Wardell Armstrong’s.

One of the key challenges for Kazakhstan’s mining industry tomeet its potential when resource endowment is concerned is thebusiness culture within the country. As Tony Thornton of SRKelaborates, this presents an excellent opportunity for the interna-tional consultancy sector to come and contribute to the develop-ment of Kazakhstan’s mining industry. “Although Kazakhstan hasa long tradition in mining, the key challenge from our perspectiveis the development of the skills required to undertake the transi-tion from a centrally planned economy toward a market economycompeting on the global stage. There is a distinct lack of suchskills. I am not saying they don’t exist; however there is certainlyroom for improvement in this area. In particular, there is a lack oftechnical specialists that have the skills to communicate and oper-ate that is line with international standards that global financialinstitutions want to see. SRK spends much of its time workingwith clients to provide such skills. Kazakhstan has some worldclass geologists with no understanding of market economics; thereis room for improvement in such areas.”

Given the transition toward international standards required byinternational financing, the opportunities for established and rec-ognized services providers such as SRK and IMC Montan are enor-mous. “I expect SRK to expand to the size of our Moscow marketover the course of the next two years,” said Thornton.


KAZAKHSTAN MINING


Local players are also offering theiradvice. Kazakhstan Mineral Co. (KMC) wasestablished in 2005. “Our major businessis in consultancy, we do pre-feasibilitystudies in local standards, resource esti-mates in local standards, and preparationof databases where we use Micromineproducts. We also work on databases,block modelling, and resource estimates.These are the major elements of our activ-ity. The other part of our business is inexploration projects. We evaluate proper-ties, develop targets and put together abooking program to explore new deposits.We have another company called GRService, which is our joint venture withIskander Drilling. We have a 50% stake inthe joint venture and it has about 50employees. We use this company as ourarm to do geological exploration in thefield. Taking KMC and GR Services togeth-er, we are able to conduct a project from itsbeginning phases until its last,” saidManaging Director Oleg Kim. “I feel thecompetition is pretty low for us since weare able to provide resource and estimatesboth according to local and western stan-dards. Our current market share for con-sulting is roughly 50% in Kazakhstan.Other companies here in Kazakhstan whoprovide such consulting services usuallyhave one or two people who work withWestern standards and Kazakh companiesusually stick with local standards.”

Kazakhstan’s safety standards in rela-tion to recognized international standardsfall short on certain levels; notably in thecoal mining sector. “I think safety stan-dards in the CIS, especially in coal mines,is a very serious issue. One of the thingsIMC Montan is trying to do is to raiseawareness of this in order to make coalmining safety practices in the region clos-er to what you can find in the West,” saidBacharach.

Kazakhstan’s safety standards areincreasingly being addressed by servicesand consultancy companies such as BaitauPartners. “Most importantly, the generalattitude needs to change in Kazakhstan,because many mining companies do nottake seriously the health and safetyrequirements,” said Zhanibek Imangaliyev,director of Baitau Partners. “Part of theproblem is, of course, companies considerthe government’s safety regulators aspolicemen and they do not like them.However, this is a self-perpetuated prob-lem because the safety regulators’ onlygoal has been to try and locate some kind

of safety hazard or violation and then pun-ish and receive a large fine from the com-pany. The more health and safety violationsthat health and safety regulators locate,the more the company gets fined. Insteadof focusing on getting the company finedand punished, more emphasis should beput toward correcting behaviours ratherthan punishing them. Baitau has partnersfrom the UK and we work with a companythat delivers international qualifications forvarious standards, such as HSE, IEMA andIOSH. We have general safety courses forHSE, including more than 20 types of safe-ty courses. We have a management andleadership division, where we offer coursesfor leadership and planning skills.”

Again, it is clear as international financ-ing requirements increasingly influenceKazakhstan’s modus operandi, opportuni-ties abound for companies engaged inniche markets such as health and safetyprovision. The key to success in Kazakh-stan is aligning corporate strategy withlocal partnership.

Professional and Financial ServicesAs the old maxim goes; investment into anemerging market is futile without the assis-tance of a generous banker, a loyal lawyerand a diligent accountant. The market forlegal and accounting services is competitivewith companies such as Grata and Salansoperating with a clear focus on the Kazakhlegal framework for mining investments,and PriceWaterhouseCoopers and Deloitteproviding a diverse range of accounting andprofessional services to the mining market.Dana Inkarbekova provides an overview ofthe services Price Waterhouse has on offer

to the mining industry in Kazakhstan. “Ourservices have been divided into audit serv-ices, tax services and advisory services,which could be consulting or deal structur-ing. Tax services are important inKazakhstan as the economy is dynamic andgoes through various changes in legislationand taxes. Taxes for the extractive indus-tries require expertise, experience andknowledge and we work very actively in thisindustry. Audit services are important tocompanies for financial reporting but alsocan provide corporate governance and allowthem to be listed on international stockmarkets. Audit is one of the core servicesthat we provide. Advisory has also played animportant role due to the number of merg-ers and acquisitions and this is also an areawhere we are working with mining compa-nies in Kazakhstan. We are the publicaccountants of general listed companiesand we helped them in some cases to belisted on the London Stock Exchange andwe are pleased with all of the growth thatthese companies have made. We work withseveral gold mining companies and we havehad discussions with iron mines.”

In terms of banking services to the min-ing industry, HSBC has very much takenthe lead in focusing its corporate strategyon this key area of Kazakh industrial activ-ity. “HSBC has a number of unique sellingpoints within the market,” said Mark Tate,head of HSBC Corporate Bank. “The mostimportant one is our international connec-tivity; we have put credit lines in placewhere we have done off-take of finance,which allows the Kazakh client to get fund-ing at cost, which is equivalent to the off-taker and the off-taker’s credit rating. Wehave put in place trade finance structures


KAZAKHSTAN MINING

Blasthole drilling in Kazakhstan with Atlas Copco ROC L6 drills. (Photo courtesy of Atlas Copco Kazakhstan)


which will save clients a significantamount of money rather than funding at14% in the local market. We have liquidi-ty as well as a balance sheet that allows usto fund clients at an economic rate. Overthe last two years, we have been the onlyinternational bank that has been pushingforward in this sector.”

HSBC’s liquidity and international pres-ence are vital to the mining industry, strug-gling to leverage domestic credit lines inthe wake of the global financial crisis.

Equipment SupplyKazakhstan’s equipment supply markethas traditionally been dominated by capitalgoods imported from the former SovietUnion and China. The Kazakh procurementapproach has been defined by short termcost analysis as opposed to the productionlife cycle approach employed in leadinginternational mining centers such asCanada or Australia. The incumbent per-ception in Kazakhstan’s procurementdepartments is that capital goods designedand manufactured in Europe, Australia andNorth America are overpriced. However, asan increasing number of international com-panies and investors do business inKazakhstan, a shift in approach towardinternational standards is underway. Manyfinancing agreements in Kazakhstanspecifically outline the requirement forinternationally recognised capital goods tobe used such as Boart Longyear drill bitsand Atlas Copco drill rigs. “The focus inKazakhstan is very much on purchasecosts as opposed to life cycle costs. Inorder to overcome this we leverage our net-work of contacts in Kazakhstan in order toreinforce the quality of what we have onoffer. The business approach in Kazakh-stan is certainly changing toward a man-agement style; more and more they arefocusing upon all of the costs that are con-nected with the management of equipmentand procurement strategies,” said HenrikApplebom, director of Volvo.

As the Kazakh mining industry’s pro-curement outlook turns towards interna-tional standards in terms of quality, func-tionality and inventory management, themarket is increasingly opening up for rec-ognized international suppliers to comeinto the industry. Boart Longyear is themost recent of a long list of internationalbrands including Sandvik, Metso,Caterpillar and Atlas Copco that are nowfirmly established in Kazakshtan’s miningequipment supply chain. President Nazar-

bayev’s target of doubling mining produc-tion by 2015 is expected to herald a sig-nificant ramp up in demand for capitalgoods from such suppliers. Lead times aregenerally more than 12 months for thedelivery of major capital goods, offeringsignificant opportunities for not yet estab-lished suppliers to come into the marketand pick up on the near term demands ofKazakhstan’s major mining players. “In2005, a decision was made to open a fullylegal Atlas Copco office here in Almaty,”said Per-Arne Lindqvist, general managerof Atlas Copco. “Since then we have had alot of growth and the number of ouremployees has increased greatly. We cur-rently have offices in Ust-Kamenogorsk,Karaganda, and Zhezkazgan. Kazakhstanis one of the fastest developing markets inthe mining sector and we saw many oppor-tunities here for Atlas Copco to develop itsbusiness. The mining sector accounts for80%-90% of our overall revenues inKazakhstan. Right now we have about 50employees in our office and that does notinclude our service sector employees. Wework with the major companies here inKazakhstan like Kazzinc, Kazakhmys,ENRC and their various subsidiaries.”

As of press time, a customs union wasbeing introduced between Belarus, Russiaand Kazakhstan. Although it is too early totell the exact impact of such changes onthe Kazakh equipment supply market, thegeneral trend will be for already relativelyhigh import taxes to increase for goods thatenter the market from outside these threecountries. Importing into Kazakhstan is anotoriously complicated process whichrequires the help of local specialists forboth new and established players in themarket. “When you import goods intoKazakhstan you need to follow certain pro-cedures that are very different from thoseyou would experience in the West. InKazakhstan, the entire process is a littleback to front,” said Chris Brodie, directorof Prolog Central Asia. “All of your docu-mentation must be written in Russian.Customs duty is calculated upon arrival. Ifany of your documentation or translationsare inaccurate this process can go horriblywrong in terms of cost. You must developclose working relationships with your sup-pliers in order to navigate these regula-tions. You have to focus upon getting yourdocumentation absolutely right in Kazakh-stan. That is what Prolog specializes in.”


KAZAKHSTAN MINING


Transportation and Heavy Goods EquipmentCaterpillar’s agent Borusan Makina is themarket leader in Kazakhstan’s transporta-tion and heavy goods equipment supplymarket. Having been established inKazakhstan since 1999, the company hashad a very good opportunity to learn aboutsome of the key challenges Kazakh minesites encounter, such as production out-ages associated with a reactive approach tothe management of parts and inventory.Borusan Makina has devised a transparentnetwork of outlets throughout Kazakhstan’svast landscape in order to help mine sitesovercome such issues. “Two key points thatseparate Borusan Makina from its competi-tors are availability of our parts for theequipment we sell and the breadth of ourproduct offer,” said Tako De Wit, director ofBorusan Makina. “In terms of part avail-ability, we have an on-going supply ofabout $20 million worth of parts in thecountry of which roughly $15-$16 millionare purely parts made for the mining indus-try. We have about 10 mining parts ware-houses in Kazakhstan. Given the fact thatwe have been doing this business for thepast 11 years, we have a fairly reasonabledepth of skills and organization we can pro-vide to our customers. Even though this isa very big country, larger than all ofWestern Europe, we have technicians andequipment parts available to most miningsites no more than two to four hours driveaway. In addition, Borusan Makina offerscustomers consultancy services through adedicated machine application team (pro-duction and scale studies as well machineselection support). This service is aimed athelping customers get the most out of theirequipment.”

Vying with Borusan Makina for leader-ship in the equipment supply market isTurkuaz Machinery. Turkuaz was estab-lished in 2003 and supplies a diverserange of equipment to the mining industryfrom leading suppliers such as Hitachi.Sergey Grekhov, managing director of themining equipment division, elaboratesupon how the Kazakh government’s plansto double mining production by 2015 willimpact upon Turkuaz’s Kazakh operations.“These governmental plans will be benefi-cial for our business; there is a lot of workahead for us. We have many goals whichwe intend to achieve in order to retain ourposition in the market. In terms of growingour market share in the supply of excava-tors, we intend to achieve first place, in

other words to have a 45% market share.In terms of all other forms of equipment,we intend to maintain our strong positionwith no less than 30% of market share.There is an enormous amount of open-pitmines in Kazakhstan which are undevel-oped; potential for mining here is verylarge. As more companies begin to developthese mines, then naturally Turkuaz willstart increasing our supply of machinery.As for what we are doing to position our-selves in the market, Turkuaz of course willcontinue to make interesting proposals forpotential customers, offering various waysof financing the equipment, a high qualityof service and competitive prices.”

The expected growth in Kazakhdemand for international equipment andthe subsequent increase in competitors inthe market such as Liebherr, Volvo andKomatsu has led to companies employingmore and more innovative services strate-gies in order to retain customer interestand market share. “The market has grown

to be extremely competitive over the pastcouple of years,” said Henrik Applebom.“Volvo has an extremely strong brand interms of quality and efficiency, as well asan excellent service offering to comple-ment the products. Volvo has a service cen-tre in Almaty for maintenance and repairworks. We also work a great deal withonsite solutions where we work in partner-ships to provide service, mechanics train-ing and driver development for improvingsafety and efficiency with regards to howour products are used. Safety and efficien-cy are increasingly on the agenda for thecompanies established in the Kazakh mar-ket both in mining and oil and gas. In par-ticular we are performing training on howtrucks should be driven, loaded andoffloaded, as well as demonstrating effi-cient driving techniques, which is extend-ing the life cycle of truck.”

Although more focused on the con-struction sector, with just 10% of overallbusiness coming from mining, Wirtgenoffers a range of highly specialisedmachinery, with a clear focus upon surfacemining. Wirtgen’s story provides an excel-lent example of the opportunities presentin the Kazakh mining sector. Having beenestablished in Kazakhstan since 1998, thecompany is now making great stridestoward increasing market awareness of thespecialised products the company can pro-vide to niche areas of the industry.

Boart Longyear, Sandvik and AtlasCopco have all now established officesthroughout Kazakhstan as demand for theirrange of advanced drilling equipment con-tinues to increase. While Chinese andRussian drill rigs have traditionally beenfavored, shifting procurement and opera-


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Borusan Makina, the local dealer for Caterpillar in Kazakhstan. Tako de Wit, passing the management of the miningdepartment to Aman Shakenov.

Sergey Grekhov—head of mining, Turkuaz Machinery, thelocal representative for Hitachi equipment.


tional strategies have placed exponentialincreases in demand upon world-class drillrig suppliers. Per-Arne Lindqvist of AtlasCopco explains the impact such demandshave had on lead times and how the com-pany intends to capitalize upon strongexpected near term growth in the Kazakhmining market. “One of the short termchallenges we are expecting to see are thelong lead times we are facing now whenimporting our equipment into Kazakhstan.The financial crisis had a big impact on themining sector, and the demand for equip-ment fell dramatically. Now the economyhas picked up again and many requests forequipment are coming through. As a resultlead times to import equipment here havebecome very long, and for some pieces ofequipment the lead-time is up to a year.Atlas Copco has grown very quickly since2005 and we have had a solid develop-ment of our branch in Kazakhstan. Ourorganization is also very young both interms of the age of our branch and theaverage age of our employees. Now is thetime for us to mature and build a solidbase in the country. From there we willcontinue to grow and expand. In five yearsI think we will be an established servicecompany here in Kazakhstan and cus-tomers will want to work with us since wewill be the leader in providing services andequipment to the mining sector.”

A number of smaller scale equipmentintermediaries such as Prolog Central Asia,Gateway Ventures, LSH International,Mining & Drilling Services and KazakhstanMining & Industrial Financial Co. (KMIF)have emerged that are able to offer moreflexible options to their customer base, anda less bureaucratic means of deliveringequipment than some of the larger interna-tional companies operating in Kazakhstan.“The Central Asian region is going to beone that will be growing very strongly in thecoming years. Prolog’s range of productand service offerings is extremely well posi-tioned in order to benefit from such growthin the mining industry here. We have setout our stall here in Kazakhstan for Prologto be considered the portal of choice forinternational companies entering theKazakh mining market. Prolog has threeclear business streams,” said Brodie.“First, we offer a range of business supportand consulting services for a whole rangeof supply related issues such as contract-ing, tendering, IPO related sign offs andlogistics consulting. Our second streamProlog works with is our representation and

product supply wing where we specialize inthe supply of repeat consumables for min-ing companies and mine sites. We focusspecifically on engineering products withinthis stream. Prolog’s third and largest busi-ness stream is the supply of products asrequired for a variety of projects throughout

the industry here. By products as requiredwe mean products such as specialistchemicals and capital goods such ascrushers. We don’t have any specific alle-giances in terms of suppliers, enabling usto be far more flexible and tailored in ourchoice of supplier. The way business is


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ENRC-central maintenance control room at EEC, Aksu.



done in Kazakhstan is very different fromwhat many international companies wouldhave experienced in the past. Over time wehave grown to understand these idiosyn-crasies and are in a good position to assistinternational investors navigate the varioussystems in place here.”

Based in Kazakhstan’s mining hub ofKaraganda, Mining Financial Co. operatesunder a diversified business model where-by the company provides equipment, con-sulting and various project managementservices to both international and domesticinvestors into Kazakhstan’s mining market.Mining Financial is increasingly gearing upthe company’s business model towardworking in partnership with internationalinvestors new to the market that wouldgreatly benefit from working in tandemwith local partners. “Kazakhstan MiningIndustrial and Financial Company has var-ious tools with which it is prepared to assistforeign companies in developing their min-ing projects in Kazakhstan,” said MiningFinancial Director Andrey Krivosheyenko.“We have the industrial base to construct aservice center. Considering the experiencewe have in meeting the demands of ourclients, we can ensure the success of anymining project. Despite the very negativeeffect of the financial crisis on the econo-my, progress continues. Little by little,2010 has seen the industry expanding andimproving and firms are once again buyingnew equipment. Precisely here we can bebeneficial to companies coming fromabroad. Kazakhstan Mining Industrial andFinancial can help by preparing the initialset of documents necessary for foreigncompanies. We can provide all necessarydocuments required for a project, provideassistance with local operations, and ren-der all possible support for the develop-ment of mining fields.”

Mining SoftwareFour of the key players in the internationalmining software market are present inKazakhstan’s mining industry, providingsoftware solutions and consultancy servic-es. Datamine, Mincom, Gemcom andMicro Mine are all currently competing forthe ever increasing interest in tailored soft-ware solutions for mining operations.Paradoxically the global financial crisisstimulated an upturn in demand for soft-ware solutions as highlighted by AndreiNadein, regional vice president of Mincom.“The onset of the global financial crisiswas a clear accelerator for our business, as

many companies in Kazakhstan begun tofurther examine ways in which they couldimprove their overall operations and reducecosts. Such companies realized they need-ed to clearly understand what was going onacross their day-to-day operations.”

The most popular products in Kazakh-stan’s software market are those able toassist with asset and operations manage-ment on mine sites and geological model-ling in exploration phases. Consultancyservices that complement mining softwaresales are increasingly important in ensur-ing one’s competitive edge in the market.

In terms of outlook, the prospects forsoftware services providers in Kazakhstanare very positive. “Kazakhstan is a verycomfortable place to do business, it is verysafe and there is a huge amount of poten-tial within the market,” said Andrew Pyneof Gemcom. “In terms of exploration, agreat deal has been done at a surface level,however the sub-surface profile is largelyunknown. Even in the Western Australiangoldfields we are still making huge discov-eries 100 m below surface level;Kazakhstan will be endowed with similaropportunities. I am very bullish aboutKazakhstan. I think we have the potentialto grow by up to five times by 2015. Theenquiries we have had for new businessover the course of this year have by farexceeded my expectations.”

Plant ConstructionOf the major international equipment sup-pliers for processing plant and miningoperation constructions, Outotec is themost established company in Kazakh-stan’s mining market, having first estab-lished a physical presence in the country in1997. Metso entered the market later, in2002. “Metso Minerals was established in

Kazakhstan in 2002,” said CIS RegionalDirector Valeriy Korotkov. “Since that time,we have grown from two members of staffto 16 members of staff, and from€500,000 revenues up to €20 million rev-enues. We have also moved from represen-tative office status to legal entity status,this allows a great deal more commercialflexibility and ability to fully satisfy ourcustomers’ demands. As a commercialentity we can keep larger stock levels andoffset a greater number of risks a rep officegenerally encounters. We transferred fromrep office status in 2009.”

Significant growth in Kazakhstan’splant construction market is being drivenby a familiar set of fundamentals. Inter-national demand for mineral commoditiesis strong; Kazakhstan’s government is driv-ing ambitious increases in both productionand industrialization; the culture of pro-curement and operational management inKazakhstan is shifting toward more inter-nationally recognized quality standards,and the financiers of the mining industryare increasingly demanding such stan-dards. As all of the major mining playersare announcing capital expenditure expan-sion plans, as well as new entrants to themarket such as Rio Tinto and IvanhoeMines, who will have requirements forplant construction in the coming years.This niche sector in Kazakhstan’s miningservices and equipment supply marketlooks particularly buoyant.

The Role of Russia inKazakhstan’s Mining IndustryAnyone working in Kazakhstan’s miningsector today instantly recognizes the histor-ical role that Russia has played in develop-ing Kazakhstan’s mining industry. Until only20 years ago, Kazakhstan and Russia werejoined as part of the Soviet Union and thehistory of Kazakhstan’s mining is rooteddeeply in the partnerships and cooperationthat Kazakhstan and Russia enjoyed. Thislong involvement continues until today andhas contributed to a multi-layered relation-ship between the two countries.

Last year alone, Kazakhstan was thethird highest receiver of Russian FDI intoCIS countries. Some of the largest areas ofinvestment have been in the uranium andgold sectors. While news of Polyus’s take-over of Kazakh Gold have questioned theexact role Russian companies seek to playin Kazakhstan, many see Russia as a sta-ble and reliable partner in the efforts todevelop Kazakhstan’s mining sector.

Andrey Krivosheyenko—director of Mining Financial Co, avery complex , up-and-coming, national player in the serv-ices market, based out of Ust-Kamenogorsk.

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“Historically speaking, Russia and Kazakh-stan have been connected culturally, eco-nomically and politically for a very longtime,” said Yuri Gavrilov, director ofBateman Engineering’s Moscow Office.“Russian companies have long been activein Kazakhstan, and it would be strange ifRussia was not present in Kazakhstan anddid not contribute to the development ofthe country’s mining sector.”

Cooperation on government levels hasbeen particularly intense in the uraniumsector. Rosatom, Russia’s State nuclearbody has been seeking new levels of coop-eration with Kazatomprom. This year, thetwo companies were on the brink of signingfurther cooperation agreements in additionto existing ones. Current plans point toKazatomprom buying a uranium enrich-ment plant in Russia, in return for allowingRosatom and its subsidiaries a piece of thepie in developing uranium mining withinthe country.

As one of Russia’s largest neighbors,Kazakhstan is considered by Russian com-panies as one of their top priority marketsfor expansion. For Russian companies,their entry to the Kazakh market oftendates back to Soviet times. Kamaz, theworld’s 11th largest provider of heavytrucks, entered Kazakhstan in 1978. Sincethen Kamaz’s Naberezhnye Chelny factoryhas been supplying Kazakhstan with up to7,500 trucks per year. The advantage ofhaving a decades long presence in a coun-try is particularly valuable from the per-spective of service and spare parts avail-ability and these days a Kamaz truck canbe fixed in any town or village inKazakhstan, since you will easily find spareparts and Kamaz specialists, according toAnatoly Krygovih, director of the KamazService Center in Almaty. While Kamazdoes not produce any specific equipmentfor the mining industry, its trucks oftenoperate in mines, and the company isactively planning to increase its presencein the country to take a 60%-70% share ofthe market by 2015.

Chetra Machinery is another companywho got a head start in Kazakhstan’s mar-ket during Soviet times. Chetra was estab-lished in Russia during the 1970s andsince then has become a global producerof equipment, including equipment for themining sector, which now accounts formore than 40% of Chetra’s profits inKazakhstan. “We have always been in thiscountry, and thanks to the good relation-ship between Russia and Kazakhstan and

KAZAKHSTAN MINING



the strong leadership of Kazakhstan, verycomfortable conditions were created fordeveloping our business here. Now we arenot only producing and supplying ourequipment to mining companies, but alsooffer a variety of services including train-ing, and renovation of equipment, and pro-duction of spare parts,” said AlexeiKuzmin, director of Chetra’s marketingcompany in Kazakhstan.

Currently, Chetra is working with all ofthe major companies in Kazakhstan, par-ticularly in the supply of bulldozers andtrucks and currently holds an approximate35% share of the market in terms of sup-plying such equipment.

While Russian companies seek to maketheir mark on Kazakhstan’s mining sector,Russia plays an equally important role byserving as a platform and a base forWestern companies involved in Kazakh-stan, but who have not yet developed aphysical presence there. Many inter-national companies with a presence inRussia use their Moscow office as theheadquarters for their work in the CIS.

John Bacharach has been involved inmining projects in CIS countries sincethe fall of Soviet Union, and now headsone of the consultancies that make upthe IMC Montan joint venture. Special-izing in various services, but particularlyin scoping, pre-feasibility, and bankablefeasibility studies, IMC Montan hasalready completed nearly 200 projects allacross the CIS region, including morethan 40 in Kazakhstan. Kazakhstan cur-rently accounts for about one quarter ofIMC Montan’s profits.

For Yuri Gavrilov, director of Moscow’sBateman Office, Kazakhstan represents“the next big target.” Bateman Engineeringopened an office just recently in order toestablish a physical presence. “Without adoubt we need a physical presence in thecountry to meet the local legislativerequirements. As our projects there grow innumber, so will our physical presence,”said Gavrilov.

With an office of seven staff, BatemanEngineering’s office in Almaty currentlyundertakes most of the legislative and rep-resentative functions, while the Moscowoffice still handles all the project work.

One crucial element that makes theprocess smooth for Russia based compa-nies opening offices in Kazakhstan is thefact that most of the regulations andlicensing legislation governing the miningindustry were very similar if not outright

identical until recently. Given Kazakh-stan’s enormous uranium reserves and itsstatus of the world’s largest producer ofuranium since last year, Hatch has beenparticularly interested in working on urani-um in Kazakhstan. According to AndreiTorgashev, director of Moscow’s Hatchoffice, Hatch has been continually buildingits expertise in the uranium sector. “InRussia we already have all the necessarylicenses and we are in the process ofreceiving these licences in Kazakhstan.”

While Hatch has not opened an officejust yet, it has already worked on severalprojects in Kazakhstan and like many com-panies, is actively looking for partnershipsand cooperation with local Kazakh compa-nies ahead of establishing offices there. “Isee our presence in Kazakhstan as verystrong in five years and we might makeKazakhstan a regional hub for Hatch’s workin CIS countries,” said Torgashev.

Overall, Russia is positioned strongly tocontinue playing a role in developing theKazakh mining sector. New developmentssuch as the customs union will have a pos-itive effect on Russian-Kazakh businessand will also aid foreign companies withRussian branches to better explore andultimately establish their offices inKazakhstan and the CIS.

Kazakhstan’s MoveDownstreamA fundamental milestone in PresidentNazarbayev’s agenda to double mining pro-duction by 2015 is Kazakhstan’s programof industrialisation, whereby the country’swealth in mineral commodities is being tar-geted as a platform to stimulate growth inthe country’s industrial base and furtherdiversify the national economy.

A notable success in achieving thesegoals is the continued development andupgrade of the Ulba metallurgical plant inUst-Kamenogorsk which is vital to Kaza-tomprom’s strategic objective of buildingindustrial capacity throughout the nuclearfuel cycle. ENRC’s world class aluminumsmelter completed in Pavlodar and thecompany’s direct current furnaces atSSGPO’s iron ore facilities are clear exam-ples of how Kazakhstan’s industrial base isbeing expanded on the back of the coun-try’s mining industry. As highlighted earlier,Kazzinc’s US$1.4 billion investment pro-gram is at the forefront of Kazakhstan’sshift toward the implementation of worldclass technologies in order to fully capi-talise upon the country’s mineral reserves.

By no means confined to the extractiveindustries alone, Borusan Makina is devel-oping a component factory in Karaganda.“Borusan Makina is currently investingUS$13-$16 million in a ComponentRebuild Center,” said De Wit. “Here wewill have a repair and rebuild factorywhere companies will be able to bringtheir used equipment components for pro-cessing. We will be able to strip all typesof equipment down, reuse all of the partsthat are salvageable, and install new parts.Critical to this process is the extensivetesting procedures that will be included inthe rebuild processes. This centre givescompanies much more consistent qualitythan they would get with just repairsalone. The factory is currently being builtin Karaganda where construction workstarted last year. We should have our firstproduction toward the end of this year.With this center in production there will befour options when it comes to overhaul-ing/repairing equipment; you can buy newparts and components from Caterpillarthrough Borusan Makina, Borusan Makinacan perform repairs detailed to the cus-tomers wishes and requirements, compa-nies can purchase Caterpillar Reman com-ponents when the old components aresent back to Caterpillar who will remanu-facture these, or you can buy exchangedcomponents which will come out of ourComponent Rebuild Center. We areexpecting to have about 120 people work-ing there by 2015.”

ConclusionKazakhstan’s immense mineral wealth hasnever come into question since the hugeexploration activities undertaken duringthe Soviet era. Today’s Kazakhstan has arenewed focus upon continuously improv-ing the regulatory environment, raisingindustry practices to internationally recog-nized standards, and raising productionlevels year on year in order to bringKazakhstan’s production levels in line withthe country’s outstanding potential as acenter of global mining activity. As majorinternational players are increasing theirinterest in the Kazakh market, the invest-ment opportunities throughout the valuechain are widely acknowledged as beingimmense. Of greatest interest at this stageis Kazakhstan’s resource potential forexploration companies and the numerousgaps within the equipment and servicesvalue chain which remains far from matu-rity at this stage.

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Documents

Kazakhstan Mining - GB Reports · 2018. 2. 18. · Sales of ferrous metallurgy (mining and converting industries) have increased from $2.7 bil-lion in 2003 up to $3.86 billion in