Mining to Kazakhstan

Trends and opportunities

The market

Kazakhstan remains one of the world’s most promising emerging markets for natural resources and is one of the 10 leading countries in the world for mineral reserves. The fast-growing mining and metals sector is vital to Kazakhstan’s economy contributing nine per cent of the country’s gross domestic product (GDP) and 25 per cent of total industrial output in 2015. The country benefits from its geographical location being a supplier of commodities to Asia and Europe. Kazakhstan holds vast mineral reserves which are largely undeveloped. The country possess 30 per cent of the world’s chrome ore reserves, 25 per cent of manganese ore, 10 per cent of iron ore, 5.5 per cent of copper, 10 per cent of lead and 13 per cent of zinc, according to official estimates. The Central Asian republic is also richly endowed with uranium, gold, coal, bauxite, phosphate, titanium and tungsten. Kazakhstan is currently the world’s leading producer of uranium, the third largest producer of chrome and seventh largest producer of zinc.

The mining industry in Kazakhstan is focused mainly on extraction and export of raw materials and base metals, with further high-value processing abroad. About 80 per cent of mining products are exported representing 20 per cent of the country’s total exports.

Despite weak global commodity prices, BMI expects Kazakhstan’s coal and iron ore production to go up in 2016. The increase will be supported by renewed overseas demand, mainly from China and India, as well as by the growing needs of the domestic economy. Foreign investments from China, Russia and Australia maintain positive economic outlook and business environment in the country despite potential threats such as political instability and corruption.

BMI also expects Kazakhstan’s mining sector to be supported by the country’s accommodating regulatory environment for international miners including the adoption of a new mining code, introduction of a simplified procedure for the granting of mineral rights and tax exemptions for investors.

Kazakhstan’s new mining code was developed in 2015 on the basis of the Western Australian model. The purpose has been to boost geological exploration and remove administrative burdens for junior miners. The code is expected to come into force in 2018.

Starting from 2010, Austrade and the Australian mining equipment, technology and services association (Austmine) have been arranging mining, engineering, technology and services (METS) missions to Kazakhstan. The missions provide Australian suppliers of products and services with opportunities to access the local mining industry, establish contacts with leading mining companies in the region and get firsthand information on the recent developments in the mining sector.

Opportunities

Opportunities for Australian suppliers of METS exist across the full spectrum of activity in several mining sectors and geographic regions of Kazakhstan.

Key areas of opportunity include:

  • geological exploration
  • Mining software and systems development
  • drilling contractors
  • integrated project management
  • contract mining
  • equipment supply
  • laboratory and consultancy services
  • business process consulting
  • engineering services
  • low grade ore processing technologies
  • training and other services.

Mining investors

Today Kazakhstan is ranked 18th in the world for the best mining investment opportunities, according to the Where to Invest 2015 report by Behre Dolbear Group.

Recent reports by BMI confirm the significant potential of Kazakhstan’s mining and infrastructure sectors. A high volume of foreign direct investment and a well-established export market are two positive factors for investors entering Kazakhstan. Foreign mining companies in Kazakhstan include Glencore, Rio Tinto, Iluka Resources, Central Asia Metals Plc, Areva Sa, ArcelorMittal, Russian Copper Company, and Rusal.

Rio Tinto Group is in the process of investing around A$100 million into the copper mine in Northern Kazakhstan. Rio Tinto formed a 50/50 venture with Tau-Ken Samruk (the national operator of mining assets in Kazakhstan) to tap the country’s mineral resources. Another JV has been formed with KazGeology, the Kazakh National Exploration Company. Engineering and construction costs are expected to be about A$1 billion.

Iluka Resources conducts geological exploration in Kazakhstan targeting rutile and zircon-containing mineral sands deposits. The second stage of aero-geophysics started in July 2016.

The Kazakhstan Government is interested in attracting new investors in the industry. The country regularly hosts major investor events such as the Astana Mining and Metallurgy Congress, Mining World Central Asia and Minex Kazakhstan.

Competitive environment

According to Standard & Poor’s, Kazakhstan’s mining and metals industry has low costs and considerable growth opportunities. Companies in the sector can build competitive advantage through factors such as access to quality resource deposits, moderate energy and labour costs and less stringent environmental requirements. Kazakhstan is ranked relatively high in the 2016 Doing Business report (41st out of 189 countries) and adopts positive amendments to the mining legislation. Mining companies have a good supply of mining stocks and a significant proportion of easily accessible reserves, allowing the use of less sophisticated and therefore less costly technologies.

Key players

Kazakhstan’s mineral raw materials base is amazing in its size and variety, with over 60 out of 105 elements of Mendeleev’s Table being extracted in the country. As a result, roughly 220 registered mining enterprises are involved into mineral producing and processing operations in Kazakhstan. The main players in the market are large domestic holdings set up by local entrepreneurs as a result of privatisation of former state assets, subsidiaries of international companies and smaller businesses, including some Australian green-fields operations. An ongoing process of mergers and acquisitions and investment activity continues to significantly transform the industry.

The largest mining companies active in Kazakhstan include:

  • The Eurasian Group: one of the world’s leading diversified mining and smelting groups with fully integrated mining, processing, energy production, logistical and marketing operations. The Eurasian Group comprises one third of the mining and metals sector of Kazakhstan. Its key commodities include chromium, manganese, iron ore, bauxite and coal.
  • Kazakhmys: the largest copper producer in Kazakhstan, leading international company in sphere of mining and development of natural recourses. Copper operations are fully integrated from mining ore through to the production of finished copper cathode and rod.The copper division also produces large amounts of other metals as by-products, including zinc, silver and gold.
  • Kaz Minerals: a high growth copper company focused on large scale, low cost, open pit mining in Kazakhstan. It is one of leading copper producers in Kazakhstan with five operating mines and four concentrators. The Group is listed in London, Kazakhstan and Hong Kong. Major growth projects include Bozshakol, Aktogay and Koksay.
  • ArcelorMittal Temirtau: an integrated mining and metallurgical complex with its own coal, iron ore and energy base in Karaganda region. Part of the Arcelor Mittal global steel empire.
  • Bogatyr Coal: One of the world largest open-pit coal mining enterprises operating two mines - Bogatyr and Severny. The total industrial reserves of the company are about 3 billion tons of coal.
  • Kazzinc: a mining company founded in 1997 with a majority stake privatised to Swiss commodity trader Glencore. Kazzinc is a major fully integrated zinc producer with considerable copper, precious metals and lead assets.
  • Tau-Ken Samruk: a national operator of state assets in the metals and mining industry of Kazakhstan. Тau-Кеn Samruk is a partner of Glencore and owns 29.8 per cent shares in the capital of Kazzinc. The company is actively seeking investors, including foreign investors, to participate in the development of a variety of projects ranging from early-stage exploration to project development. Tau-Ken Samruk has entered into an exploration joint venture with Rio Tinto.
  • Kazatomprom: a national operator of Kazakhstan’s government-owned uranium and rare metals assets as well as the national producer of nuclear fuel for power plants. Kazakhstan is the world’s largest producer of uranium.
  • Syrymbet: the largest undeveloped tin deposit in the world. As of 2014 JORC-compliant Mineral Resource Statement, the reserves are 94.5 million tonnes of ore and 463.5 K tonnes contained tin with average grade of 0.49 per cent.
  • Kazakhaltyn: one of the oldest gold industry enterprises in the country located in the Akmola region. The company has three operations producing gold from both open-pit and underground mines. In 2015, the enterprise produced more than 800 kg of gold.
  • Central Asia Metals: London-based company owning 100 per cent of the Kounrad solvent extraction and electrowinning copper facility in Kazakhstan.

Key issues and challenges

Despite the stable growth in the first decade of the century, Kazakhstan’s economy has been hindered by an overreliance on mineral exports and dependence on external markets. In 2014-2015, following the decline in the global oil prices and recession in Russia and China, Kazakhstan experienced two very tough years with most sectors of the economy going into recession. Some signs of a recovery appeared in the country’s industrial production in 2016.

In 2015, Kazakhstan’s real GDP growth fell to 1.2 per cent, according to the World Bank. GDP growth is expected to remain near zero in 2016, before rising to 1.9 per cent in 2017 in the case of oil prices remaining within the range of US$41-50 per barrel.

The national currency, the Tenge, for a long time was kept within the corridor of 145-155 per US dollar under the managed float policy. In February 2014, it was devaluated by 19 per cent to about 185. A freely floating exchange rate for local currency was introduced in 2015 resulting in further Tenge depreciation. The current exchange rate is 330 tenge per US dollar.

In the mining sector, the low level of mineral processing within Kazakhstan arguably limits the country’s ability to establish a value-chain and exacerbates dependence on volatile world markets. Some local ores are less competitive on the world market because of low concentrations that require complicated extraction methods and consequently drive up production costs.

Technology and business processes can be quite antiquated in Kazakh mining operations. Obsolete equipment and outdated work practices require producers to invest in innovative technologies and implementation of more modern business processes to be internationally competitive. Kazakhstan mining companies are generally keen to embrace new approaches and ready to implement world-class equipment, technology and services to increase production, cut costs and improve health, safety and environmental performance, but decisions can take considerable time.

Kazakhstan also faces infrastructure constraints. Stemming from the legacy of the Soviet Union, the Kazakh mining industry is largely integrated into a single production chain with Russia and Ukraine. Existing infrastructure is designed to direct much of mining output to these countries. A lack of transport infrastructure and the fact that China's industry is located mainly in the eastern part of the country – far from the shared border – significantly increase transportation costs to China. Nevertheless, China remains an important and growing market for Kazakh mining producers.

Key projects

  • Ferrous metals – large projects (with reserves of more than one billion tonnes of iron ore) are the Sokolovsky, Sarbaiskoye, Kasharsk, Ayatsk and Lisakovsk deposits located in Kostanai region, as well as the Atasusk group of fields. Tau-Ken Samruk is planning to set up production of tungsten and molybdenum concentrates and tungsten products at the large deposit at Upper Kayrakty.
  • Ferroalloy – Kazchrome (part of ERG holding) is one of the world’s largest ferrochrome producers, supplying the market with a range of high-grade chromium alloys. Kazchrome also produces rutile, zircon and ilmenite concentrates. Kazchrome integrates four operating companies: Donskoy Ore Mining & Processing Plant, Aktobe Ferroalloy Plant, Asku Ferroalloy Plant, Kazmarganets Mining Enterprise (manganese). Turkish YILDIRIM Group owns the Voskhod Chrome enterprise in northwestern Kazakhstan comprised of a state-of-the-art underground mine and a modern ore processing plant.
  • Copper – Kazakhmys, the leading copper producer, operates 16 underground and open-pit mines (with the largest at Zhezkazgan), nine processing plants (incl. enrichment plants at mines Nurkazgan, Shatyrkul and Kosmuryn) and a copper smelter. In 2014, Kaz Minerals separated from Kazakhmys to operate the most promising copper mines in the country including four existing mines and three growth projects (Bozshakol, Aktogay and Koksay) as well as three concentrators. Other copper miners: Aktobe Copper Company (part of the Russian Copper Company), Kazzinc, Polymetal (Russia), Central Asia Metals PLC (UK), Rio Tinto (exploration of Korgantas mine started in 2015).
  • Lead-zinc – Kazzinc is exploring multiple fields including Ridder-Sokolnoe, Shubinsky, Maleevsk and Obruchevsk. Tau-Ken Samruk has formed a joint venture with an international partner to develop Alaygyr field in Karaganda region.
  • Aluminium – Aluminium of Kazakhstan JSC (part of ERG holding) includes the Kazakhstan Aluminium Smelter (KAS), Pavlodar aluminium plant, the Torgai and Krasnooktyabrsk bauxite mining units, the Keregetas limestone mine and the Pavlodar heat and energy plant. It holds the rights to subsoil deposits of Akmola group. State mining company Tau-Ken Samruk is exploring low-grade bauxite deposits.
  • Tin – Syrymbet is the largest undeveloped tin deposit in the world containing 94.5 million tonnes of ore.
  • Mineral sands – Iluka Resourses, Australian mining company, conducts geological exploration in Kazakhstan's promising areas looking for the available resources of ilmenite, rutile, zirconium and tin in the mineral sand deposits.
  • Titanium and magnesium – Ust-Kamenogorsk Titanium-Magnesium Plant (UKTMP), with a major European shareholder, is one of the world's largest titanium sponge and magnesium producers. UKTMP is developing a mine at the Satpaev field to partially satisfy the country’s ilmenite concentrate needs.
  • Nickel – Kazakh industrial group Sat&Co owns 2 nickel enterprises (KazNickel LLP and Ferronickel Plants Ertis) developing nickel and cobalt deposits and refining cobalt-nickel ores of Gornostayevskoye deposit. The plants produces ferronickel FN 20. Tau-Ken Samruk and other companies are considering proposals for the introduction of innovative technologies to engage in processing of poor-grade oxidised nickel-cobalt ore.
  • Gold mining – the majority of Kazakhstan’s gold production comes from the processing of polymetallic and copper ores. Leading gold producers are Kazzinc, Kazakhmys, KazakhAltyn, Polymetal (Russia). In addition, about 100 other companies have licenses to produce gold in Kazakhstan.

Rare metals

In Kazakhstan, rare metals are typically produced alongside non-ferrous metals, for example, rhenium in the production of cathode copper and gallium in the production of alumina. Indium, thallium and selenium are removed from the dust of lead production, while tellurium is derived from alloys of the alkali refining of black lead.

Cadmium and thallium are extracted from lead-bearing concentrates. Tantalum, beryllium, niobium and molybdenum are produced by Kazatomprom, the Kazakh state-owned nuclear holding company.

Kazatomprom has also recently signed an agreement on strategic partnership with the French Bureau of Geological and Mining Research (BRGM) and the European company of monitoring and strategic consulting (CEIS) to perform geological exploration of the country’s REE fields.

In 2016, KazGeology, Kazakhstan’s state-owned national exploration company, and the Japan Oil, Gas and Metals National Corporation (JOGMEC) signed an agreement to conduct geological exploration of the two Kazakh REE in Karaganda and Oksana regions. Both fields are characterised by high yttrium content.

Rare earth elements in the lanthanide group are produced by Irtysh Rare-Earth Company. A highly promising rare earth metals deposit has been found at Kundybayskoe in Kostanai region.

Kazzinc also plans to launch REE production at its capacities in the Ust-Kamenogorsk region of the country.

Tariffs, regulations and customs

The principal law ‘On Subsoil and Subsoil Use’ regulating mining-related operations was passed in 2010 and is still in force. In 2015, a new concept of subsoil use was elaborated by the Kazakh government with the use of the Western Australian model of granting mining rights. The new concept outlined key changes that were supposed to be introduced with the adoption of the new Subsoil Use Code. As of now, the adoption of the new Code has been delayed and is expected to happen on 1 January 2018, according to the official source.

EY reports that major changes incorporated into the new Code include new (and often simpler) procedures and rules for the access to geological data, evaluation of resources, granting subsoil use rights, licensing and exercise of the state’s priority right to acquire strategic deposits and some other issues.

Read the EY report to find out more information.

Links and industry contacts

Government, business and trade resources for Kazakhstan

ArcelorMittal
Association of Mining Enterprises of Kazakhstan
Baker & McKenzie Doing business in Kazakhstan 2016
Deloitte Doing business in Kazakhstan 2016
EY Doing business in Kazakhstan 2016
The Eurasian Group
Kaz Minerals
Kazakhmys
Kazatomprom
KazGeology
Kazzinc
Ministry for Investments and Development of the Republic of Kazakhstan
Tau-Ken Samruk

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