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(Last updated: 19 Sep 2011)
Trends and opportunities
The market
Kazakhstan is one of the world’s most promising emerging markets for natural resources. The fast-growing mining and metals sector is vital to Kazakhstan’s economy, contributing some 19 per cent of the country’s GDP and 16 per cent of exports. It is also a major source of employment with over 200,000 people working in the sector, according to official estimates in June 2011.
Kazakhstan is rich in mineral resources, sitting atop 30 per cent of world reserves of chrome, 25 per cent of manganese and 10 per cent of iron ore, according to official estimates. Kazakhstan is currently the world’s leading producer of uranium and third largest producer of chrome. Reserves of copper and lead zinc are respectively 10 per cent and 13 per cent of the world’s reserves. The Central Asian republic is also richly endowed with bauxite, coal, phosphate, titanium and tungsten.
The mining industry in Kazakhstan is focused mainly on extraction and export of raw materials and base metals, with further high-value processing abroad. Less than 20 per cent of production is sold on the domestic market.
The Kazakhstan Government has set a high priority on the development of new processing facilities in the iron and steel industry to encourage production and export of high value-added products as well as meeting the domestic market needs. The blueprint for this ambitious development is a government-led program for mining and metallurgy for 2010-2014, which is part of the state program for Accelerated Industrial-Innovative Development of Kazakhstan for 2010–2014.
A key goal for this program is to double mineral production within five years. Achieving this objective will require substantial foreign investment and the application of modern technologies and services to increase productivity. The program foresees that the country would attract as much as US$13 billion in investments in mining and metallurgy in the next five years.
Under the industry blueprint, the Kazakhstan Government has stipulated several priorities for the mining industry. Large enterprises are charged with increasing production of basic metals while small and medium-sized businesses will be supported to establish high value-added end production utilising these base metals. Primary targets include aluminium, copper, zinc and gold among non-ferrous metals and titanium, beryllium and tantalum among rare and rare-earth groups. Key projects in the steel industry will be focused in steel and ferroalloy. In addition, the government also aims to drive greater recycling of mining waste, as the country has accumulated more than 20 billion tonnes of tailings and exploitable industrial waste, including waste from non-ferrous metals at 10.1 billion tonnes and 8.7 billion tonnes of iron. Less than two per cent of waste material is currently reprocessed.
Opportunities
Opportunities for Australian exporters
Opportunities for Australian suppliers of mining equipment, technology and services (METS) exist across the full spectrum of activity in many mining sectors and geographic regions of Kazakhstan. Some 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
- A range of other services including training
Opportunities for Australian investors
International experts have a positive outlook on the potential of Kazakhstan’s mining and metals sector with dynamic development forecast over the next five years. In particular, recent reports by Engineering and Mining Journal (2010) and Business Monitor International – BMI (2011) confirm the huge potential of Kazakhstan’s mining and infrastructure sectors.
The Kazakhstan Government is interested in attracting investors in the industry. The country regularly hosts major investor events such as the Astana Mining & Metals Congress as well as technology and equipment exhibitions like Mining World Central Asia and Mining Week Kazakhstan.
Foreign investors are particularly interested in developing production and processing of non-ferrous metals. Kazakhstan currently produces large amounts of 29 kinds of non-ferrous metals, three types of ferrous metals and two of precious metals. BMI estimates that by 2013 this market will be valued at US$31.5 billion, compared with US$18.5 billion in 2009.
The legislative base is based on the 2010 law ‘On Subsoil and Subsoil Use’. However, this law views mineral processing as a work associated with the extraction of minerals from the raw material. It states that processing of mineral raw materials is not part of the operations on subsoil use. Mineral processing is therefore governed by the general laws of the Republic of Kazakhstan and it is expected that a separate regulatory legal act will be drafted within Kazakhstan’s industrial policy.
Mineral processing is a licensed activity. Its licenses are general, that is they are valid with no limited period, and valid throughout the country.
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 costs, cheap labour and less stringent environmental requirements. 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 has more than 2,000 registered mining businesses, according to the state statistics agency, including 1,783 small entities, 165 medium corporations and 100 large businesses. 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 small 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:
- ENRC: an LSE-listed diversified group with substantial activities in mining and processing of mineral resources, with integrated vertical including mining, processing, energy and logistics companies. Its key commodities include chromium, manganese, iron ore, bauxite and coal.
- Kazakhmys: a fully integrated LSE-listed company from mining to manufacturing of end metal. The core business is production and sale of copper. The copper division also produces large amounts of other metals as by-products, including such as zinc, silver and gold.
- Kazzinc: part of the Glencore global metals trading group, Kazzinc is a large integrated zinc producer with a high degree of associated release of copper, precious metals and lead.
- Arcelor Mittal Steel 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.
- Kazatomprom: the national operator of Kazakhstan's exports of uranium and its compounds, rare metals, nuclear fuel for power stations, special equipment, technologies and dual-use materials. Kazatomprom runs a number of joint ventures with international partners such as Areva, Atomredmetzoloto, Cameco and Westinghouse. Kazakhstan is the world’s largest producer of uranium.
- KazakhGold: a leading hold player that was acquired by Russia’s Polyus Gold in 2011.
- Shalkiya Zinc: a major LSE-listed zinc producer.
- Tau-Ken Samruk: a holding company set up to manage the Kazakh state’s holdings in various mining projects. The company is actively seeking investors, including foreign investors, to participate in the development of a range of projects ranging from early-stage exploration to project development. Tau-Ken Samruk has entered into an exploration joint venture with Rio Tinto. There is additional content on the Russian site.
- Central Asia Resources: an ASX-listed business developing several gold projects in Kazakhstan.
Key issues and challenges
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 are often quite antiquated in many Kazakh mining operations. Often obsolete equipment and ingrained work practices require producers to invest in innovative technologies and implementation of more modern business processes. However, Kazakhstan mining companies are generally interested in learning about new approaches and ready to implement world-class equipment, technology and services to increase production, cut costs and improve health, safety and environmental performance.
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. Despite growing demand from China, 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. Nevertheless, China remains an important market for Kazakh mining producers.
Key projects
- Ferrous metals – large projects (with reserves of more than 1 billion tonnes of iron ore) are Sokolovsky, Sarbaiskoye, Kanarsk and Lisakovsk deposits located in Kostanai region, as well as 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 ENRC holding) is the world’s largest ferrochrome producers, supplying the market with a range of high-grade chromium alloy. 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).
- Copper – Kazakhmys operates 17 underground and open-pit mines, with the largest at Zhezkazgan. Its operational plan until 2014 includes construction of mining and processing complex in Bozshakol field, as well as enrichment plants at mines Nurkazgan, Shatyrkul and Kosmuryn. In the longer term to 2020 the company plans development of the Aktogay field. Another copper project, the Koktausk copper-zinc deposit in Aktobe region, is being developed by Aktobe Copper Company.
- Lead-zinc – Kazzinc is exploring new 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 – Kazakhstan Aluminium (part of ENRC holding) includes the 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.
- Titanium and magnesium – Ust-Kamenogorsk Titanium-Magnesium Plant, with a major European shareholder, is developing a mine at the Satpaev field to partially satisfy the country’s ilmenite concentrate needs.
- Nickel – A mining plant is being constructed at Shevchekova deposit by British investor Oriel Resources and Kazakhstan Nickel. Kazakhstan Nickel is also exploring Gornostaevsk deposit in East Kazakhstan region. In addition, processing facilities are being built at Kimpersay deposits in Aktube region by Kyzyl Kain Mamyt. 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 – large gold producers include Polyus Gold, Kazzinc and Kazakhmys (for whom gold is a by-product of copper production). In addition, about a 100 other companies have licenses to produce gold in Kazakhstan. ASX-listed Central Asia Resources is developing several gold projects 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 the national uranium company Kazatomprom, while Kaznioby company is developing a niobium project and vanadium is being extracted by Ust-Kamenogorsk Titanium-Magnesium Plant.
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.
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