Kazakhstan Intergovernmental Commission (IGC) meeting hosted by Norton Rose Fulbright LLP took place on 12 September 2017. This meeting aimed to assess the progress of the Mining Code development and implementation, look into current situation in the Kazakh Mining industry and discuss opportunities and barriers for development. The next IGC meeting will occur 4-5 December in London.
In participants’ opinion, Kazakhstan mining industry has a huge potential and can be very attractive for international businesses and investors. The business culture in the country is changing, the economy is becoming more open and transparent. However, there are still some issues and barriers that prevent the development process to reach its full capacity.
Igor Semikhodski, Head of Business Development of Kaz Minerals, talked about Kaz Minerals’s major growth projects Bozshakol and Aktogay, which will drive their growth in the coming years. The projects were completed in 2016 and are now ramping up production.
Both mines are long-life, low-cost copper projects and they will enable the Group to increase its production to approximately 300kt in 2018.
Koksay is the third growth project opportunity to be developed.
At the moment copper concentrate from Bozshakol and Aktogay is sold to smelters in China. However KAZ Minerals PLC is undertaking a feasibility study to assess the construction of a copper smelter in Kazakhstan in order to process copper concentrate from the Bozshakol and Aktogay mines.
KAZ Minerals are looking for new investments and going through the procurement using a company from Toronto.
There are around 400 people working for KAZ Minerals PLC in Kazakhstan including 50 expats.
Claire Esbenshade, Manager Corporate Responsibility, Sustainable Development and Government Relations, presented the Snapshot of ArcelorMittal mines in Kazakhstan.
ArcelorMittal is a leading steel making company in the world employing 200 000 people in 60 countries. They are also the largest mining company in Kazakhstan.
Last year they produced 3.9mt steel, they have 4 iron ore mines producing 2.5mt and 4.5mt of met coal was produced.
In Kazakhstan it focuses of sustainable development. Company addressed social and ecological issues.
20% of the power used in Temirtau is green (methane gas).
50% of the personnel are being retrained every year.
Gary Hodgkinson, Head of Exploration Eurasia, Rio Tinto, made a point that Rio Tinto’s operations in Kazakhstan are relatively small in comparison with their worldwide presence. However the total exploration area in Kazakhstan exceeds 20 000 sq km, which is huge in terms of the world standards and is the largest exploration program of the entire group.
The company’s aim is to find big and new (undiscovered) deeper sitting cooper deposit. Rio Tinto have been trying for 3 years and hoping for better but the goal hasn’t been achieved yet. It is a long-term process. The company is in the second season of drilling work.
Doing purely exploration in Kazakhstan, Rio Tinto combines the standard technics, such as radiometers and geochemical methods, with in-house made innovative technology.
The company is building up the local team and feeling quite optimistic about quality of manpower in Kazakhstan.
Ayuna Nechaeva, Head of Russia, CIS and Mongolia LSE, presented the Astana Financial Cluster update.
Kazakh Government is planning to open a new financial centre in Astana – the Astana International Financial Centre. There will be a regulator which will operate under common law.
Astana Stock Exchange is being built from the ground up. The Astana Financial Centre is modelled on the Dubai Financial Centre and funded by the Kazakh Government. The new Stock Exchange will provide platform for funding international companies from various sectors including extractive industries. AFC is playing strategic role in privatisation of assets held by Samruk Kazyna State Wealth Fund.
Ms. Nechaeva mentioned that recently five mining companies from emerging market went through IPO process on the London Stock Exchange including raising $897m for Russia’s Polyus. There are 2-3 companies from Russia and Kazakhstan in the pipeline.
Angelica Phillips, Director Andn Consulting, presented a Mining Code update. In Ms. Phillips’s opinion the Mining Code is a game changer and is expected to boost investors’ confidence in mining in Kazakhstan.
Some of the positive aspects of the Code: removal (except uranium) of strategic assets should attract big players. There will be a simplified procedure for transfer of exploration to mining licence, but the introduction of first come first served principle raises a few concerns.
- There is no priority for the exploration licence holders for obtaining the production licence.
- Uranium mining will be run by state owned companies reducing the share of international companies in JVs and increasing political risks of FDI (due to the national security regulation introduced in the code).
- To get a production licence a company needs to have cash for three years running.
- A company needs to have a liquidation process in place:
– closure procedure
– ecological issues for the next 25 years
There will be a 10-year long transition period after the introduction of the new code.
New mining code is currently under review by the President Administration and is expected to be submitted for approval by the Parliament by the end of September 2017 and become law on 1 January 2018.
Head of organising committee MINEX Mining and Exploration Forum Arthur Poliakov pointed out that annual MINEX Central Asia started in Astana in 2010, after Kazakhstan Government opened up the Kazakh market for international players by cancelling the moratorium on issuing exploration licences for foreign companies. Since then Kazakh, mining sector became much more transparent and open. If before all important decisions on industry regulations were made behind closed doors, recently the Mining Code was discussed during open session with local and international experts. There are definite signs of the business culture changings.
Kazahkstan is the first country in the region implementing the Mining Code. It is a great example for other countries such as Uzbekistan, Armenia, Georgia, Kyrgizstan and Russia.
Mr. Poliakov also mentioned that if in the recent past Kazakh mining sector was mostly influenced by Australian, Canadian and Russian companies, now UK actively develops its presence in the region. As Department of International Trade (DTI) is heavily involved in this process, Mr. Poliakov really appreciates cooperation between DTI and MINEX Forum.
Mr. Poliakov announced that MINEX Eurasia will be held in London on 13 November with support of DIT.
Mr. Poliakov expressed his proudness and thankfulness to the Kazakhstan Government and legislators for choosing MINEX Central Asia as a platform for an open discussion of Mining Code for the second year.
MINEX Central Asia, which is taking place on 17-19 April 2018 in Astana, is going to be the first public forum, where the implementation and real impact of the Mining Code will be discussed.
The meeting followed by discussion of opportunities and barriers led by Andrew Winterbotham, AmecFW. The participants agreed on the following outcome:
- Quality of historic data – the Soviet one is a good quality but lacking comprehensiveness. Currently the exploration companies are looking for wider variety of geo-content as there are technologies allowing extracting the cooper from different types of ore. Some of the historical data from the Soviet time is stored in Moscow so it is difficult to get if you work in Kazakhstan.
- Uncertainty with Mining Code
- Political Risks
- Lack of transparency
- Tender system
- Cross-border supply chain
- Very slow process for the importation of equipment
- Lack of new projects and funding. There is a potential in Kazakhstan but due to the volatile environment in the mining industry and big companies are looking for less risky projects. However junior companies have more risk-taking and aggressive behavior and more likely to come to the Kazakh market. It leads to a significant change on the market.
Mike Beare, Corporate Consultant from SRK Consulting, pointed out that the Mining Code is a positive initiative for Kazakhstan. However, it will be possible to measure the actual impact of it on the industry only after implementation and practical experience of working with it.
Review of DIT activities and IGC Meeting in December 2017 was made by Ros Lund and Mark Smith.
DIT will have led three missions to Kazakhstan in 2017 by the end of next week. A variety of UK companies have joined the visits. Visits have been made to Arcelor Mittal, Karaganda, Termitau flat rolling plant, Koktshetau Kazakh Altyn. Attendance at MINEX Central Asia, Mining World Central Asia and Expo.
Next week there will be meetings in Aktobe and Almaty and Astana.
There will be an inbound visit of Kazakh mining companies to ABMEC conference and company site visits week of 13th November.
The IGC meeting will occur 4/5 December in London.