Will Swiss Glencore buy Kazakhstan's Shalkiya mine?

Will Swiss Glencore buy Kazakhstan’s Shalkiya mine?

31/08/2023

Image source: pixelied.com / pixabay.com

In recent years, the old fields of the global trader’s subsidiary, Kazzinc, have been depleted, and new ones may not provide the required level of reserves for a long time.

In the near future, Kazzinc may buy the Kazakh zinc deposit Shalkiya, developed by the Tau-Ken Samruk mining state holding in the Kyzylorda region. An industry source familiar with the situation told an inbusiness.kz correspondent about this .

Let us remind you that the main shareholder of Kazzinc is almost 70% of the Anglo-Swiss trader Glencore, and the remaining share mostly belongs to the same Tau-Ken Samruk. To be fair, we note that talk that the Kazakh zinc giant will buy Shalkiya has been circulating for several years without any visible consequences.

Therefore, in order to verify the information received, the inbusiness.kz correspondent made information requests to Glencore, Kazzinc and Tau-Ken Samruk. The press service of the global trader responded to the publication’s questions asking to confirm the possibility of purchasing the Shalkiya mine with the phrase “no comment,” while its Kazakh subsidiary did not respond to the request.

“JSC ShalkiyaZinc LTD is included in the list of enterprises proposed for transfer to a competitive environment in accordance with Government Decree of the Republic of Kazakhstan dated December 29, 2020 No. 908. Work is currently underway to implement the Comprehensive Privatization Plan for 2021-2025,” they commented in a letter to Tau-Ken Samruk, an appeal through the e-otinish electronic platform with questions about the possible sale of Shalkiya to Kazzinc.

Thus, none of the parties to the proposed deal has yet denied its potential.

A year ago, inbusiness.kz wrote that public hearings were held in the East Kazakhstan region to eliminate the consequences of subsoil use of the Tishinsky and Ridder-Sokolsky Kazzinc deposits. The Tishinsky mine was going to be closed in 2023, Glencore previously reported. The Maleevsky mine was also close to being completely depleted, according to industry observers. In 2022-2024, it was planned to expand zinc production at the Dolinnoye-Obruchevskoye deposit in Eastern Kazakhstan and the Zhairemsky mine in the Karaganda region. However, the expansion of production at Zhairem has been delayed, and it is not entirely clear how much the reserves there will be able to compensate for the dynamic depletion of the old Kazzinc mines. By the way, earlier this week the government expressedconcerns that the country’s zinc reserves are declining despite mineral resource reform. There are no new geological discoveries, although Glencore has been conducting active geological exploration in Kazakhstan in recent years.

Previously, inbusiness.kz wrote that last year Kazzinc experienced increased complexity in logistics due to the geopolitical situation. Its trade flows began to line up without the use of transit through the territory of the Russian Federation. However, according to some reports, the company continues to depend on third-party zinc raw materials supplied from the territory of its northern neighbor through intermediaries.

“Zinc production from own sources in the amount of 72 thousand tons was comparable to the first half of 2022 (73.9 thousand tons of metal and concentrate – Note), which reflects an increase in volumes at Zhairem, offset by a delay in processing material from its raw materials at metallurgical capacities of Kazzinc in favor of third-party materials,” Glencore said in its report for the first six months of this year.

For gold, during this period, the Kazakh mining and metallurgical giant’s output from its raw materials was 4% higher year-on-year and reached 288 thousand ounces, or almost 9 tons, the document indicates.

At the same time, the total production of zinc, taking into account third-party raw materials, at Kazzinc in the first half of the year decreased by 11%, to 125 thousand tons from 140 thousand tons in the same period last year. In contrast, gold processing, including third-party feedstock, increased sharply by 25% to 531 thousand ounces, or 16.5 tons, compared with 426 thousand ounces, or 13.2 tons, a year earlier in the first six months of 2022.

It should be noted that Kazzinc continues to play the role of a source of funds for Tau-Ken Samruk, as has been the practice for many years.

“In accordance with the decision of the general meeting of participants of Kazzinc LLP (hereinafter referred to as Kazzinc) dated March 31, 2022, the procedure for distributing Kazzinc’s net income received based on the results of 2021 was approved. The total amount of dividends declared and paid to Kazzinc participants during 2022 amounted to 650,000,000 US dollars, of which 193,843,000 US dollars (equivalent to 88,819,162 thousand tenge) were distributed by the group and were paid in cash.In accordance with the decision of the general meeting of Kazzinc participants dated March 31, 2021 the procedure for distributing Kazzinc’s net income received based on the results of 2020 was approved. The total amount of dividends declared and paid to Kazzinc participants during 2021 amounted to 500,000,000 US dollars,of which 149,110,000 US dollars (equivalent to 63,273,551 thousand tenge) were distributed to the group and were paid in cash,” – according to the consolidated financial statements of Tau-Ken Samruk for 2022.

At the same time, according to the financial document, the net loss of the mining state holding over the past year reached 16.3 billion tenge.

Let us recall that in September 2021, Tau-Ken Samruk updated the terms of the credit line from the EBRD in the amount of $175 million at a six-month LIBOR rate plus 2.5% per annum with repayment of principal and interest in equal semi-annual installments. As security for the loan agreement, the national company provided a guarantee for the full amount of the loan from Samruk-Kazyna for the term of its validity until 2032 as collateral for the EBRD. At the end of last year, the volume of borrowed funds received from the EBRD reached 31.2 billion tenge.

In 2021, the subsidiary of Tau-Ken Samruk, ShalkiyaZinc, entered into three contracts under a loan from the European Bank for Reconstruction and Development (EBRD). One of them, with the Chinese JCHX and CCECC, was aimed at constructing a mine, the second, with the Danish FLSmidth, was aimed at the selection and supply of technological equipment for the factory, and the third was signed with Deloitte TSF – Kazakhstan to provide project management services.

According to the annual report of Tau-Ken Samruk for 2022, work was carried out for ShalkiyaZinc to reduce the cost of the contract with FLSmidth. This document also noted that in 2023 it was planned to hold tenders and conclude contracts for the completion of construction and installation work on the processing plant and tailings, and additional delivery of the main technological equipment for crushing, flotation, thickening was also expected.

By the way, it was previously planned that the processing plant at the Shalkiya mine would be launched in November 2025. The design capacity against the backdrop of its expected service life of 29 years was set at 246 thousand tons of zinc concentrate per year with a zinc content of 55%. For comparison, several years ago Kazzinc’s annual production of this metal from its own raw materials exceeded 200 thousand tons.

Source and Credit: inbusiness.kz

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Tags: Glencore, Kazakhstan, Kazzinc, Shalkiya, Tau-Ken Samruk