Kazakhstan’s Mining Sector. Half-year Results
In the first half of 2008, coal output increased in Kazakhstan by 19.8% when compared to the same period of 2007, while output of alumina grew by 10.9%, ferroalloys 2.5% and steel 0.8%. This shows that the Kazakh mining sector is so far preserving its status in the Kazakh economy and its growth dynamics.
Production of steel and ferroalloys
According to the Kazakh Statistics Agency, in the first six months of 2008 steel output was 2,362,342 tonnes, up by 0.8% from the same period in 2007. A total of 1,624,349 tonnes of flat-rolled products (down 4.8%), including 105,361 tonnes of tinned plates and sheets (down 6.2%) and 287,974 tonnes of zinc-plated rolls (down 4.1%), and 866,042 tonnes of ferroalloys were produced in the given period.
Production of precious and nonferrous metals
Kazakhstan produced 4,198 kg of refined gold (up 3.5%) and 323,554 tonnes of refined silver (down 17%) in the first half of 2008. It also produced 842,554 tonnes of alumina (10.9%) and 183,492 tonnes of unprocessed zinc. Copper output stood at 184,480 tonnes (down 11.7%), while output of copper in copper concentrate fell to 195,700 tonnes (down 6.1%) and output of lead in lead concentrate to 18,600 tonnes (down 11%). Output of zinc in zinc concentrate was 183,200 tonnes (up 1%).
The country extracted 53,955,500 tonnes of coal in January-June 2008, which is 19.8% more than in the same period of last year.
Pilot public-private partnership project
As part of a development and modernisation programme, ArcelorMittal Temirtau will double its steel output to 10 million tonnes a year by 2013. Costs to expand production will total $7bn, of which $2bn will be invested in modernising coalmines and $5bn in metal production. The programme is expected to be carried out in two main directions. The first envisages modernising and improving the existing capacities to increase steel output to 6 million tonnes a year. The second is the launch of new capacities which will produce another 4 million tonnes of steel a year.
In order to achieve this, the company will need 17.83 million tonnes of coal, 16m tonnes of iron ore and 4.8 million tonnes of flux material a year. It is also necessary to develop the Atasu ore deposit, expand the Kostenko and Shakhtinskaya mines and develop the Tentekskaya-10 mines. In addition, a new power plant will be built and the existing thermal power plants will be reconstructed.
This programme was explained to Kazakh President Nursultan Nazarbayev who paid a working visit to Karaganda Oblast in early July 2008. Having listened to the company’s information and watched a special presentation film, the head of state backed the company’s plans. “I am tasking the government to jointly solve the issue of developing the programme. This is a very great and serious deed, which is why it should be implemented jointly with the government,” Nursultan Nazarbayev told Mr Lakshmi Mittal, the head of ArcelorMittal.
In connection with this, Kazakh Prime Minister Karim Masimov has issued orders to draft a plan of cooperation between the government and ArcelorMittal Temirtau on a project to modernise the company’s production lines. He announced the establishment of a working group which will be led by the industry and trade minister. The group will also include the Transport and Telecommunications Ministry, the Education and Science Ministry, the Energy and Mineral Resources Ministry, the Karaganda Oblast administration and “anyone else who may be needed there”. At a government meeting in Astana on 8 July, the prime minister ordered the working group to draft a “roadmap” jointly with ArcelorMittal within 30 days, which should define rights and obligations: “what ArcelorMittal intends to do for itself and what obligations we take and what any deadlines are”. The head of government said: “In this project we can show a specific example of public-private partnership.”
ArcelorMittal Temirtau (formerly Ispat Karmet) is part of the ArcelorMittal steel concern. This multinational acquired the Kazakh steel plant in the mid-1990s. ArcelorMittal produces 4.5–5 million tonnes of steel a year.
New taxes for the mining sector
A new Tax Code, which is being now drafted, is expected to impose a tax on extraction of mineral resources at 4% to 20% depending on annual output. The Kazakh government is currently finalising work to calculate the rates of this tax on all metals extracted in the country.
Deputy Finance Minister Daulet Yergozhin said in Astana on 25 July 2008 that “an entire list of metals extracted in Kazakhstan, from gold to rare metals, will have rates of the tax on extraction of mineral resources”. “Calculations have practically been completed. Metal companies are agreeing to some rates proposed by the government and debating others,” he said, adding the rate of the tax will depend on the deposit.
On the method of calculating the tax on metals, Mr Yergozhin said that “economic calculations are being made on metal companies – profitability, the coefficient of tax burden, average figure for the sector and their rivals”.
The deputy minister said that the government realised that “if we take away everything now, metal companies will simply ‘sit idle’ or someone will buy them out, so they are given a profit in order to encourage them to compete”. He stressed that the issue of imposing this tax on low-profit deposits would be discussed separately. “There are low-profit enterprises and we will have to consider these separately, but only those ones where the profitability of the enterprise is below 10%,” he said. They will be allowed to have 10% profit, and then “the remaining revenue will be taken away by the state,” Daulet Yergozhin said.
The new Tax Code is expected to be adopted this autumn and come into force on 1 January 2009.
Batys has become a miner
The Batys (West) social-entrepreneurial corporation has obtained licences to develop 16 deposits of metal deposits in Aktobe Oblast.
The head of the corporation’s information and analytical department, Askar Sheriyazdanov, has said that these are the Kopa, Dongeleksor, Alashkazgaz and Akshoky brea bed and bituminous deposits and the Goyunskoye, Khersonskoye and Kokbulakskoye ore deposits.
It also has a licence to reprocess tailings of the former Fosfokhim company’s sulphate production, develop the Zhilyanskoye potassium salt deposit and the Chelkarskoye salt structure, and conduct prospecting at the Zhylandy, Zharlyasha, Kozharly and Avangard copper-zinc deposits, the Sarlybay copper deposit and the Severnoye manganese deposit.
He said that these deposits would be developed jointly with private companies and that these projects were long-term and capital-intensive. Investor companies will conduct exploration over the next two to three years and draft feasibility studies of the projects. Ore-processing enterprises will be built based on design and budget documents. The corporation’s share in these projects will be defined after signing relevant contracts.
Similar work is being conducted on other deposits and through direct talks with the Aktobe Oblast and West Kazakhstan Oblast administrations, the Batys social-entrepreneurial corporation has received licences to develop 11 deposits.
In particular, on 18 June 2008 the corporation signed a contract with the local authorities to prospect and develop brick clays on the Lesnoye site in Aktobe Oblast. A $5.5m plant with a capacity of 20 million red burnt bricks a year will be built there.
In addition, Batys has applied to develop a further 11 nickel and cobalt deposits in Aktobe Oblast.
Kazakhstan is setting up social-entrepreneurial corporations as regional development institutions to revive local economies and idle and bankrupt enterprises. The difference from commercial organisations is that they reinvest their profits in socially important projects. There are currently seven social-entrepreneurial corporations in the country – Saryarka, Zhetisu, Yertis, Ontustik, Kaspiy, Tobyl and Batys.
News from companies
International Mineral Resources BV (IMR), owned by Eurasian Natural Resources Corporation (ENRC), will invest $1.51bn in a joint venture which will be set up also by China’s Juiquan Iron & Steel Group Co Ltd (JISCO).
The Chinese company said in a press release that it had already received approval from a local regulator to set up the joint venture, which will include JISCO’s iron ore and steel assets with a total value of $1.57bn. JISCO will own 51% in the joint venture. IMR, which will have a 49% stake, will invest $1.51bn.
The Sokolov-Sarbay Ore-enrichment Production Association (SSGPO), owned by ENRC, will supply iron ore to the joint venture.
Accords on setting up the joint venture in Jiayuguan in China’s northwestern province of Gansu were reached last year. It will implement projects to produce cold-rolled stainless steel and steel pipes, explore deposits and save energy.
IMR owns ferronickel assets on the Balkans and ferrochromium in South Africa and produces copper and cobalt in Zambia. It is owned by ENRC shareholders – Patokh Shodiyev, Alidzhan Ibragimov and Aleksandr Mashkevich.
ENRC unites the Kazkhrom, Aluminium of Kazakhstan, the Kazakh Electrolysis Plant, the Zhayrem Ore-enrichment Combine, the Sokolov-Sarbay Ore-enrichment Production Association, the Euro-Asian Energy Corporation, ENRC Logistics and ENRC Marketing & Sales companies.
Kazakhmys shareholders approved a deal to buy a 7.66% stake in ENRC from the Kazakh government at a 9 July 2008 annual meeting. As part of the deal, Kazakhmys will issue additional 80,286,050 shares in favour of the government, which will get a 15% stake in copper giant. As a result, after receiving approval from Kazakh regulators Kazakhmys will own 22.24% of shares in ENRC.
The Kazakh government owns 19.3% of ENRC. Kazakhmys is also a major shareholder in ENRC with a 14.6% stake in it. In December 2007, ENRC floated 21.3% of its shares on the London Stock Exchange and raised £1.5bn.
In addition, Kazakhmys is in talks with a third party which may eventually lead to a merger. The company said that there was not certainty about terms of the deal, its structure and there had been no agreement reached so far.
On 14 July, the Financial Times claimed that Kazakhmys was in merger talks with Metalloinvest, owned by Russian businessman Alisher Usmanov. It suggested that it might be a “reverse takeover” deal where Metalloinvest shareholders would assume control over a bigger Kazakhmys by bringing in their assets, bypassing a listing procedure for their company.
The capitalisation of the new company is estimated at about $50bn. One of the financial consultants of the deal is Lehman Brothers. The company also intends to float its shares on the London Stock Exchange.
Those involved are still discussing the possible composition of the board of directors of the new united company. The newspaper said that this would take account of Vladimir Kim’s 45% stake and the Kazakh government’s 15% stake in Kazakhmys.
Kazakhmys is Kazakhstan’s largest copper producer. The corporation produces refined copper and copper raw material, and other nonferrous and precious metals. It also extracts coal. It unites four major production associations – Zhezkazgantsvetmet, Balkhashtsvetmet, Vostoktsvetmet and Karagandatsvetmet.
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