Since the beginning of 2009 official Astana gradually alleviates the tax burden of the mining sector enterprises, looking to minimize the negative socio-political consequences of the world economic crisis.

At the end of January 2009 the government of Kazakhstan announced its plan to cut the mineral extraction tax (MET) rate for the ore mining and processingsector enterprises for the crisis period. The main requirement mining enterprises have to meet is not to conduct mass dismissal of their employees.

According to the Finance Minister, Bolat Zhamishev, "the major condition of the tax alleviation is non-dismissal of the employees that are not really demanded today". Mr. Zhamishev believes that although this measure will negatively impact the budget revenues, at the same time, however, it will stabilize the situation in the ore mining and processingsector companies that, today, serve as the basis of the Kazakhstani economy.

According to the Ministry of Labour and Social Protection, the employees of mining and processing industries are mostly exposed to the risk of dismissal. As of January 1, 2009 the total number of workers, employed in these industries, reached about 774 thousand people.

The representatives of Kazakhstani business did not wait for too long to respond. The Executive Director of the Association of Ore Mining and ProcessingEnterprises (AOMPE) of Kazakhstan, Nikolay Radostovets, announced that the industrial enterprises welcome the decision of the government to lower MET for mining sector and they believe that they can meet the appropriate requirements. At the same time, Mr Radostovets noted that in the first quarter of current year mining sector has seen a decline in production volume.

On March 10, 2009 the government of Kazakhstan established the commission for setting lowered MET rates, oriented at low-profit deposits. Vice Prime-Minister, Erbol Orynbayev, headed the commission.

Note. Tax Code assumes the following MET rates for metals production in 2009 and 2010 respectively: copper – 5.7% and 7%; zinc – 7% and 8%; lead – 8% and 8.25%; aluminium – 0.25% и 0.28%; tin and nickel – 6%; gold, silver, platinum and palladium – 5% and 5.5%. The following rates apply for ore production of ferrous, nonferrous and radioactive metals respectively: chromium ore (heads) – 16.2% and 16.8%; manganese and iron-manganese ore (heads, pellet) – 2.8% and 3.2%; uranium (productive solution, shaft method) – 22% and 23%.

Kazakhstan abolished the export customs duty (ECD) for the primary aluminium. This was announced by the Minister of Industry and Trade, Vladimir Shkolnik, at the governmental session on February 24, 2009.

Moreover, the iron-ore pellet was recognized as a secondary processing product. This gives the companies the opportunity to enjoy investment privileges.

It is common knowledge that ECD for primary aluminium was introduced on October 1, 2008 at the rate of 15%, at least 100 Euro per tonne. The experts comment that the cancellation of duty is quite a logical step since aluminium price dropped several times comparing to the mid of the last year and, considering the duty, the price of metal, produced in Kazakhstan, became uncompetitive. They also note that although the government loses part of its revenues it will not get to see the growth of social strain and the necessity to look for much larger funds to employ dismissed mine and smelting industry workers.

On the background of the negative consequences of the world economic crisis, in January of 2009 AOMPE turned to the government with the proposal not to introduce state regulation of coal prices since, according to AOMPE deputy Executive Director, Tulegen Mukhanov, "there are no reasons to launch state regulations of the coal industry". At the same time he explained that the initiative to include coal production and sales in the volume of over 1,000 tonnes per month in the list of products, goods and services, regulated by the state, is launched by the Agency for regulation of natural monopolies.

Moreover, the AOMPE message indicates that the launch of state regulation of coal prices may result in the fact that companies will not be able to perform triangular industrial agreements as well as current collective corporate agreements. The memorandums of securing jobs, signed with the government, will be under threat.

In the opinion of mining industry representatives, the introduction of this mechanism will create such irrecoverable consequences in the coal industry as bankruptcy of companies and a coal deficit in the country.

The production summary of 2008

The Statistics Agency reports that from January – December of 2008 the volume of metal manufacture production in Kazakhstan reached 1.4 trillion tenge in cash equivalent.

At the same time, the decline of domestic metallurgists output indicators are expected in 2009. This was announced by Minister of Economy and Budget Planning, Bakhyt Sultanov, at the beginning of the year: "The volume of metal manufacture industrial production will decline by 1% in 2009, considering the fact that in 2008 it had already dropped". Specifically, in December of 2008 the production volume reached 66.7 billion tenge, dropping 20.5% comparatively to December of 2007. The metal manufacture industrial output of Kazakhstan dropped 3.8% comparing to November of 2008.

Coal production: In 2008 the republic produced 110,003.8 thousand tonnes of coal, which is 11.8% higher than in 2007. Such growth of production was supported by coal producing companies, located in Pavlodar and Karaganda oblasts. At the same time, Kazakhstan exported 32.96 million tonnes of coal (126.6%). In cash equivalent this indicator increased by 61.4%, totalling in $842.2 million.

Steel and ferro-alloy production:Last year Kazakhstan produced 4,285,966 tonnes of crude steel, which is 10.4% less than in 2007. During this period 2,825,177 tonnes of flat section (82.1% compared to 2007) was produced, including 172,998 tonnes of tin plate and tin-lined sheet products (82.5%) as well as 526,383 tonnes of zinc-coated rolled metal (87.2%).

The production of ferro-alloy dropped to 1,591,023 tonnes (93.4%). In 2008 their export volume reached 1.45 million tonnes, which is 4.5% less than previous year indicator. Along with that, in cash equivalent it increased to $2.96 billion, which is 2 times greater of analogous indicator of 2007. Also in 2008 the republic exported 2.48 million tonnes (82.3%) of flat section, including tinned plate, for $2.07 billion (125.8%).

The production of precious and nonferrous metals: In 2008 Kazakhstan produced 8,201 kilograms of affined gold and 628,752 kilograms of affined silver, which is 0.5% higher and 11.2% lower than in 2007 respectively. Also 1,713,422 tonnes of aluminium oxide (110.1% of 2007) and 365,561 tonnes of rough zinc (102%) were manufactured. The output of pure copper in semi-prepared form, except for sintered, rolled, extruded and forge metals, fell to 398 thousand tonnes (98%).

In 2008 the export of metals reached the following figures: aluminium oxide – 108.4 thousand tonnes (559.2%) for $286.7 million (1211.7%), rough zinc – 334.1 thousand tonnes (108.8%) for $639.7 million (63.4%), lead – 90.2 thousand tonnes (83.6%) for $202.9 million (83%), pure copper and alloys – 355.1 thousand tonnes (97.7%) for $2.5 billion (99.4%).

Uranium production: By the end of last year the republic produced 8,521 tonnes of uranium, compared to 6,637 tonnes in 2007. Therefore, the growth indicator reached 28.4%. The indicated total volume includes the shares of Kazatomprom NAC as well as joint ventures of national atomic company and Stepnogorsk mining chemical plant, managed by Kazatomprom. Kazakhstan is planning to produce 11.9 thousand tonnes of uranium in 2009. 

In accordance with governmental decree, the joint stock company Tau-ken Samruk National Mining Corporation was established on January 15, 2009. The major directions of new national company activities are the following:

• to ensure effective subsoil operations in the area of exploration, development, production, processing and sales of solid minerals;
• effective management of state shares in the joint stock companies of ore mining and processing industry;
• development and launch of new knowledge-intensive and effective technologies in mining industry;
• reproduction of the mineral and raw material base of the republic, development of off-balance field reserves;
• liquidation and conservation of unprofitable mines and tailing dump, mine drainage operations.

The registered capital of Tau-ken Samruk National Company is 63,650 thousand tenge. Its registration funds were contributed from the governmental reserves of the Republic of Kazakhstan.

On February 24, the Prime-Minister Karim Masimov announced at the governmental session that Malay Mukerdzhi, previously employed in ArselorMittal Company, had been appointed as the Board of Directors Chairman in the new national company. Also Murat Murzatayev took over the position of Company President.

Bogatyr Komir joint venture, established by Russian Aluminium (RusAl) and Samruk-Kazyna national welfare fund, prepared a project that aims to build waste dumps inside the Bogatyr strip-pit, estimated at $70.8 million.

Earlier, Bogatyr Komir launched similar developments in the Severnyi strip-pit, where it was assumed to form inside dumps at temporarily abandoned parts. Today, this dump reached the design parameters. There are three layers with the height of 60 meters each. Its active development allowed storing 100% of open-cast stripping and disabling 4 outside dumps. The outside dump areas will be returned to municipal land foundation once the works on their recultivation is performed.

The new project assumes the construction of inside dumps at 5 and 9 used area parts of the Bogatyr strip-pit. This will allow storing the stripping at inside dumps by the end of 2011. By 2018 it is planned to reach the project capacity of 22 million m³ per year or 2/3 of total stripping volume at the Bogatyr strip-pit.

The launch of inside dumps gives an opportunity to totally disable another 2 of 3 currently operating outside dumps of the enterprise after 7 years. Therefore, by 2018 there will remain only one out of seven outside dumps, belonging to Bogatyr Komir LLC in 2000.

The experts believe that the developed solutions are not only demanded from a technical point of view, but are also highly-efficient economically. The capital investments will return in less than 2 years of the project implementation.

The deal on the sale of a 50% stake in the joint enterprise, owning the right for coal production at the Ekibastuz coal-mining field within the Bogatyr and Severnyi strip-pits by RusAl to JSC Samruk-Energo, a subsidiary of Samruk-Kazyna national welfare foundation, was closed at the end of December, 2008. By 2020 it is expected to increase the annual production at these strip-pits to 57 million tonnes with the help of the established JV.

The second line of the Kazakhstani electrolysis plant, constructed by Eurasian Natural Resources Corporation (ENRC) in the Pavlodar Oblast, will be finished before deadline – in the IV quarter of 2009. On January 24 this was announced by the President of JSC Kazakhstani electrolysis plant, Almaz Ibragimov, at the Pavlodar Oblast Akimat session that considered the performance of anti-recession events by regional enterprises. Earlier, KEP management declared its plan to launch the full capacity plant in 2010.

According to Mr Ibragimov, "all the equipment for the second line is totally supplied and stored at the area, including cranes and abatement equipment. The installation is performed throughout the daylight hours".

He also noted that "given the output plan for 2008 at 104 thousand tonnes of aluminium cast, the plant produced 106 thousand tonnes while in 2009 it is planning to produce 146 thousand tonnes of aluminium".

As per KEP President, the total budget of the plant design reaches about $1 billion, $640 million of which was already used by January 1, 2009. Moreover, Almaz Ibragimov stated that in 2008 there were no salary cuts, shortened work shifts and dismissals of employees.

In 1992 the government of the republic made a decision to launch aluminium production in Kazakhstan with the attraction of foreign loans and employment of foreign technologies. The construction of the plant, producing and processing aluminium in Pavlodar, based on the local aluminous factory, was considered as a most appropriate option.

In March of 2003 the republican State Property Committee sold the state shares (31.6%) of JSC Aluminium of Kazakhstan to Swiss Corica at a closed tender. One of the deal conditions was the liability of the buyer to build the primary aluminium producing plant in Pavlodar as well as to launch the first facility in December of 2007.

For the period of plant construction and commercial launch Corica (Swiss company) established its own Kazakhstani resident enterprise in Pavlodar: JSC Kazakhstani electrolysis plant.

The construction began in May of 2005 while its first line with the capacity of 62.5 thousand tonnes per year was launched in December of 2007. The second phase of the first line was launched in 2008. Therefore, today, the plant’s capacity reaches 125 thousand tonnes of aluminium cast per year. The major product of KEZ is the T-type aluminium billet. After the launch of the second line total capacity of the plant will reach the projected figure of 250 thousand tonnes.

Along with that, ENRC announced the acquisition of a 25% stake in JSC Shubarkul Komir, a large producer of thermal coal in Kazakhstan, for $200 million. The equity participation was acquired at KASE open trades. Credit Suisse Securities (Europe) Limited became the financial consultant of ENRC in the deal. It is expected that reissuance of shares through KASE will be finished by the end of first quarter of 2009. In concern with acquisition, ENRC signed an agreement with JSC Shubarkul Komir on the purchase of production; also it secured a seat in the Board of Directors and signed a new stock agreement.

Moreover, ENRC received a first rejection right along with the buyer’s option in relation to all and part of the rest of JSC Shubarkul Komir shares, belonging to other shareholders. The buyer’s option may be used by ENRC at any time until January 31, 2011 and it must be approved by ENRC shareholders. Also it must receive all necessary authorizations from regulating bodies. The price, to be paid at execution of any buyer’s option, is the total cost of transferred shares, considering that the total value of Shubarkul is $800 million, based on the watered indicator.

JSC Shubarkul Komir is the one of the biggest producers of thermal coal in Kazakhstan. In 2007 its production reached about 6.1 million tonnes of coal or over 6% of the total coal production in Kazakhstan. Shubarkul Komir is also the local producer of semicoke. In 2007 the company sold about 161 thousand tonnes of these products.

According to the SRK consulting company, as of July 1, 2008 the Shubarkul reserves, calculated in accordance with the JORC code (the United committee for ore reserves), reached 1.419 billion tonnes of demonstrated and explored coal reserves within its mine take; of them 0.365 billion tonnes are forecasted reserves.

At the beginning of March of 2009 OJSC Atomredmetzoloto closed the deal on the purchase of Effective Energy H.B. a stake in two Kazakhstani uranium producing plants. Specifically, Russian uranium state holding became the owner of a 50% stake in Karatau LLC and a 25% share in Akbastau JV.

This deal was already approved by competent authorities of Kazakhstan – Energy Ministry and Agency for protecting the competition. Although the official contract sum is not announced, the experts estimate it at $560-580 million.

The agreement on purchase of uranium assets from Effective Energy H.B. was signed by the state holding company in January, 2009. After the closure of the deal the Russian uranium producing assets in three enterprises, affiliated with Kazatomprom NAC, were consolidated: Zarechnoe, Akbastau and Karatau (50% in each). Above-mentioned joint ventures were established under an intergovernmental Russian-Kazakhstani comprehensive cooperation program in the area of atomic energy use. Rosatom State Corporation is the final beneficiary of the deal. As a result, Rosatom consolidated 100% of uranium producing assets of the Russian side in Kazakhstan. The purchase of Effective Energy H.B. assets allowed Atomredmetzoloto to gain the second position among foreign uranium producing companies, operating in Kazakhstan, by the volume of uranium raw material base.

Karatau and Akbastau enterprises are developing four parts of the Budenovskoe field. The total reserves and resources of the two JV reach 49.8 thousand and 84 thousand tonnes of uranium respectively by C1, C2 and P1 categories. Karatau LLC has already reached the industrial production phase: it produced 653 tonnes of uranium in 2008. Akbastau JV will launch production in 2009. Based on 2008 results, Zarechnoe JV produced 166 tonnes of raw materials.