Golden assets of our Republic
Against the background of international experts’ expectations of restoring the “safe harbour” status for gold, the Kazakhstan’s Government intends to legally fix the state’s priority to acquire the fine gold in order to replenish the gold reserves of the country. At the same time the National Bank, is already actively expanding their gold reserves, without waiting for innovations at the legislative level.
Right belongs to National Bank
Right belongs to National Bank
As it is known, in accordance with the Presidential Decree as of July 21, 2011 “On measures to implement the decisions of the Interstate Council of EurAsEC as of November 27, 2009” the National Bank is authorized for decision-making on the implementation of the priority right of the state to acquire fine gold in bars to replenish gold-exchange assets. The adoption of the decree was associated with the introduction into effect in the territory of Kazakhstan rules of tariff regulations in respect of precious metals market within the Customs Union. In particular, the state supervision in export and import of precious metals and raw materials containing precious metals was introduced in the Republic.
In this respect, in June 2012 a draft law “On introducing amendments to some legislative acts concerning the organization of the activities of the National Bank of Kazakhstan and regulation of the financial market and financial institutions” was submitted to the Parliament.
The proposed draft law amends the effective law “On National Bank”, which legislate the powers of the main bank of the country in terms of priority right of the state to acquire fine gold. This will provide support for the state interests in such strategic area as the extraction, production and sale of gold.
According to the deputy chairman of the National Bank Mr. Beysengali Tadzhiyakov, the draft law also clarifies the right of the National Bank to an independent appraisal of property, including the fine gold, precious metals, precious stones and articles made of them, appropriated by the to the state.
The mechanism of the exercise of the first gold option came into force on January 1, this year, but the National Bank started buying gold as early as in November 2011. As was previously stated by Mr. Grigoriy Marchenko, a Chairman of the Board, during 2012–2013, the National Bank plans to buy the entire volume of fine gold produced in the Republic.
Meanwhile, experts predict that gold may once again regain its reputation as an “"safe haven” asset. And this is despite the fact that in the short term, the world gold market will remain highly volatile. In recent months, the price fluctuations of precious metals corresponded to the dynamics of the prices of other stock and raw materials assets, as investors preferred to go into monetary assets against the fears of debt crisis in the eurozone and the slowdown in the global economy. The relation of the market prices with the risks raised a query about the status of gold as a “haven” asset. However, analysts mention that central banks continue to buy gold, and a demand for it in the developing economies shows that gold is still used as a holding of capital.
In particular, according to the International Monetary Fund, Mexico, Kazakhstan and Ukraine have been active buyers of gold in April, and the Philippines increased their gold reserves in March by more than 1 million troy ounces. Thus, in April the Central Bank of Mexico purchased 94 thousand ounces of gold, bringing their reserves to 4.04 million ounces. Kazakhstan raised its reserves by 65 thousand ounces – to 3.16 million ounces, and Ukraine by 45 thousand ounces – to 984 thousand ounces.
The interaction of dynamics gold and copper markets, which is usually indicative of risks appetite, strengthened against the growing concerns about the possible withdrawal of Greece from the eurozone. However, the analysts of Societe Generale S.A. believe that in the near future, the price of gold will largely depend not on political but on the macroeconomic situation.
According to a survey of OCBC Commodities, in the second half of the year the price of gold will rise against the increasing demand. “We still hope that by the end of the year the gold price will rise to $1,800 per ounce, which would prove the resumption of its sale as a “safe haven” asset. If there is another round of quantitative reflation, we will see an increasing interest in gold”.
Experts predict positive changes with respect to platinum as well. Thus, according to analysts of Barclays Bank, the first decline in four years of the supply of platinum by mining companies, and record sales in the automotive industry (for which is accounted the main demand for the metal) promote to reduce its global surplus and maintain the existing level of prices. Recall that in the last three months the price of platinum fell by 16%.
As predicted by Barclays, in 2012 the production of platinum in the Republic of South Africa will be reduced for 4% – up to 6.14 million ounces. It will be accompanied by the strikes in the industry, as well as the problems related to industrial safety. In this case the global surplus of platinum will be reduced for 90%, i.e. just 37 thousand ounces. In this regard, by the end of 2012 the average price of platinum is expected to rise for 22% (compared to the price of May) and will reach $1,750 per ounce.
Starting in 2013, the taxable income of Kazakhstan’s companies will be reduced for 50% of their expenditures for Research and Development (R&D), provided the implementation of the results of these studies and works in production. Mr. Asset Issekeshev, Minister of Industry and New Technologies, announced it on May 25, 2012 speaking at the plenary meeting of the Innovation Congress during V Astana Economic Forum.
The Head of the Ministry of Industry emphasized that the state strengthens the responsibility of a major commodity businesses for the development of innovations. In particular, was adopted a legislative rule according to which mining companies will deduct 1% of their income to fund Research and Development activities and development of innovative infrastructure elements.
In general, a complete “restart” of innovation policy was carried out over the past two years: the laws “On state support of industrial and innovation activities” and “On energy saving and enhancement of energy efficiency”. The programs of technological development – “Performance-2020” and the “Programme for the Development of innovation and the promotion of technological modernization until 2015” were launched. The progressive standards in the field of technical regulation are formed.
However, as was stated by the Minister, the creating an innovation economy is the responsibility of both the state and the business, the competitiveness of which will largely depend on innovativeness, especially in the context of the active integration of Kazakhstan into the global economy.
New projects in mining and processing of mineral materials from Karaganda region will be included to the Map of Industrial development of Kazakhstan. This decision was taken at a regular meeting of the Regional Coordination Council on the State Program of Forced Industrial-Innovative Development, which was held under the chairmanship of akim of the region Mr. Abelgazi Kusainov. In particular, such projects as “Construction mining-and-metallurgical integrated works on the base of Koktenkol” of Dala Mining Company and the “Construction of the shop for repair and modernization of compressor units” of Rudservis K LLP in Satpayev will be added to the Map of Industrial development.
Following the results of the meeting, Mr. Kusainov instructed regional management of business and industry to submit to the Ministry of Industry and New technologies a set of documents on considered investment projects to obtain the relevant industry-specific opinion. List of approved projects will be submitted to the Damu Entrepreneurship development fund and the Karaganda branch of JSC BTA Bank for the conclusion of subsidy contracts. In turn, in accordance with the results of the state review the regional construction department was instructed to carry out tender procedures to determine the contracting agency to perform construction and installation works.
At the present time 49 projects amounting to 275.6 billion tenge, involving the creation of about 5,700 new jobs are included to the Map of Industrial development from Karaganda region. In this regard 33 projects with total value of more than 66 billion tenge were launched in 2010–2011, and another 7 in the amount of 15.8 billion tenge (1,500 new jobs) are scheduled for completion in 2012. In addition, the materials on 20 new investment projects were submitted for coordination to the Ministry of industry under the update of the Map of Industrial development.
It should be noted that the President of Kazakhstan, Mr. Nursultan Nazarbayev plans to check the progress of implementation of the State Program of Forced Industrial-Innovative Development. The Head of State stated this on June 13, 2012 during a meeting with the Prime Minister Mr. Karim Massimov. “In the beginning of July, I will check the quality of execution of tasks and actual achievement of key performance indicators of the program”. Recall, that the purpose of State Program of Forced Industrial-Innovative Development for 2010–2014 is to provide diversification and competitiveness of Kazakhstan's economy in the long run with the growth of its social performance.
As Bloomberg reported with reference to Mr. Mehmet Dalman, Chairman of the Board of ENRC, in the current year the company plans to allocate its international assets as a separate structure with public listing. The main goal is acceleration of ENRC project development in Africa and Brazil.
During this operation two separate companies will be created, and current shareholders will receive one share of a new structure per each ENRC share. According to Mr. Dalman, this separation will allow the current shareholders to increase the value of their investments. Other options of the development of international projects under consideration include formation of joint ventures and selling equity interest to outside investors.
In its turn, Standard & Poor's Ltd, international credit-rating agency. believes that the formation of a separate structure may have a positive impact on ENRC financial risk profile of. “We believe that the possible separation of the international division will reduce the degree of diversification of the operating activities of the company and increase its concentration in Kazakhstan. In addition this can have a positive influence on the financial risk profile of ENRC, as the international division will require heavy capital investments in the next few years, which is now a major factor adversely affecting the level of the rating of the company.
In this regard, S&P said that if the company decides to separate international operations to receive an individual listing, the agency shall have to re-evaluate the creditworthiness of ENRC, since such a separation can significantly change the profile of its financial and business risks. For the time being this does not affect the rating of the corporation (BB‐//Negative/B), because this decision has not been approved neither by board of directors nor by shareholders.
JSC Aluminium of Kazakhstan will commit about 4.7 billion tenge for modernization of Pavlodar Thermal Power Plant-1 under the investment programme-2012. For comparison: only last year this company invested in the modernization of the equipment and plant facilities 3.1 billion tenge, and the total investment from 2009 to 2012 reached 15.7 billion tenge.
Among the most important investment projects this year is the dismantling of chimney-type cooling tower and the construction of a new one at the cost of 480 million tenge, and the replacement of the dust extraction plant of the boiler unit No. 8. In addition, the replacement of the old electrostatic precipitator is planned within the framework of the environmental project.
Recall that Pavlodar Thermal Power Plant-1 has been operated since 1964. Currently the station has 8 boilers, its installed electrical capacity equals to 350 thousand MW and heat power – 1,182 Gcal.
In 2012 the Kazakhmys PLC plans to reduce copper production by 1.8% to the level of 295 thousand tons. This will ensure stable operations of all the company’s enterprises and maintain its competitiveness in the global metal market. It was predicted previously that the production of copper in the current year will remain at the level of 2011, when the corporation produced 300.5 thousand tons of copper in cathode equivalent.
Meanwhile, on June 8, Kazakhmys PLC reported about considering the establishment of the joint venture in partnership with a Russian company RusHydro Group for the construction in Kazakhstan small hydroelectric power plants with the capacity of up to 300 MW. The partners plan to fund 30% of project costs at their own expense and to attract the rest through debt financing.
The latest news from Kazakhmys PLC is also associated with the development of small and medium-sized projects. In particular, the corporation plans to invest $800 million in development of Akbastau copper mine, where by 2015 should be completed the construction of a plant with annual capacity of 2 million tons of ore. The second phase of the project – the development of a nearby Kusmurun mine with a total investment of $240 million will be completed by 2018.
The Corporation also plans to invest $22 million in upgrading the Balkhash mining and processing complex, which shall be completed by the end of this year. After that the plant's capacity will increase threefold – to 10.6 million tons of ore. As a result, the mining and processing complex will be able to produce up to 39 thousand tons of copper concentrate and 35 thousand tons of copper cathode.
Since the second half of 2012 Balkhash mining and processing complex will process ore from the Konurat mine. It is expected that by the end of 2012 there will be produced 3.5 million tons of ore.
According to the agreement signed in late May, the Kazakhstan Development Bank will allocate 2.5 billion tenge for the modernization of two furnaces in Taraz Metallurgical Plant, which shall be carried out in 2012–2013.
Let’s mention that Taraz Metallurgical Plant LLP was founded on the base of Khimprom chemical plant, established in 1969, which was redesigned for the production of metal products. At the present time Taraz Metallurgical Plant produces ferromanganese silicon, repair and electrode paste, steel lap, carbonaceous paste and thermoanthracite. The company is a part of Central-Asian investment consulting company which also holds manganese deposits West Kamys and Tuyebay-Sartysu in Karaganda region, as well as Aytkokshe in Mangistau region. The total potential reserves of three deposits are compounded to more than 100 million tons.
According to the Agency of Statistics, the volume of investments in fixed assets in over four months of this year amounted to 1,541.299 billion tenge, increased by 5.9% compared to the same period of 2011. The mining industry and quarry operations, whose share in total investment amounted to 34.9% still remain the most attractive sector for investments. The predominant sources of investments, as before, are the own funds of enterprises, organizations and people – 56.2% (against 46.9% in January–May, 2011). At the same time the share of state budget funds amounted to 12.4% (11.9%), foreign investments – 17.9% (27.7%) and borrowed funds – 9.2% (9%).
As for the production volumes, in the mining industry this figure declined by 0.2%. In processing industries the volume of output, by contrast, grew by 6.8%. The growth in electricity supply, gas-, steam supply and air conditioning amounted to 6.5%, whereas in water supply there was observed a decrease by 1.6%.
In regional terms, the growth in production was observed in 10 regions of the country. However, its decline was evidenced in Akmola, Atyrau, West Kazakhstan, Karaganda and Mangystau regions and in Astana.
If we consider the performance of the domestic mining complex, in January–May 2012, in Kazakhstan were produced 20,574.5 thousand tons of iron ore, which is 1.5% less than in the first four months of 2011. In addition, was produced 14,367.7 thousand tons of copper ore (+4.4%), 2,078.8 thousand tons of copper-zinc (+11.2%) and 3,341.4 thousand tons of lead-zinc ore (+13%). At the same time the production of copper concentrate amounted to 171.8 thousand tons (+6.8%), and zinc concentrate – 151.2 thousand tons (-0.3%). The production of raw zinc increased by 0.3% – up to 132,395 tons and of the raw refined copper, by contrast, decreased by 0.7% – to 137,011 tons.
The output of crude steel dropped by 20.5% to 1,645.233 tons. As a result, the production of flat-rolled products was 1,266.272 tons (-7.7%), galvanized steel sheets – 236,788 tons (-7.5%), tin plate and tinned sheet products – 67,263 tons (-30.7%). At the same time were produced 704,347 tons (-0.3%) of ferroalloys.
Mentioning the production of precious metals, in January–May of the current year, our Republic produced 15,350 kg of raw and semi-processed gold (-1.7%) and 383,975 kg of raw and semi-processed silver (+50.6%).
The level of coal production for the first four months of 2012 remained virtually unchanged and amounted to 45,959.1 thousand tons (+0.7%).
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