Preserving and Multiplying
On June 12-13, the capital of Kazakhstan hosted 5th International Mining and Metallurgical Congress - Astana Mining & Metallurgy. During the Forum, the officials spoke about the tasks of the industry for the second five-year plan of industrialization, the miners and metallurgists shared their investment plans, and the foreign experts assessed the global situation in the commodity markets. Still, the keynote of the AMM - 2014 was the theme of innovation in the mining and metallurgical companies.
706 delegates from 30 countries of the world participated in the AMM - 2014, proving the Congress status as the main discussion platform for the mining complex in Kazakhstan. The significance of the current Forum was also enhanced by the fact that it included the meeting of International Organizing Committee of Mining Congress, where the discussions concerned the preparations for the XXV World Mining Congress, to be held in Astana in 2018.
Opening the AMM plenary session, the Prime Minister Karim Massimov noted out that over the past 30 years, the global mineral production increased more than one and a half time. Against this background, the mining & metallurgical complex remains one of the key sectors of the national economy: its share in the total structure of production now stands at 18%. In addition, there are about 300 thousand Kazakhstani citizens, employed in the industry.
It is clear that the State gave a significant importance to the development of mining and metallurgy complex. For example, the Council of Mining and Metallurgical Industry, Geology and Subsurface Use and the Solid Natural Resources are operating with success. It has the task to define the strategic directions of development, as well to resolve the challenges in cooperation with the core enterprises.
Due to implementation of the FIID State program, the industry has already 50 new commissioned facilities. 7 more projects will be launched this year. As for the second five-year period, the Government approved a comprehensive plan for the development of mining and metallurgy complex until 2018, and the will face the great targets to achieve.
Plan for Metallurgists and Miners
In his turn, the first Vice Minister of the industry, Albert Rau said that despite the difficult global market conditions, the domestic industry was able to keep the positive dynamics. Much of this is done due to the fact that the Government solved the problems of core enterprises in so called “manual mode”. New projects contributed to the success, since they are launched under the first five-year plan of industrialization. According to Mr. Rau, those tasks which were staged by FIID program and mining and metallurgy complex, were generally resolved.
Regarding the second five-year period, he noted that the list of its priorities narrowed up to 6 branches and 14 sectors. At the same time, due to its specific features, the engineering is divided into subdivisions, such as the automotive, railway engineering, equipment for the oil and mining sectors. Concerning the mining and metallurgy complex, the main accent of the new programme will be done on the development of ferrous and non-ferrous metallurgy.
Speaking of target indicators, Albert Rau regrets that the task to increase the production capacity of ArcelorMittal up to 6 million tonnes, which was set in the first five-year period, was not completed due to the current market situation. However, the project still remains important in present-day conditions, but this time, for the second five-year plan. In addition, in the frameworks of establishment of a production plant in Tekeli, it is planned to produce 400 thousand tons of the cast iron.
The second task in the field of ferrous metallurgy is achievement of self-sufficiency regarding the pipe supplies in Kazakhstan. That is how the speaker characterised the current situation in this area: "Last year only the country imported 1.8 million pipes. As the expression goes, no comments".
As to non-ferrous metallurgy, the projects on production of titanium slabs are planned, as well as the launch of nickel and ferro-nickel products. In addition, the aluminium processing will be increased, due to growing needs of the domestic automobile industry.
However, Mr. Rau stressed that the Program of the second five-year period includes only metallurgy and all things, related to its subsequent processing". We identified the mining part as a separate complex plan, which is aimed at the advanced development of resource base and it provides an improvement of the legal framework". The great achievement, as he believes, will be the simplification of the right for subsoil use for the man-made formations.
As to his opinion, a kind of Kazakhstani know-how is the norm on possible granting the right for subsoil use for the investment project in the processing area. "The algorithm is pretty simple: if an investor declares that he wants to build a steel plant, we give him an access to the mineral resources. At this time, there are already five contract signed. At the same time, the fundamental decision for each project shall be adopted by the Council on Mining and Metallurgy Complex after its inclusion to the Industrialization Map".
Totally, the complex plan ensures an implementation of 31 mining projects, for the total amount, exceeding $ 70 billion. They are mainly allocated to the development of new fields and provision of commodity needs for the metallurgy enterprises like Kazakhmys, Kazzinc and ERG.
Mr. Rau mentioned a large project in the Zhezkazgan industrial site as an example thereof. Passage to the hydro-metallurgical production of copper would involve processing of poor sulphide ores and deposits, previously written off from the balance. As a result, their operation life will be extended to 2054. The total scope of investments to the project will exceed $ 1 billion; in the same time, the Government adopted a decision on establishing a zero rate of the mineral extraction tax to increase profitability.
9 projects will be implemented in the gold mining sector. The speaker reminded us that an ambitious task, set for the first five-year period, was never reached: increasing the production volumes of the precious metal from 42 up to 60 tons/year. Bakyrchik field became an obstacle, since Kazakhstan expected to produce the additional 10 tons of gold.
Mr. Rau paid a particular attention to the initiative of the Akimat of Kyzylorda region, which provides establishment of a metallurgical complex with integrated production cycle, including extraction of raw materials and production of new products. “Government approved the road map of MMC at the meeting, which consists of Shalkiya zinc deposit, vanadium mines of Balaussa, Karumsak iron ore deposit and other prospective deposits ... It appears as a whole regional cluster".
Meanwhile, the speaker stressed that the plan for the development of the mining industry remains open and will be updated 1-2 times a year, and therefore, he urged to use it as a base for cooperation with miners for the next five years.
In general, based on the statements made by the officials, the State plans for the development of the mining industry seem promising. However, we should not forget the negative trends in the global market, that threaten the sustainable development of the sector.
The detail on this issue mentioned by Mr. Alper Akdeniz, Managing Partner of PricewaterhouseCoopers in Eurasia region. According to him, 2013 meant the next difficult period for the MMC. Most affected are the gold miners: production volume in the industry fell almost to 27%, meaning the largest decline for the recent 30 years.
MMC long-term prospects largely depend on state of demand from the emerging markets, especially, the China. For example, the "copper" boom, observed in the previous decades, was associated with the growth of the economy of China, which consumes 45% of total supplies of copper worldwide. At the same time, Chinese finance officers tend to take copper contracts and stocks in warehouses as the collateral provisions for the loans.
At the same time, this "Chinese dependence" is the source of risk with high volatility. For example, in March of this year, when only one company from the People’s Republic of China failed in April, it resulted in copper price reduction by 19% at once.
Due to the falling commodity prices, the shareholders of 40 leading global players started demanding the top management to increase the returns on existing assets. A responsive measure was the cost cutting, improving the efficiency and enhancing the responsible allocation of capital. Today the industry leaders recognize that the money-consuming mines and pits shall either increase their production and economic parameters or "die".
According to the expert, the achievement of long-term stability depends on improving the efficiency of invested capital. And there are two mechanisms: the first one is the portfolio management, the second one is the innovations.
In terms of margin pressure, the executives of mining companies are showing more flexibility regarding the issue, where and what to produce, as well where to reduce the investments or remove them. Many big players, represented mainly in China, Russia and India, are trying to diversify their activities, expanding geographically. At the same time, they are trying to get rid of non-core assets.
As to innovations, they can also help improving the performance and to resolve an issue of workforce shortage. "If we compare the mining and metallurgy complex industries with other ones, it is enough conservative regarding the R&D investments. However, it does not mean that the innovations are not important for the mining companies. Production in the coming years will be even more difficult and expensive, and therefore, despite the urgency to reduce costs, many players will continue to invest in their future".
Speaking of the risks, Mr. Akdeniz stressed out that the trend of "resource nationalism" will only increase, since many governments of many countries seek to maximize an income from exploitation of resources by introducing additional taxes and other restrictions. Moreover, the countries increased the requirements to mining and metallurgy companies, binding them with social and environmental responsibilities for their activities in the country’s territory.
When it comes to the merger and acquisition transactions, this year the activities will be reduced in this market. "Joint ventures and partnerships can improve production efficiency, but the number of proposals in a public market remains low." However, there may be some bargains on the most interesting assets. "The appraisal of many existing projects is at low level. At the same time, the mining companies are likely to be focused on the acquisition of such asset, because investing in greenfield projects is very risky during the uncertain time".
President of the International Union of Geological Sciences (IUGS), Professor Robert Oberhanseley, gave more optimistic assessment of the prospects for mining and metallurgy complex.According to him, the industry will be supported by strong demand, world population continues to increase, and new fast-growing economies will appear on the global stage. Another thing is the number of discoveries of new rich deposits, declining despite the increasing investment in exploration. "It means that one of the challenges in the future will be the mining of low-grade ores. Therefore, it is required to look for new methods to extract the useful components and recycling of existing wastes". The speaker highlighted that the global development of all economies requires creation of the national, regional and cross-sector sustainable plans for the mining industry.
In his turn, Leopold Weber, Vice Chairman of the World Mining Congress paid attention of the AMM delegates to the problem of high concentration of some minerals. As he said, nowadays about two-thirds of produced mineral resources come from the politically unstable countries. "Therefore, there is an anxiety, because every economy is heavily dependent on minerals and its processed products. Where the supply chain is disrupted, not only an exporting country will be affected, but the importers and consumers as well".
In 2010, the working group of the European Commission ensured a study to identify the types of mineral resources, having a high f production concentration. Such criteria as the economic importance of raw materials, dependence on its supplies from one state were considered. According to results of evaluation, for example, China has a very strong influence on the market of antimony. EU experts also include beryllium, cobalt, niobium, tantalum, gallium, germanium, lead, indium, manganese, tungsten, rare earth metals, etc to the list of minerals with critical concentration. This year the list was revised again to include 54 mineral types.
It is clear that the EU is very interested in maintaining the sustainability of supply of minerals, and therefore, Kazakhstan with its wide range of reserves, might become a real alternative to other exporters.
According to Mr. Weber, taking into account the large territory of our country, the subsoils may hide the undiscovered areas of mineralization, which require further exploration and digital geological and information mapping. Moreover, in his view, the state should coordinate this work.
Geology as a Priority
Meanwhile, our government is taking the relevant measures. As declared the Chairman of the Committee of Geology and Subsoil Use Bazarbai Nurabayev, there is the Programme of Geological Exploration for 2015-2019, developed in Kazakhstan, which will be funded in amount of 119.7 billion KZT from the National Budget and 900 billion will be paid by the national and large private companies. Based on its results, the expected increase of forecast resources is expected: 400 tons of gold, 4 million tonnes of copper, as well as 12 million tons of polymetals.
At the same time, Mr. Nurabayev highlights that the work on improving the legislation, including the simplification of the procedure for granting the right for the geological and exploration works. "The Government adopted a decision, regulating the calculation of historic costs and shortening their preparation up to 7 days. The amendments and additions are introduced to the procedure of provision and registration of geological and mining allocations. The draft law, ensuring 7 conceptual, 115 system and 67 editorial amendments to the current law “On subsoil use” is submitted to the Parliament, including the geological exploration part".
Geological information becomes more and more available. Nowadays, the geological foundations receive the reports in printed and electronic form on all the geophysical researches in the territory of Kazakhstan, and the materials from previous years will be digitized. An electronic archive, is created in our country, accessible through an internet browser that provides remote access to the summarized information.
In addition, a geographic information system in form of an interactive map of occupied and free contract territories is created for the solid minerals, which will be posted on the web site of the Committee of Subsoil Use.
At the same time, Nazarbayev University will implement the project on creating the geological cluster or the development of applied geological sciences and training, including the Geological Mining Institute, School of Earth Science, as well as the Geological Research Centre. The main direction of cluster activities are the aerospace research, geology, geophysics, geochemistry, hetero-geology and laboratory research, interpretation, modelling and calculation of reserves, development of fields, as well as the experimental & industrial and the pilot tests.
Helping the Business
The Executive Director of the Republican Association of Mining and Metallurgical Enterprises (Association of Legal Entities) Nikolay Radostovets believes that great help in developing the mining and metallurgical complex will be provided through preparing a concept of the new Code on the Subsoils.
In his view, the Code shall stipulate the level of the tax burden for the mining and metallurgical complex, as well as the conditions that would allow a subsoil user to have a "one-shop stop” and to receive an approval within 2-5 months from all the state bodies, in case of filing the documents for them. "We promote this issue because we believe that Kazakhstan is very far from the markets and we have very complicated mining, geological and climatic conditions, as well as disruptive infrastructure. We are a country that needs to create the unprecedented conditions for the investors".
The following issues are raised by Mr. Radostovets regarding the industrial infrastructure. So, he said that it is required to ensure the gasification of the country for advancement of many industrial enterprises, because it would be impossible to develop the processing industries without it. "Now such a programme is being developed, and we do hope that it will receive the support. Many structures that export gas in present, will be asked to supply it within the country. We're not talking about price. Please, ensure the volumes, at least, to the production plants that will be built".
The speaker also asked the Government to speed up the work on building a long-term tariff policy for the railway transport and power-supplying organizations. It will allow to ensure a growth coefficient for the tariff, which means that the investors will understand an increase in the costs, which will occur in the course of a project. As a result, it will be possible to make the appropriate calculations.
Another important issue raised by Mr. Radostovets was a need in creating the self-regulatory systems and new forms of public-private partnership. For example, during the construction of new refining plant near Astana, initiated by Tau-Ken Samruk Plant, nobody asked the private gold mining enterprises, whether they are interested in processing the raw materials at this factory. As a consequence, the production complex is empty and the state imposed a ban on the export of gold ores. "A Russian company, taking advantage of the situation, provided far better conditions for the local Kazakhstan companies. I think that the state should focus on the private enterprises and to find the solutions, facilitating the functions of self-regulating systems".
In conclusion, the speaker raised the issue of the effective use of money, paid to the state budget and the United Savings Pension Fund, as well as on their role in the development of the national economy. "Actually, we cannot boast of the fact that pension money created at least one infrastructure (or any) project. They were servicing the government securities. Moreover, not in our country. We believe that the Pension Fund should determine own development program for the future and to prove its feasibility for the society". As the investment options, Mr Radostovets proposed the high-performance mining and metallurgical projects that will prevent the company from taking the bank loans under the "fantastically high interest rates”.
New Horizons of Tau-Ken Samruk
Managing Director of JSC Tau-Ken Samruk Kylyshbek Izbaskhanov tried to reply to the attacks of Mr.Radostovets, representative of the Association of Mining and Metallurgical Enterprises: "It is easy to criticize, but the proposal shall be constructive. Kazakhstan cannot remain the source of raw materials forever. When producing 50-60% of gold, we use the cyanides, and all the pollutants remain in the country. At the same time, shall we give the refined gold? The gold blocks shall be used by the Kazakhstan’s citizens. Not being limited by the fact that for today we have three refining plants, we need to go further, producing the gold and silver, selling them in the global markets".
Speaking of a new refining plant, he said that the first 500 kg of finished products were shipped to the National Bank on April 2 of the current year. At the same time, the further development of the plant provides an introduction of new technologies, reduction of production costs, production of technical purpose items and the jewellery.
Continuing his speech, Mr. Izbaskhanov noted out that although Kazakhstan is rich in natural resources, recently we observe their widespread depletion. As a result, the fields with complicated mining and geological conditions are put into the operation. Considering this trend, one of the main tasks of the national operator is development of the fields with resistant ores, as well as restoration of the mineral and commodity base.
Therefore, the company's development strategy for 2013-2022 identifies the investment program to develop the accumulations of iron, manganese, lead, copper, zinc, gold, tungsten, molybdenum and other metals. In present, 9 contracts for subsoil use are concluded for the mentioned projects.
As to participation of Tau-Ken Samruk in implementation of the complex plan for mining and metallurgy complex development until 2018, it shall cover 3 projects. The first one involves the development of polymetallic ores of Shalkiya deposit in Kyzylorda region and construction of a processing plant. In the first stage, it is planned to produce and to refine 2 million tonnes of ore, with further plans to double this figure.
The second project is the industrial complex at Alaigyr deposit with a capacity of 1 million tons of lead per year. In present time, the scientific research is being conducted for selection of the enrichment technology for the produced lead ores.
The third project relates to the processing of iron ore deposit with a capacity of 10 million tonnes per year at the Massalsky deposit. In line with its development, the production process will be arranged for the high-quality steel products of different types, which will become the main raw materials in the development of domestic industry. Construction of a steel melting complex is planned in 2017.