Subsoil Use 2000-2015: Reserves, Mining, Investment

Since 2000 $64.3 billion has been invested into the solid minerals subsoil use in Kazakhstan. The exploration accounted for only 2.8% of this amount. The main issue for the State in this regard  now is to ensure the growth of the country’s resource potential, in particular through the adoption of the international system of reserves calculation, as well as the codification of the sectoral legislation.

As of January 1, 2016, the total number of the active objects of the subsoil use monitoring in Kazakhstan was 2 600, including 271 on hydrocarbons, 478 on solid minerals, 180 on ground water, as well as 1 671 on common commercial minerals. In 2000 - 2015 the investments for subsoil use of the mineral complex amounted to $248 billion, including about $180 billion (73%) aimed at the development of hydrocarbon fields and $64.3 billion (26%) -of solid minerals. During this time, the total investment increased fivefold - it amounted to about $20 billion in the last year alone. At the same time $625.6 million (3% of the total investments) was allocated for the exploration work. These indicators are expected to reach $22 billion and $694 million respectively by the end of 2016. (Table 1)

If we talk about the structure of investments by the mineral type, the oil and gas industry was still in the lead there throughout 2015. The expenditures amounted to $14.1 billion, or 71.5% of all investment in the raw minerals complex. It was followed by the mining industry - $5.3 billion, or 27.1%, the common commercial minerals - $195 million, or 1%, and the ground water - $60.9 million, or 0.3%.

Subsoil polymetals remain a priority in the mining sector investment - $1 124.1 million,  copper - $1 003 million, coal $833.8 million,  uranium - $729.9 million, gold - $625.9 million, as well as iron and manganese - $565.9 million. It should be noted that the exploration investment increased from 1.6% to 2.4% of the total volume of investments in solid minerals subsoil use in 2015.

Investments in the mineral complex definitely have a positive effect on the level of the social and economic development of the regions and the country as a whole. Thus. since 2000, the subsoil user’s expenditures for the social services and the local infrastructure developement totalled $3 168 million, for training - $1 450 million, and for the acquisition and the use of advanced technologies - $398 million. In addition, within the framework of the requirements imposed by legislation on subsurface use since 2010, they directed $253.4 million towards research, science and technology and (or) research and development (r and d). Last year the count of the involved contractual personnel amounted to 162 ths. people (against 178 thousand a year earlier). Yet it should be borne in mind that the companies involve subcontractors for 95% of the scope of work that are not included in our statistics.

It should be noted that with the introduction of the subsoil use contract system almost all of the increase in mineral reserves in Kazakhstan was obtained through investment in exploration. They were mostly directed towards the subsoil use of hydrocarbons (90%) and other priority types of raw minerals (gold, polymetals, copper, iron, manganese, nickel, cobalt, tin, tungsten, molybdenum, titanium, uranium, coal, etc.). However, the active exploitation of the raw minerals base was not always accompanied by the appropritate increase in the priority mineral reserves.

Therefore, the State committed to the revival of this industry and the bringing in the new interested players. The world leaders in exploration activities are working in Kazakhstan todays: the Australian-British concern Rio Tinto, the South Korean company Korea Resources Corporation, the Australian Iluka Resources, the German investment fund Ulmus Fund. They are investing about $30 million in exploration work within the framework of joint projects, 10% of which have already been disbursed. Over $40 will be directed towards the projects on exploration of copper, gold, rare earth metals and platinoids by the investors from Turkey (Yildirim Holding), Japan (JOGMEC), Singapore (Azura International) and Iran (Ghadir, Sadr Tamin, SUNIR).

The technological capabilities are also being increased. A joint Kazakhstan-Canadian venture “Kazgeotech” LLP, which uses the new VTEM/ZTEM technologies that allow the exploration of up to 2.5 km, was created based on the Kazgeology JSC, along with a modern geophysical land party using the know-how of the Phoenix company. The drilling party, equipped with multifunctional self-propelled drilling rigs by Dando Drilling Company with a wide range of actions on different types of drilling, is being created as well. 

The Gold

Kazakhstan’s share in the global gold reserves today is around 5%, and we are placed 14th in the global ranking. However the Republic is placed 3rd among the CIS countries in production of this metal of value - right after Russia and Uzbekistan. The state balance of the mineral resources of the Republic of Kazakhstan includes 330 (369 sites) golden deposits, including 288 primary gold and 62 placer gold deposits, as well as 11 technogenic mineral formations. Ranked on the level of the industrial developement, 107 of these are considered to be active objects, 138 are the objects being explored and 124 are placed as the reserve objects. The total proven gold reserves of Kazakhstan come up to 2 428.7 tonnes. 

The subsoil use of gold is carried out on 154 sites at the moment, of which the exploration is being conducted at 72, the combines exploration and mining at 47, and mining at 35. In 2000-2015 Kazakhstan produced 616 tonnes of gold, while the increase in reserves amounted to 958 tonnes (including 61 tonnes last year). The total volume of investments during this time reached $7.3 billion, including $546 million that were directed towards the exploration work.

Nearly $626 million (13 times more than in  2000) was invested in the subsoil use of the gold, $45.3 million of this was directed towards exploration. With regards to the forecasts for the year 2016, the investment in the industry should reach $702 million, including about $51 million in the exploration work.

If we talk about the structure of production and investment in the context of individual companies, last year 91% of activity in the sector was from the large subsoil users. These include Kazzinc LLP (29% of all investments and 43% of total production), Kazakhaltyn Mining-Metallurgical Concern JSC (15% and 7%, respectively), “Varvarinskoe” JSC (13% and 6%), Alel FIC JSC (13% and 7%), JSC Altynalmas (7% and 10%), ALTYNEX LLP (4% and 5%), RG Gold LLP (4% and 2%) and Bakyrchik Mining Company LLP (4% of the investment, there is no mining) and others.

Copper

Proven reserves of copper in Kazakhstan come up to 40 million tonnes, or about 5% of the world’s total figures. The state balance includes the reserves of 122 sites (120 deposits) of copper. At the same time only the off-balance ores are included from 7 deposits - Sayak-2, Tesiktas, Moldybay (Karaganda region), Zyryanovsk, Grekhovsk (East Kazakhstan region), Syrymbet (North Kazakhstan Region), as well as Kacharsk, including the sites South and North (Kostanai region).

The subsoil use of copper is carried out on 62 sites at the moment, of which the mining is being conducted at 14, the exploration work at 33, and combined exploration and mining at 15. In 2000-2015, Kazakhstan produced 7.7 million tonnes of copper, while the reserves increase amounted to 12 million tons (394 thousand tons and 3 million tons respectively last year).

The total investment for this period reached $9.2 billion, including $190 million on exploration. Last year alone the industry got $1 003 million directed towards it, with 99% of this volume being provided by such large subsoil users as Kazakhmys Corporation LLC (65% of investments and 41% of production), Altay Polymetals LLP (13%, no production), Copper Technology LLP (7%, no production), Kazgeorud LLP (5%, no production), KAZMinerals Bozshakol LLP (3% and 12%) Fonet Er-Tai AK Mining LLP (2% and 1%) and others. Among the major producers of copper are also the «Vostokcvetmet» LLP (24% of total production) and Kazzinc LLP (15%), but their investment is taken into account in polymetals subsoil use. According to the projections for the year 2016, the total investment in the copper industry will reach $124.8 million, including $15.9 million that will be directed towards the exploration work.

Polymetals

Having a share of 10% of the world’s confirmed lead and zinc reserves, Kazakhstan is second only to Australia and China. Over three thousand of zinc and lead deposits were found in the republic, concentrating mostly in the Central, East and South regions. Proven reserves amount to 16 million tonnes of lead and 34 million tonnes of zinc. They are accounted for at 96 deposits of lead and 93 deposits of zinc.

The subsoil use of the polymetals is carried out on 34 sites at the moment, of which the mining is being conducted at 16, the exploration work at 12, and combined exploration and mining at 6. Over the past 16 years in the Republic produced 2.5 million tonnes of lead and 9 million tonnes of zinc, including 68 thousand tonnes and 374 thousand tonnes respectively in 2015. At the same time the reserves increase amounted to 1 million tons of lead and 1.9 million tons of zinc. The accumulated amount of investments in the industry since 2000 has reached $11 billion, of which only $135 million was directed to conduct the exploration work. Last year the investment increased 50 times compared to 2000, making it $1 124 million. At the last year end, 99% of all investments were provided by the major subsoil users, such as Kazzinc LLP (72% of all investments and order 50% of production), Vostokcvetmet LLP (17% and 40%, respectively), Kazakhmys Corporation LLC (5%),Nova Zinc LLC (3%) and JSC Shaimerden (1%). It is expected that this year's investment in the lead and zinc subsoil use will rise to $1 260 million, including $3.6 million on exploration.

Iron and manganese

Kazakhstan is ranked 6th in the global ranking on the iron ore reserves (6% or 18 703 million tons), after Australia, Brazil, Russia, China and Ukraine and 3rd on the manganese ore (30% or 682 million tons), after South Africa and Ukraine.

The leading iron mining region of the Republic is Northern Kazakhstan, where the production of iron ore is being done at the Sokolov, Sarbaj, Kacharsk and other deposits of skarn-magnetite ore, as well as at the Lisakovsk bpg iron ore deposit. The balance includes the reserves at a total of 66 sites (60 deposits and 2 TMO sites) of iron ore, of which 15 reported only the off-balance reserves.

The manganese stocks are mostly concentrated in the Atasu mining region of the Central Kazakhstan. They are characterised by their (mostly) oxide composition, relatively easy washability, and being low in phosphorous and sulphur. In total 48 manganese sites are accounted for, including 36 deposits and 3 TMOs. The development and processing of the manganese ore is being done by a number of enterprises, the largest of which is “Zhairem Mining and Processing Complex” JSC and TNC Kazchrome JSC.

The subsoil use of copper is carried out at 58 sites at the moment, of which the mining is being conducted at 19, the exploration work at 26, and combined exploration and mining at 13. In 2000-2015, Kazakhstan produced 682 million tons of iron and 41 million tons of manganese ore, including last year's 35.3 million tons and 2.1 million tons respectively. The reserves growth during this time was 2.9 billion tons in iron (1 050 million tonnes in 2015) and 86.6 million tons in manganese ore (none). Investments in 2000-2015 reached $8.6 billion, including $80 million that was directed towards exploration. The large companies accounted for the 97% of all the investments. Among them were - JSC Sokolov-Sarbay Mining Production Association (76% of the investment and 81% of production of iron), "Orken" LLP (11% and 17% respectively), “Zhairem Mining and Processing Complex” JSC (8% of the investment and 55% of production of manganese), TNC Kazchrome JSC (3% and 31%). The investments in the subsoil use of iron and manganese in 2016 should amount to $634 million, including $3.6 million for the exploration work.

Bauxites

Kazakhstan accounts for about 1% of the world's confirmed reserves of bauxites (336 million tons). Nearly all of their deposits are concentrated in three main areas: West-Torgai, Central-and East-Torgai located in Kostanay region. The state balance includes the reserves of 41 sites (27 deposits).

Currently, the subsoil use of bauxites is carried out on 6 sites, of which the production is carried out at 4, and the exploration at 2 sites. In 2000-2015, the Republic produced 75.3 million tonnes of bauxites, including last year’s 3.8 million tons. The increase of the reserves totaled 1 million tons for the same period, and there was no increase after 2010.

Total investment in the subsoil use of bauxites in 16 years reached $1 464 million, including a $21.3 million for the exploration work. In the last year alone JSC Aluminium of Kazakhstan invested $69.6 million (the Red October bauxite mining administration and Torgai bauxite mining administration got 81% and 19% of the investments respectively, and carried out 90% and 10% of the production). This year, the investment volume is set to increase to $78 million.

Chromite

Having 38% (361 million tons) of the world’s reserves of chrome ore, Kazakhstan ranks 2nd in this after South Africa. As of January 1, 2015, the reserves of 18 deposits located in Aktobe region are accounted for. The slag disposal areas of the Aktyubinsk ferroalloy plant make up one of the sites.

The subsoil use of the chrome ore is carried out at 9 sites, of which 8 are at the stage of production, and the exploration is being carried out at 1. In 2000-2015 66 million tons of chromite were produced, including 5.4 million tonnes in the last year. At the same time the increase of the reserves amounted to almost 1 million tons (there was no increase after 2007).

During this period, $3.4 billion have been invested in the industry, including $25.5 million aimed at exploration (the exploration work has not been funded since 2013). The developement of the deposits is done by TNC Kazchrome JSC (82% of all investments and 84% of production) and Voskhod-Oriel LLP (18% and 16% respectively). Last year these companies invested $241 million, with another $ 270 million expected before the end of the year.

Legislative trends

The top priority for the Government of Kazakhstan today is the modernisation of State management of the subsoil use. The priority measures include:

• the codification of the law on subsoil and subsoil use as a legal Act of the high legislative stature;
• the elimination of the inconsistencies with the other legal acts through an orderly and comprehensive regulation of subsoil use;
• the introduction of the principle of good faith of the subsoil users, considering the implementation of the market mechanisms of regulation;
• the optimisation of the economic and technological requirements for the mining of the deposits;
• the transition to international standards of the reserves calculation as a flexible and a market-oriented method;
• the differentiation of the raw minerals based on the specifics of the mining;
• the protection of the rights of investors in mining, including money back guarantees, the stability of the legal regime, as well as the right for arbitration, including the international arbitration.

In particular, the new Code on natural resources and subsoil use draft outlines the following regulatory principles and methods:

• the method of nondiscretionary regulation - a decision of qualified and authorised bodies must not be made at the discretion of the officer;
• the method of regulating the process of subsoil use based on the performance indicators and the achievement of certain results, rather than a turn-based process, which the subsoil user must follow;
• the clear and precise conditions of subsoil use operations;
• the availability of the geological information, as well as the results of the activities of the competent and authorised bodies on authorisation, bridging and approval documents;
• the update of the current regulatory and technical documents aimed at the compliance with the standards and the requirements of the industrial and environmental safety;
• the automated accounting and the monitoring of subsoil use.

Another important step for the State would also be the continuation of the work on establishing the National database. In particular, in 2015 the Industry Council of the Ministry of investment and development of the Republic of Kazakhstan decided to establish a Databank not only on the hydrocarbons, but on the solid minerals and the ground water as well. At present, the Zerde National Infocommunication Holding, which is able to cooperate with the leading developer companies of such data banks, is examining the business process and developing the technical specifications for this project.

The Extractive Industries Transparency Initiative

Last year Kazakhstan celebrated the 10-year anniversary of the launch of the EITI project in the Republic. A lot of work has been done during this period, which culminated in acquiring the status of the “EITI Compliant Country” in 2013.

At present, the National Stakeholder Council, composed of the Government and the Parliament of the Republic of Kazakhstan, oil and mining companies associations and the non-governmental sector, actively coordinates the implementation of EITI, with all decisions are taken by consensus.

The relevant regulations have been introduced to the legislative system, public funding is allocated annually, the events reflecting the country's national interests are being held in accordance with the strategic development of the extractive industry.

The digital reporting on EITI through the portal of the Unified State Management System has been introduced and is available on-line, which has became a model for other countries implementing the Initiative.

This year, as a part of the preparation for the 11th National EITI report, not only the reconciliation of the income data from companies and the Government is planned, but also the reconciliation on financing of the social and economic development of the regions in the framework of the implementation of the contractual obligations of the mining enterprises. The final report will be published and available to all stakeholders and the general public.

In addition, Kazakhstan plans to conduct a pilot study on the integration of the EITI- the so-called "Mainstreaming". It is about avoiding the duplication of data in the EITI reports and the existing companies and Government statements. Taking the automated process of collecting and monitoring the information into account, it will optimise the system of reporting and reduce the costs of the verification and the analysis both in the EITI reports and the other types of studies aimed at the good governance of the extractive sector. The EITI report itself should be complemented by the EITI Standards required information that is not disclosed in the existing reporting systems and sources.

In 2016 the decision should be made to include a mandatory requirement for the disclosure of the beneficial rights (the ultimate owners of the mining companies), which shall come into effect between 2019 and 2022. All the stakeholders shall benefit from this step:

1. The companies. The improvement of the investment climate, because the investors will know who they are doing business with and will trust the things they invest in. The lowering of the reputation, financial and legal risks associated with the suspicious assets or politically exposed persons.
2. The Government The attracting of the larger and higher quality investments, the lowering of the reputation of the corrupt country, the prevention of the concealment of income and tax evasion.  The opportunity for the Tax and other State bodies to expose and prohibit illegal practices.
3. Civil society: The fight against corruption and the illegal financial flows, improve the accountability of the Government and the companies, the reduction of distrust.

Elvira Dzhantureyeva, The head of the Raw Minerals and Extractive Industries Transparency Analysis Department RSI RCGI "Kazgeoinform" of the Ministry of investment and developement of the Republic of Kazakhstan, Candidate of Technical Sciences.