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 KAZAKHSTAN International Business Magazine №3, 2002
 Altynalmas: Marriage of Experience and Professionalism
Altynalmas: Marriage of Experience and Professionalism
By Nurlan Makulbekov, President of Altynalmas Joint Stock Company
The formation of the gold mining industry in Kazakhstan is closely connected with the activities of Altynalmas Joint Stock Company OJSC. The gold production industry has travelled the long road of economic reform during the decade of independence, and at times this was a road full of problems and hardships, which the company had to overcome. Yet today, Altynalmas holds the leading position among the gold producing enterprises of Kazakhstan: it holds 17% of the total mining and sales of refined gold. Altynalmas is the successor to the national company of the same name and has qualified personnel, so it is making efforts to increase its gold production output significantly. The wide experience accumulated by the company over the previous years helps it to perform its daily work successfully today.
Gold production and the circulation of precious metals in sovereign Kazakhstan has passed through three key stages of development.
The first stage (August 1991 – July 1995) is characterised by a state monopoly in the field of gold production, precious metals circulation, and the National Bank monopoly on purchasing refined precious metals. 
The second stage (July 1995 – July 1998) is characterised by the following: state regulation of relationships in the field of gold production and circulation of precious metals, cancellation of the National Bank monopoly on purchasing refined precious metals, sale of these by mandatory primary trading, producers being empowered to dispose freely of precious metals not sold at the primary trading; adoption of the Law On Government Regulation of Relationships Connected with Precious Metals and Gems; the Government was pursuing a policy of denationalisation and privatisation of the gold production industry.
The third stage (July 1998 – present time) is characterised by complete liberalisation of the precious metals market and cancellation of the Law On Government Regulation of Relationships Connected with Precious Metals and Gems.
The first stage started on 31st August 1991, when by a presidential decree, a gold reserve and a diamond fund were established in Kazakhstan. Under the decree, the National Bank was recommended to start forming the gold reserve and the diamond fund of Kazakhstan. For this purpose, a new structural subdivision, the State Repository for Precious Metals, was created. The National Bank was also required to raise the necessary funds for timely settlement with enterprises supplying precious metals and for soft loans to them. Due to the centralised system of settlement and payments for precious metals that had been established and was functioning successfully in 1992-1995, and also to permanent support by the National Bank, gold production companies did not experience any non-payment problems for produce shipped during that period. This circumstance contributed to the fact that enterprises in this industry were not only able to survive, but also to increase production. Many of those enterprises, whose management used the funds received in a realistic way, are still working successfully today.
The Decree appointed the National Bank to be the buyer of all refined gold and silver produced both in Kazakhstan and beyond its boundaries on a tolling basis. Licensing of all production activities connected with precious metals was introduced.
The Kazalmazzoloto Consortium was appointed as the single state body to control the industry. It was to organise the refining process of raw materials containing gold and the delivery of refined precious metals to the State Repository.
In 1991-1993, Kazalmazzoloto performed the main tasks necessary to organize and control the Kazakhstan gold producing enterprises under the new conditions.  
In December 1991, the Consortium concluded a contract with Priokski Plant of Non-Ferrous Metals (PPNFM) to refine raw precious metals from Kazakhstan in Russia. In January 1992, Nursultan Nazarbayev, the President of Kazakhstan, was formally handed over the first gold and silver bars.
In September 1992, the State Repository accepted the first bars experimentally refined at Tselinnyi Mining-Chemical Combine (TsMCC) created by support and finance from the Consortium. In October 1992, the State Repository accepted the first gold bars produced at Ust-Kamenogorsk Lead and Zinc Combine (UKLZC) using an original technology.
So in 1992, the State Repository had 10.6 tonnes of gold delivered to it, 743 kg produced at UKLZC and 47.3 at TsMCC. 1996 was the last year in which raw precious metals were refined at PPNFM; subsequently it was refined at Kazakhstani enterprises.
After Kazalmazzoloto had performed its assigned task, the National Joint-Stock Company Altynalmas was established on the basis of Kazalmazzoloto and Kazzoloto Production Association. This company represented the state in matters related to the production of precious metals, gems, and jewellery. Altynalmas was concerned with the whole area of precious metal production. According to an agreement between Altynalmas and the State Privatisation Committee of Kazakhstan in July 1995, the company was granted the power to control the state shareholdings of the following gold production enterprises: Kazakhaltyn, Maikainzoloto, Vasilkovski GOK (Mining and Concentration Combine), Akbakaiski GOK, Arkharlyaltyn, Yubileinoie Mining Department and five auxiliary enterprises. 
In 1993, Altynalmas delivered 13.7 tonnes of refined gold to the National Bank and in 1994, production reached its maximum level of 14.6 tonnes. The company constructed new refining facilities, and its employees assisted in creating the legal framework regulating the market in precious metals.
By the end of 1998, the liberalisation of the precious metals market in Kazakhstan was successfully completed. Today, free export of gold is allowed in Kazakhstan with no limitations. Trade transactions with precious metals are implemented both by producers of precious metals and the country’s commercial banks. Regrettably, Kazakhstan does not use all the financial instruments that are applied worldwide, since all the refined gold produced is sold at SPOT prices with a small discount. 
Furthermore, the period of development of gold production in Kazakhstan before 1998 was marked by important structural changes in the industry. Gold production enterprises began privatizing state property and transferring it to trust management. Many enterprises previously included in Altynalmas were transferred to new owners. In February 1997, the company was transformed into an open joint-stock company with 100% private ownership. The company possesses few gold ore deposits, although it has great experience in developing them.
Since 1995, the company has successfully managed Vasilkovski GOK’s and Akbakaiski GOK’s state share holdings, as confirmed by positive assessments from the Special Inter-Departmental Commission. The situation at Vasilkovskoie deposit is a special case. Multiple efforts by the Kazakhstan Government to attract foreign investors for developing this deposit did not bring about positive results. Therefore, the obvious decision was to entitle a domestic investor, namely Altynalmas, to use the mineral resources. In October 1997, the company obtained a licence for Vasilkovskoie deposit, according to which a contract for using the mineral resources was to be signed within a year. In August 1998, a draft contract was prepared and expert appraisals obtained. In the same year, the contract was submitted to the State Investment Committee of Kazakhstan. However, it was never signed, although the work group of the State Investment Committee had recommended this.
Altynalmas’s programme for development of Vasilkovskoie deposit was devised by company specialists with many years’ experience in operating gold ore deposits. The object of the programme was to mine reserves down to a depth of 360 million by the open-pit method in accordance with existing projects, and within the licence period of 25 years. The mining and processing capacity of the pit was to be 1.2 million tonnes of ore per year. At the same time, an offer was made to refine group C2 reserves by heap leaching them within the pit boundaries, with an annual output of 2-2.2 million tonnes. The total output of mining and processing at Vasilkovski pit would make up 3.2-3.4 million tonnes per year, and borrowings would be about US$48.2 million. After paying back the borrowings, it was intended to double the ore mining and refining capacity.
The advantage of the proposed programme was that it entailed the minimum demand for borrowing. Moreover, it was intended to use Kazakhstani scientific, technical, and labour resources. Investment in the project would be efficient with a gold price of US$280 per troy ounce. The payback period for the project would be 6.5 years, the internal profitability rate would be 16.4%, or 19.7% if the gold price were US$303 per troy ounce.
However, in August 2000, the Government of Kazakhstan made a decision to establish a joint venture with Levy Group for Vasilkovskoie deposit, Kazakhstan’s share being 40%. It should be mentioned that this decision has still not been completely carried out.
Therefore, it is quite clear that the company’s strategy is to develop the ore deposit base. Moreover, experience in other countries proves that, when the industry is in crisis due to a low gold price, large companies try to merge small promising projects. It is important that a secondary market in purchasing rights to subsoil use is starting to develop in Kazakhstan. The legal base necessary for such transactions had already been created. So Altynalmas purchased Mizek gold deposit jointly with Andasaltyn. The mine will come into operation in the near future, its capacity being 1 tonne of gold per year. It should be mentioned that Halyk Bank of Kazakhstan participated actively in implementing the project. 
To replenish their raw material base, Akbakaiski GOK obtained rights to subsoil use and carried out exploration at Svetinskoie, Duman-Shuak, Kariernoie and Samorodkovoie deposits, located in the vicinity of the enterprise. US$2.2 million had already been invested in geological exploration of these deposits. Altynalmas is prepared for close co-operation with foreign and local investors to complete geological exploration in Akbakaiski region and to construct mining facilities.
The company’s present investment in Akbakaiski GOK is US$6.64 million. The output from the refinery and underground mine has been increased from 70,000 tonnes to 200,000 tonnes per year. A refinery for gold concentrates has been constructed, and its output is 14,000 tonnes per year. The appropriate infrastructure has also been created: a water pipeline that will fully satisfy the production demand for industrial water and a reserve power supply circuit are under construction, as is a refinery for sulphide gold concentrates. Mining shafts and development openings for continuous working of the mine have been constructed and brought into operation. Gold production has increased from 715 kg in 1994 to 1,365 kg in 2000. As in the past, Altynalmas is supporting scientific research and design work at Akbakaiskoie deposit for the purpose of increasing production. The cost of this work is 910,000 tenge.
In order to develop gold production, Altynalmas has invested US$7.8 million on a repayable basis in enterprises working at deposits with low reserves and producing 400 to 600 kg of gold per year. These are: Altai, Kvarts Closed Mining Enterprise, Taskara, Andas-Altyn, etc.
Despite some problems, the Akzhal factory was launched at the end of 2001 to refine ore from the Taskara deposit. The company invested 57.4 million tenge in this project. In December 1998, in order to expand the scope of its activities, Altynalmas obtained a licence to work the Taskol marbled limestone deposit. This limestone is suitable for production of facing tiles and marble aggregate, its reserves are 1.4 million m3 and could provide Taskol, a subsidiary of Altynalmas, with raw material for 40 years. Marbled limestone is shipped to construction sites in Astana. In 2001, sales of Taskol’s produce has been thrice as much as in the previous year. In 1999-2001, the company invested a total of 77.89 million tenge in developing this project. 
So, despite unfavourable conditions in the gold world market over the past four years, and the loss by Altynalmas of the majority of its deposits as a result of state property re-structuring, the success of the company is clear to see. The company’s refined gold production has stabilised and is showing a growing trend. In 2001, Altynalmas produced more than 2,754.2 kg of refined gold. This exceeds the 2000 output by 1.3%, despite the fact that the average annual price for gold reduced from US$279.16 per troy ounce in 2000 to US$273.22 in 2001.
In 2001, Altynalmas experienced problems connected with the fact that Kazakhmys refused to accept fluxing ores and concentrates. Nevertheless, as previously mentioned, the company still had a 17% share of the total output of refined gold production and sales in Kazakhstan.
The experience of Altynalmas reflects many, but not all, of the problems in the gold production industry in Kazakhstan. Over the decade of forming domestic gold production under a market economy, there were years when gold production output grew, and years when it declined. Therefore, in many respects, the future of gold production in our country will depend on the effectiveness of state policy in this field today.

Table of contents
Invest in Astana!  Adilbek Dzhaksybekov 
Helios Means First!  Shukhrat Danbai 
Certain Environmental Aspects of the Activities of Subsoil Users  Aigul Kenjebayeva, Yuliya Mitrofanskaya 
Issiue Deductibility of Interest on Foreign Currency Loans  Bill J. Page, Gaukhar Iskakbayeva 
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