Development of Mineral Resources in Kazakhstan: a Five Year History
Elvira Jantureyeva, Head of Deposits Development Analysis, Kazakhstan Centre for Geological Information KAZGEOINFORM*, Candidate of Technical Sciences
*The National Centre for Geological Information KAZGEOINFORM is part of the Committee for Geology and Mineral Resources Protection under the Kazakhstan Ministry of Energy and Mineral Resources.
At the dawn of the 21st century, the overall economic growth of Kazakhstan largely depends on the pace of development of the mining industries. These produce the greatest share of the national GDP, with exports of mineral products having been boosted from 53% in 1996 to 85% in 2000 (Figure 1). To explain the reasons for this boom, the five-year performance of mining will be analysed in detail. It has to be understood that even the very sound progress achieved might be set back by serious problems which call for immediate action. This is the subject of this overview.
The licensing system, which is based on a constantly improving legal framework, along with the privatisation policy pursued by the Government, have served to attract large volumes of foreign investment into the priority mineral deposit projects in Kazakhstan over the last five years (Figure 2, Table 1).
Over these five years, the total volume of investment in the mining industries has amounted to $15.7bn. Oil, gas and condensate development projects have proved to be the most efficient investment opportunities. Thus, total investment in the oil and gas projects grew from 53% in 1996 to 74% in 2000 (about $3 billion). Of this amount, 94% has been contributed by major investors, including 87% from foreign sources (Figure 3).
The most active players are Tengizchevroil, the Karachaganak Consortium, OKIOC, Mangistaumunaygaz, JNOC, Uzenmunaygaz, Aktobemunaygaz, Kazakhoil Emba, Texaco, Karazhanbasmunay, Yuzhneftegaz, Turgay Petroleum, Karakudukmunay, Hurricane Kumkol Munay, etc.
Annual oil output amounts to 30 million tonnes, of which one third is produced by Tengizchevroil. In 2000, oil and condensate output amounted to 35 million tonnes (Figure 4), which is double the 1995 production. The country’s potential would allow production to be raised to 40 million tonnes of oil in 2001 and to 120-150 million tonnes of oil and 30 billion cubic metres of gas in 2015.
However, although the country’s forecast oil and gas reserves would maintain production for at least 70 years, given the continuing expansion of production, considerable investment in geological exploration is needed to expand the resources base. At present, investment in exploration activities accounts for about 10% of all investment in oil and gas projects. The most significant sums for oil exploration were allocated by OKIOC (the North Caspian oil and gas field Kashagan). The main expenses incurred by OKIOC are associated with exploratory drilling. In addition, considerable amounts are being allocated for geophysical exploration, processing and interpretation of data, etc. A number of exploration contracts have been concluded by Tengizchevroil, Texaco, Kazakhoil, JNOC, Maersk Oil Kazakhstan GmbH, BN Munay, Hurricane Kumkol Munay, etc.
Another focus is the development of complex ores. Over the recent five years, more than $1 billion has been invested in this field; of this amount, production consumed 99%. The leader is Kazzinc, which is developing Maleyevskoye, the basic field of the Zyrianovsk Ore Works. According to forecasts, the reserves of the Rodnikovaya ore zone will be exhausted by 2010, and therefore exploration at lower horizons should be initiated as soon as possible. Other major fields, such as Tishinskoye, Ridder-Sokolnoye, Grekhovskoye, Zyryanovskoye, Tekeli, are also being actively developed. In some of them, deposit re-estimation needs to be carried out. In the Nikolayevskoye field (estimated reserves for 12-13 years), which is being developed by Kazakhmys, an increase in annual ore output is accompanied by a considerable lag in overburden operations. In the Shemonayikhinsky pit, due to the poor technical state of the pit edges, current production accounts for less than 10% of that planned. A new mine is under construction in the Artemyevskoye field. The Belousovsky and Irtyshsky mines and concentrating mills, and the Irtyshsky Brass Works recommenced operation after a long stoppage. The Leninogorsk Complex Ore Works is currently developing the Shubinskoye and Chekmar fields; however, ore extraction has not yet commenced due to the low metal content of the ore.
In 1996-2000, investment in the coal mining industry totalled $1.4 billion, with Ispat Karmet being the key investor. The company’s investments dropped by almost 4 times in 2000 compared with 1997, while output was halved. However, the company’s investments account for 55% of all investment in coal production. High levels of annual output are maintained by the Eurasian Corporation and EEC, whose shares in the total investment are 17% and 12%, respectively. Notably, although the output from Razrez Molodezhny is only 50% of that of Ispat Karmet, the two companies have paid equal royalties to the Republic’s budget. The same discrepancies have been revealed in a number of other companies.
The copper industry, which received $1.2 billion of investment during the last five years, is represented by Kazakhmys, a giant corporation comprising Zhezkazgantsvetmet, Zhezkent Concentrating Works, Balkhashmys and the East Kazakhstan Copper & Chemical Works. At present, the corporation (whose investor is Samsung Deutschland GmbH) produces almost 90% of all the country’s copper ore and 100% of its refined copper. Kazakhmys is developing the high-grade deposits in the Zhezkazgan, Orlovskoye, Tastau, Sayak I and other fields, which contain some 40% of the country’s reserves; 75% of these are active. Recently, a considerable growth in production was seen in the Zhezkazgan and Orlovskoye fields in spite of a halving of investment. The corporation has no debts to the state budget. It should be noted that, although the prospected reserves of operating fields are constantly shrinking, no investment is envisaged for the development of the deposit base (e.g. in the Aktogay and Aydarly fields).
During the last 5 years, over $1 billion was invested in iron and manganese production. Major iron fields are being developed by Sokolovo-Sarbayskoye GPO. The company’s investment share in the iron/manganese industry exceeds 70%, totalling $500 million during the 5-year period. Steady demand from the Magnitogorsk Metal Works has facilitated a boost in output and consequent doubling of product sales. The investment share of the Zhayrem Concentrating Works, another key operator in the industry, is about 20% (almost $80 million); the company has managed to raise both production and export volumes by more than 4 times. Its processing facilities are being re-equipped and reconstructed.
More than $380 million has been invested in the gold industry over the last 5 years. Of this, 87% was contributed by Altynalmas, ABS Balkhash, Altyn Tobe, Andas Altyn, FIK Alel, Kazakhaltyn, and others. In general, since 1996, investment in gold production has halved, and geological exploration reduced by 5 times. The key reason was a drop in the world gold prices, followed by a withdrawal of private investors from the country. In addition, failure to complete planned exploration works was contributed to in a large degree by a sharp reduction in financing. Some enterprises became bankrupt and many others suspended operation due to lack of investment.
A slight trend towards a growth in production has been seen over the last two years, with 93% contributed by large companies. Notably, two thirds of gold are being extracted from complex ore. A promising raw material for the extraction of precious and non-ferrous metals is man-made technical ware. Unfortunately, this reserve is not being made use of at present, due to the lack of efficient technologies, resulting from lack of investment. The main costs are associated with raw material analysis and determination of its composition and technical characteristics, which are necessary for choosing appropriate technologies for metal content estimation and extraction. In addition, wastes from concentration and metallurgy extraction can also be viewed as an additional source of recovery of precious and non-ferrous metals.
The only major chrome-producing company is the Donskoy Concentrating Works, whose output accounts for 95% of the total CIS chrome production. Kazakhstan is second in the world and leads the CIS in terms of chrome ore deposits and production. The volume of investment in the industry has tripled, reaching $190 million during the last 5 years. Notably, 2/3 of chrome alloys are produced outside Kazakhstan. Given the difference between the prices of chrome in ore and alloys, the expansion of domestic alloy production has become an urgent task.
The production of bauxite ore, the principal source of aluminium, is carried out by Aluminiy Kazakhstana (the Torhayskoye and Krasnooktyabrskoye departments). Over $150 million has been invested in the industry during the last 5 years. The key consumers of Kazakh raw materials are Russian aluminium plants. Now there is a need to set up domestic aluminium production, as demand in Kazakhstan is growing.
Uranium is being produced by Kazatomprom. The pace of expansion of production corresponds to the growth of investment in the industry, which amounted to some $130 million by the end of the 5-year period. At present, Kazakhstan has 25% of world uranium deposits and is a key supplier of this product to the world market.
Additionally, a number of other widely spread minerals and underground waters are being produced in the country. Mining appears to be the most efficient option for small-scale investment.
As a generalisation, the policy of attracting investment in the mining industry has focussed on the development of priority raw materials in the major existing fields. On the other hand, investment in geological exploration has shrunk by 5 times since 1996, and effectively no funds are being allocated for the prospecting of some commercially competitive ferrous and non-ferrous metals at present. Licensing of exploration and complex work is also seeing a decline (Figure 6). The key factors contributing to this situation are non-compliance with the minimal programme requirements by licensees, non-contracted mining practices, violations of licence time limits and other breaches, as well as abandonment of mining rights, return of licences, termination of contracts on an unilateral basis, dissolution of companies, etc.
The expansion of production in the existing fields and the failure to explore new deposits could soon lead to a point where Kazakhstan will become unattractive for investment (Figure 5). Since mineral deposits form the backbone of the country’s prosperity, proper attention must be given to the maintenance of its mining potential. The principal source of funding of geological exploration is royalties, a fixed tax on production (formerly referred to as the «compensation rate»), paid by mining companies to the state. However, whilst in 1996 no less than 60% of the royalties paid to the public budget were allocated for geological exploration, at present such allocations account only for 5% (Figure 6). This sum is no match for the allocations by other developing economies which possess similar mineral wealth and are adopting advanced world mining practices.
In addition, the reluctance of mining companies to invest more in geological exploration has been provoked, to some extent, by gaps in the legal framework, which have resulted in a doubling of legal and control functions in a number of the public bodies concerned.
Therefore, to improve Kazakhstan’s investment policy and ensure sustained investment flow into mining industries, it is necessary to implement a number of priority initiatives:
• to reform the policy, legal, fiscal and institutional frameworks;
• to improve the tax regime;
• to ensure that procedures are in place to settle contractual disputes in a transparent and fair manner;
• to switch to international licensing standards in the mining industry;
• to adopt the international classification of minerals and reserves;
• to increase financing of exploration at the regional level to provide potential investors with reliable technical data;
• to resolve problems regarding the oil and gas transportation and processing infrastructure and related management technologies.
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