Geological Exploration in Kazakhstan: Current Status and Outlook
Bulat Uzhkenov, Chairman of the Geology and Mineral Resources Protection Committee at the Kazakhstan Ministry of Energy and Mineral Resources of the Republic of Kazakhstan, Doctor of Geology and Mineralogy
The decade since Kazakhstan’s independence has turned out to be a time of irreversible change in the domestic geological service. In addition to fundamental changes in the system of financing geology and legal regulations of development of mineral resources, this period is also characterised by changes in ownership of almost all the mining companies in the country. Since Kazakhstan entered international raw material markets, our vision of the mineral reserves, which had previously seemed huge, also changed.
The current status of Kazakhstan’s mineral and raw material sources is in many respects a result of the geological and industrial policy of the former USSR. Then, the Soviet geological service had to provide the national economy with entirely domestic raw material. A trend towards extensive development of mineral deposits and sources of raw materials prevailed in the country. Significant investment was made in exploring large capital-intensive sites with low-grade ores. This could become possible only under closed market conditions, by concentrating and redistributing funds assigned for different sectors and supporting miners through a system of reduced prices and tariffs. Meanwhile, in order to fulfil state stock addition plans, small and geologically complicated fields were explored without clear grounds for doing so. Sometimes, under the strict conditions of labour division used the USSR’s mineral and raw material sector, refineries were built long distance away from their raw material source.
Under conditions of economic independence and market reform, these distortions of mineral and raw material sources, as well as the processing industry, in Kazakhstan have been aggravated. For instance, significant explored reserves of low-grade lead-ore in the Karatau region of South Kazakhstan were not used to a full extent. As a result, the large Achisai complex ore works faces a shortage in quality raw material, while Shymkent lead works is using only 10% of its design capacity. Companies developing large explored reserves of low-grade rare metal ores (tantalum, niobium, tungsten, molybdenum) in Eastern and Central Kazakhstan have not come up against competition in the external market. As a result, the Ust-Kamenogorsk titanium and magnesium enterprise and manufacturers of rare-earth products have faced shortage of raw material due to a breakdown of the domestic raw material market. The massive explored reserves of low-grade (0.4) porphyry copper ore, which used to be a prospective raw material source for Balkhash copper-smelting plant, the largest in the USSR, do not comply with current market requirements.
Currently Kazakhstan is making radical changes in its approach towards economic evaluation of deposits, general assessment of mineral and raw material sources and selection of priorities in geological exploration. The national balance of natural resources is being adjusted in accordance with strict economic criteria and international expertise in assessment of natural resources. Mineral and raw material sources are being evaluated, primarily taking into account their sufficiency for current and future needs of Kazakhstani industry, and the opportunities for beneficial export of primary materials. Geological studies are being carried out, directed at finding scarce raw materials and developing priority raw material sources for the Kazakhstani economy.
According to current opinion, Kazakhstan is ranked among the most promising regions for discovery of new fields in all the former Soviet territories. The results of more than ten years of work confirm this fact. Major complex ore deposits, such as Maleyevskoye, Artemievskoye and Novo-Leninogorskoye, have been found in East Kazakhstan, where prospecting, exploration and operation have been carried out for over 200 years. Large additions to gold stocks were obtained in the Ridder-Sokolnoye field. Kazakhstani experts managed to assess and explore three commercial titanium placers (Obukhovskoye, Shokash and Kamenogorskoye fields) and thus secure supplies of raw materials for the Ust-Kamenogorsk titanium and magnesium works. Large new deposits of oil (Kumkol), coal (Shubarkol) and copper (Zhaman-Aibat) have been discovered in Central Kazakhstan. Syrymbet tin deposit was explored in North Kazakhstan, in addition to a unique deposit of industrial diamonds at Kumdykol. Supplementary exploration of the largest gold field in Kazakhstan, Vasilkovskoye, has been completed in the same region. A promising gold-copper-porphyry ore deposit (Nukazgan field) - unusual in Kazakhstan - and a zinc ore deposit in weathering crust (Shaimerden) are recent discoveries worth mentioning. Moreover, new types of gold mineralisation have been determined, i.e. the Karlin type, gold in secondary quartzite, and gold deposits in linear weathering crust.
On the whole, for the last 10 years Kazakhstan gained three deposits, one each of lead, zinc and tin; two manganese ore deposits; five copper and five gold deposits; and six oil fields. All these facts confirm once again the reliability of preliminary assessments and validity of forecasted resources in Kazakhstan.
Analysis indicates that in general the country enjoys sufficient raw material resources, the development of which is profitable under current economic conditions. As a result of geological and economical re-assessment, the reserves of 38 lead and zinc deposits have been classified as active (88.7% of total zinc reserves and 66.8% of zinc reserves), in addition to 15 iron ore deposits (26.1% respectively), 46 copper deposits (58.8%), 90 gold deposits and 39 gold-containing complex ore deposits (86.0%). The additional zinc, lead and gold stocks obtained significantly exceeds their production over the 10-year period.
The supply of the manganese, chrome and iron ore industries with raw material has remained at a very high level (for nearly 80 years), even though production output has increased by 1.5 times.
At the same time, regardless of the apparent prosperity and replenishment of raw material sources, it should be mentioned that stock addition has mainly been obtained from deposits, manifestations and prospective areas known since the 70s. These areas (Shaimerden, Talap, Zhaman-Aibat, Varvarinskoye, etc.) are located far from industrial centres, therefore their commercial development would be capital-intensive.
The condition of copper, zinc and lead industries are causing great anxiety. The major part of the copper (Aktogai and Aidarly deposits), zinc and lead stock (Shalkiya deposit) added in the 80s has been classified as inactive at present.
No new deposits have been found lately in the territory of Rudny Altai, which produces nearly 90% of the total lead and zinc; this could lead to a crisis in the mining industry of the region in 10-15 years.
Taking into account the inertia in mining development, replenishment of raw material sources for non-ferrous metals remains urgent. For the period from 1995 to 2000, prospecting work financed from investment in the non-ferrous, rare and precious metal industries (excluding Uzboi and Vera gold deposits and Satpayevskoye titanium deposit) did not result in the discovery of any new deposits. Investors are seeking to cut down on prospecting, or suspend surveying work referring to unfavourable current prices for these minerals. It worth mentioning that investment in exploring a number of non-ferrous and ferrous metals (gold, polymetals, copper, nickel, cobalt, iron, manganese, etc.) has reduced by a large factor, sometimes down to zero.
At present, since the reserves in prospective areas, and deposits discovered earlier, are to a great extent exhausted, all the efforts of both sub-soil users and companies fulfilling government contracted geological sub-soil surveying should be directed towards the discovery of new deposits and the re-assessment of existing ones classified as non-workable, but which could be developed using non-traditional state-of-the-art technologies. The exploration of oxidised zinc ores in Shaimerden deposit is a good example of this approach. A move towards non-traditional processing of Shaimerden’s ore, which had been classified as non-workable, made it quite suitable for producing zinc by means of hydrometallurgy.
Vast territories of the former Soviet military grounds, which had been inaccessible for thorough geological survey, have considerable potential for developing raw material sources of the country. Currently, regional geological surveys of the Chu-Ili ore belt, and Saryshagan and Semipalatinsk testing grounds are almost complete. There is a drive to discover new commercial geological deposits, of kinds not traditional in Kazakhstan, within the known ore-producing regions.
The dynamics and structure for financing mining from the national budget in 1992-2000 show a reduction in budget allocations for governmental contractual geological sub-soil surveying. The period from 1997 to 1999 turned out to be extremely difficult, since hardly 45% of the initially planned budgetary means were allocated to geology in Kazakhstan (1998 data). As a result, a steadily decreasing trend has been observed over the last decade as far as geological surveying is concerned.
However, normalisation in financing the industry in 2000 made it possible to finish a number of large-scale projects. For example, a geological survey (scale 1:200,000) of the unexplored territories of Saryshagan and Semipalatinsk testing grounds were finished, in addition to a survey of the main mining areas. This work was carried out with the aim of producing mappings and discovering promising new areas. Hydro-geological and geo-ecological studies have been conducted within the environmental disaster zone (the Caspian and Aral Sea regions) and have revealed several areas and geological structures where deposits of gold, polymetals, copper, rare-earth elements and other minerals might be found.
During the period from 1992 to 1996, target financing of all types of subsoil geological surveying was provided by the National Fund for Resource Conservation and Raw Material Sources Replenishment. This Fund was formed from compensations for geological exploration and fees for licenses for geological exploration. In 1994, when geological exploration at the expense of budgetary funds amounted only to 7.9%, a transition began from budgetary financing of geological surveying to combined budgetary and investment financing within the framework of the concept of promoting investments in the raw material and mineral industries. In January 1997, in accordance with a government decision, the Fund for Resource Conservation and Raw Material Sources Replenishment was liquidated, and investments became the only financing source for both prospecting and exploration.
The largest investments in exploration of ‘solid’ minerals were made in 1996 and amounted to $62.5m. Nevertheless, this figure decreased to $8.9m towards the end of 1999, and the number of licenses issued for exploration and comprehensive survey of ‘solid’ minerals was reduced by 8 times (Diagram 1).
A similar dependency trend of licensing and investments in exploration was observed with regard to hydrocarbons, though the activities of large sub-soil users such as Tengizchevoil and OKIOC moderated the situation of 1998 in many respects. In 1999 (for a number of different circumstantial, environmental and legal reasons) investments by these companies reduced slightly, but then increased toward the end of 2000 to reach $285.1m (Diagram 2).
In recent years, under conditions of annually increasing production in previously developed large deposits, and decreasing budgetary financing of exploration, mineral reserves have not been increased.Worked-out reserves of a large number of priority minerals significantly exceed their stock addition obtained from exploration. Supplies from major mining companies with reserves prepared for processing, mainly those companies engaged in non-ferrous metallurgy, reached a critical level. At the current production level, in the absence of relevant replenishment and efficient processing control, the reserves of many fields will be depleted in the near future. Taking into account the fact that the majority of Kazakhstan’s industrial production is represented by minerals, the current situation is affecting both the social and economic development of the country in a negative way.
Another hazard observed in recent years is selective processing of high-grade ores by some mining companies, which makes further operations in those fields highly unprofitable. Such practices are likely to result in abandoned fields of poor unprofitable ore, with investors switching over to new, more profitable fields. In order to settle these and a number of other problems related to subsoil control and conservation, a special inspection co-ordinated by the Committee of Geology and Subsoil Protection was established in the early 90s.
It is worth mentioning that the amount of finance allocated from the national budget for geological exploration has been dependent on the amount of compensation paid by companies based on actual mineral production. Since the introduction of a license-contract system, subsoil users pay royalties to the government. However, although in 1996 nearly 60% of the royalties paid into the state budget was allocated to geological exploration, this figure has decreased to only 5% at present (Diagram 3).
The abrupt decrease in budgetary financing and geological exploration subsequently resulted in a deterioration in the mineral sources of Kazakhstan (Diagram 4). It should be also mentioned that almost all the fields operated under licenses were initially discovered at the expense of budgetary funds.
There is an internationally accepted financing schedule for geological exploration based on rate of compensation, i.e allocation of a portion of the profit obtained from mining operations. Applying this method under the current circumstances, it would be advisable to finance geological exploration at the expense of royalties, and this should be secured by laws. The national budget received revenue in the amount of 14,209.4m tenge from bonuses (741.7m tenge) and royalties (13,467.7m tenge) in 2000. Only 668.6m tenge were allocated for financing state geological exploration in 2000, which is just 5% of the total amount. In order to make the development of Kazakhstan’s mineral sources efficient, it is essential to allocate not less than 50% of the budget receipts received annually as bonuses and royalties for geological exploration of minerals.
As for the Russian Federation, the state controls nearly 80% of exploration financing. For example, in 2000 the Russian federal budget received 64,475bn roubles (320bn tenge) in compensation of costs; of which 54,836bn roubles (some 279bn tenge) were allocated for geological exploration. Even though the scale of exploration reduced in the Russian Federation, the geological institutions survived. The staff was cut by 1.6 times, nevertheless there was a trend towards applying high technologies in explorations. In comparison to 1991, regional geological exploration increased 2.8-fold. For example, according to results from 1999, the financing of geological exploration was prioritised as follows: 69.7% for oil and gas; 6.9% for precious metals and diamonds; 3% for uranium, ferrous, non-ferrous and rare metals; 13.1% for regional research and development.
The systems for state control of the subsoil geological exploration differ between countries. However, the state is the primary source of budget allocations.
For example, supervision of subsoil geological exploration in the USA is based on co-operation among specialised institutions, including the Minerals Management Service as the main office, which is subordinated to the US Department of the Interior. The operation of all these institutions is co-ordinated by the Interagency Land Committee within the federal co-ordination council on sciences, engineering and technology. The activities of these institutions, engaged in different programmes, is combined and encouraged by working on a common basis that is presented to Congress when applying for financing. All the exploration, estimation, prospecting and development of fields can be done by national and international companies.
The competent body in China is the Ministry of Geology and Mineral Resources, which includes regional subdivisions and municipalities in autonomous districts. Financing comes from the government.
All the above examples show that the various subdivisions that comprise the relevant ministries are named differently in different states, and their activities can differ in certain details, depending on the particular characteristics of a given country. However, all of them share the following common features:
• the authority of the competent body is stipulated in law;
• a particular institution is responsible for all activities concerning geological services;
• geological services are financed by government (state or local authority);
• openness, honesty and transparency towards domestic and foreign investors;
• lack of competition with the private sector;
• development of the geological infrastructure;
• funds allocated for subsoil geological exploration average between $60bn and $150bn;
• geological services are structured on the basis of fruitful international experience, and are directed towards attracting investment into a mineral industry in transition to a market economy.
It is certain that, taking its own experience into account and assimilating innovations and advancements, the geological service of Kazakhstan will develop its own method of operation based on current requirements. It must not be forgotten that the chosen system of state supervision over subsoil geological exploration in Kazakhstan will influence not only the current state of the country’s mineral sources, but also the level of Kazakhstan’s economic development through the 21st century.
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