Mining and Metallurgy in Kazakhstan
The key economic indices
An analysis of Kazakhstan’s mining and metallurgy complex testifies to that the country boasts of sufficient mineral resources, which are profitable to produce. 38 deposits of lead and zinc have been considered active (88.7% of total reserves of zinc and 66.8% of total reserves of lead), as well as 15 deposits of ferrous ore (26.1%), 46 copper fields (58.8%), 90 goldfields and 39 complex auriferous fields (86.0%). The supply of active reserves of lead and zinc will last no more than ten or fifteen years, therefore it is crucial to further increase funding of geologic exploration. At the same time, the supply of minerals in the ferrous ore, manganese and chromite industries is nearly 80 years given that the current production level goes up by 1.5 times.
The privatization of the sector is nearly completed as a result of economic and legal reforms. Major companies such as Kazzinc, Corporation Kazakhmys, SSGPO, Ispat Karmet and Kazchrome united mining and concentration enterprises and metallurgic works into single industrial complexes.
The sector accounted for 8.4% of GDP in 2002 (7.2% in 1998 and 9.8% in 2000). The year 2000 saw the most favourable conditions for the development of mining, as the prices for basic mineral commodities produced by Kazakh miners have been rising in world markets since mid 1999. The gross production of the mining and metallurgy complex reached its peak at that time, coming to over US$3bn. However by the beginning of 2001 there was a trend towards the decrease in demand for Kazakh exports. As a result the gross production in the sector fell by 10% as compared to the previous year. The changes in foreign trade terms—such as signing of the Kazakh-Russian agreement on indirect taxation in July 2001—was yet another negative factor influencing the decline.
Every year the share of the mining and metallurgy complex is falling in the industrial production of Kazakhstan (24.3% in 2000, 21.3% in 2002), which is due to the growth in the oil and gas sector. However, the gross production of the complex grew by 7.5% in 2002 thanks to the upsurge of the ferrous metallurgy.
Despite that the number of operating mining companies has increased over the past two years, the number of jobs in the industry reduced to 216,500. In all, the number of people employed in mining makes up just over 3% of the total employment in the economy.
In 2002 US$310m went to the state budget in tax and payment revenues from mining enterprises. This marked the cessation of the trend towards the decrease in tax revenues observed in the sector in 2001 (US$275.8m). The largest taxpayers in the sector are Kazakhmys (over 47% of tax revenues) and the companies of the Eurasian Industrial Association (SSGPO, Donskoi GOK, Aluminum of Kazakhstan and others accounted for over 32% of taxes).
Breakdown of production in the mining and metallurgy complex by sector
The share of non-ferrous metallurgy in Kazakhstan’s industrial production is 15%. Copper enterprises have recently undergone an upsurge: last year, the extraction of copper ores and production of refined copper grew by 1.27 and 1.4 times, respectively, against 1999.
In terms of copper production, our country is one of the leaders in the world. The Zhezkazgan field makes up the core of the mineral resource base for this sector. It accounts for over 50% of the total annual extraction of copper ores countrywide. The field is developed by Kazakhmys.
With its 70%-share in the sector, Kazzinc is a leader in extraction and processing of complex ores. Other companies such as Kazakhmys and Nova-Zinc also produce lead-zinc ores. After a certain decline in 2001, the sector is enjoying the increase in production of complex ores and black lead and zinc.
Aluminum of Kazakhstan is the only company in Kazakhstan engaged in production and processing of bauxites. The reserves on the balance of the Krasnooktyabrsky and Torgaisky ore departments comprise the bulk of the company’s mineral base. As a result of introducing a new process method at the Pavlodar aluminum plant, the conditions essential for producing alumina from low-grade bauxites have been created. This will help to boost the mineral base of the aluminum industry by using non-commercial reserves of the explored deposits. A technology for producing gallium, aluminum sulfate and soda-sulfate mix has been developed and is being improved to increase the efficiency of deposit operation.
The ferrous metallurgy sector is dominated by Ispat Karmet. In 2002 the company’s output was some 4.1m tonnes of cast iron, 253,000 tonnes of alloyed steel, over 4m tonnes of rolled iron and other products. Marking the booming demand for iron ore and concentrates, this increase in production creates conditions favourable for mining and concentration companies, above all SSGPO which produces 92% of Kazakhstan’s iron ores.
In 2002 the growth in production of precious metals and concentrates continued. However, there was a certain decline in production of refined precious metals (gold and silver). As the new Tax Code was introduced on 1st January 2002, the mechanism of collecting VAT from producers and distributors of precious metals in the home market has changed. Due to the resulting poor competitiveness of internal prices for refined precious metals against those in the world market, Kazakh enterprises switched to refining and selling precious metals abroad.
Structure of exports in the mining and metallurgy complex
The situation in international markets in mineral commodities over the past three years is unfavourable for the basic exports of the Kazakh mining sector (only the prices for gold and silver remain high enough). Therefore the growth in exports by mining companies (over US$2.8bn in 2002) was only due to the increase in physical volumes of exported commodities.
The share of the mining and metallurgy complex in the total exports of Kazakhstan fell from 35% to 29% in 1998-2002, which is due to the increase in energy exports. The total share of base metal exports also curtailed from 26% in 2000 to 23% in 2002. As the demand for ferrous metals in developed countries went down, the Kazakh exports were redirected to the CIS and Chinese markets. Last year, exports of ferrous alloys to Russia and Ukraine grew by 4.5 times as compared to 2000, and those of rolled ferrous metals nearly doubled. In 2002 physical exports of ferrous ores grew almost fivefold and those of rolled ferrous metals by 1.5 times in China.
Structure of investment in the mining and metallurgy complex
According to the National Bank of Kazakhstan, in 2001-2002 foreign direct investment (FDI) in the sector increased from US$401m to US$588.4m. It was mainly the non-ferrous metallurgy that saw the upsurge in investment: from US$11m to US$564.7m. This is due to that the National Bank specified the FDI statistics in the sector (investment in the previous years was included in the statistics of 2001-2002). In 1993-2002, US$1,592.9m in gross FDI were drawn into the non-ferrous metallurgy.
US$795.9m in gross FDI were invested in the ferrous metallurgy in 1993-2002. At the same time, the reduction in exports of ferrous metals and low prices led to that investment flows in the sector went down from US$71.4m in 2000 to US$7.3m in 2002.
The FDI in the mining companies halved as compared to 1998 and still are insignificant due to low international prices for raw materials. Nevertheless, there was a certain improvement in the mining sector in 2002: the gross FDI increased to US$16.4m (US$11.9m in 2001). A total of US$1,537.9m in gross FDI was encouraged in the mining of ores in 1993-2002.
In general, the mining and metallurgy complex remains quite attractive for foreign investors: its share in the total FDI in Kazakhstan’s economy came to 18.5% over the past decade.
Priority directions of development for mining and smelting complex
Priority directions of state policy for the development of the mining and smelting complex:
• Developing the resource base and new deposits.
• Increasing the efficiency of production and pre-treatment of raw stock for smelting, taking account of worsened geological conditions, and aiming to reduce losses and increase the extraction of useful ore components.
• Increasing production by bringing new facilities into operation.
• Producing competitive goods meeting the requirements of the home and international markets.
• Implementing new processes to conserve resources and improve environmental safety.
• Creating and developing important types of products not currently produced in Kazakhstan: profiled iron, various types of pipes, alloyed and other high quality brands of steel, etcetera.
• Expanding export potential through increasing the production of items at processing stages 4 and 5.
• The necessity for further upgrading and the introduction of innovative, science-intensive technology to boost the competitive edge of products.
• Reducing the imbalance between production and consumption and between exports and imports of the sector’s products.
• Developing innovation in the sector, fostering research activities and training skilled staff.
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