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 KAZAKHSTAN International Business Magazine №4, 2009
 Mining Industry: It Believes and still Awaits
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Mining Industry: It Believes and still Awaits

Editorial

The last month of the summer was marked by a certain price increase for products of the iron and steel production sector in Kazakhstan. The updated forecasts of leading analysts of the world about metal prices for 2010 gave certain hopes to us. The last thing to mention is that the conclusive accord in this positive news was the announcement that among the CIS countries Kazakhstan became the coordinator of geological survey.

The 13th session of the Intergovernmental Council for Exploration, Use, and Protection of Natural Resources of CIS member-countries was held on September 2–4, 2009 in Astana. A representative of the CIS Executive Committee, the heads of geological survey departments, and experts from eight states of the CIS (Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, Ukraine, Uzbekistan, and Tajikistan) took part in the session. Our country was represented by Bulat Uzhkenov, Chairman of the Committee of Geology and Use of Natural Resources of the RoK MEMR.

The participants of the meeting discussed a draft long-term plan of joint works for the coming 3–5 years and a draft intergovernmental program “Standardization, Metrology, and Certification in the Field of Geological Study of the Subsoil”. Also, the issues of setting up editorial groups to adjust the geological maps of the bordering areas were considered. Following the results of the 13th session, the decision was made to select Kazakhstan to preside on the Intergovernmental Council and coordinate its activities within a period of up to the 14th session.

Providing the scientific and technical cooperation of the CIS countries in the field of geological study and development of the subsoil, the Intergovernmental Council, in the opinion of observers, is “the important factor for today in the relations of the CIS independent states in the area of subsoil use”.

In March of 1997 authorized representatives of the CIS member-states approved the Mining Charter and the Cooperation Agreement in the Field of Study, Exploration, and Use of Mineral Resources. The documents were signed by nine states: Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, and Ukraine. The Intergovernmental Council for Exploration, Use, and Protection of Natural Resources was selected to be the executive body for implementation of the Mining Charter and the Agreement. The work of the Council is carried out on a rotational basis with annual sessions conducted in the countries-members to the Agreement. Over the period of its activity, the Intergovernmental Council has developed and entered into the agreement on transfrontier cooperation in the field of study, development, and protection of the subsoil, signed by the heads of the CIS states in Minsk on May 31, 2001. The Model Code on the Subsoil of the CIS States was developed, and approved by the Interparliamentary Assembly of the CIS countries in December of 2002.

Price increases

According to the Statistics Agency, in August of 2009 the prices of Kazakhstani industrial products producers, taking into account the industrial-related services, increased by 17.5%, compared to the beginning of the year. In particular, in the eight months the prices of products produced increased by 18.4%, while of industrial-related services by 4.6%.

Along with that, compared to January–August of the last year, the average price indicator was less by 30.4%. This decrease was caused by reduction in the products prices by 32.2%, while the cost of services, on the contrary, increased by 8.5%.

Concerning the price increase by months, in August of 2009 it was 7% for ore, 2% for coal, 11.9% for ferroalloys, 11.8% for lead, 6.6% for unprocessed aluminum, 6.4% for ferrous metal roll, 4% for copper, and 2.2% for zinc. Precious metals prices reduced by 3.3%.

World metals market

By estimate of the International Aluminum Institute (IAI) experts, in the second quarter of 2009 the world production of alumina, compared to the same period of the last year, reduced by 16.3% from 14.904 million tonnes to 12.473 million tonnes. The countries-producers of North America reduced the production of alumina in April–June from 1.576 million tonnes to 713,000 tonnes, while in Latin America from 3.7764 million tonnes to 3.06 million tonnes. In Western Europe, the production decreased from 1.739 million tonnes to 1.002 million tonnes, while in Central and Eastern Europe, including Russia, from 1.314 million tonnes to 1.117 million tonnes. The producers in Asia cut production from 1.504 million tonnes to 1.44 million tonnes. The increase in alumina production in the second quarter was observed only in Australia and Oceania from 4.874 million tonnes to 5.006 million tonnes, and also in African countries from 133,000 tonnes to 135,000 tonnes.

Along with that, in September of 2009 the UBS AG analysts revised the forecast of non-ferrous metals prices in 2010 towards increase. In their opinion, copper will cost $3.3 per pound in average in the next year against the expected $2.5 per pound. Thus, the forecasted price increase was 32%. The forecast of the average price also increased by 14% to $0.8 per pound for lead, by 13% to $0.9 for zinc, by 19% to $0.95 for aluminum, and by 40% to $10 per pound for nickel.

Experts from the Goldman Sachs Group Inc. also revised the price forecast towards increase for the greater part of metals, since the anticipated recovery of the world economy is likely to lead to the reduction in spare capacities and an increase in the cost of metals production.

In particular, according to Goldman Sachs’s expectations, copper on the contracts of supply with the term of delivery in three months will rise in price to $7,650 per tonne by the end of the next year. Earlier, the price growth for the “red metal” was forecasted at only $5,800. Furthermore, the cost of aluminum is likely to increase to $2,050 per tonne, not to $1,950, as it was expected earlier, while the nickel prices are expected to reach $18,800, while the previous forecast for it was $15,200 per tonne. At the same time, Goldman Sachs lowered its price forecast on zinc from $2,600 to $2,170 per tonne that is explained by the “considerable reserves of this metal in China”.

The experts of the above American financial group emphasized that as of the beginning of September, 2009, the index of six basic non-ferrous metals on the London Metal Exchange (LME) has increased by 69% from the beginning of the year; copper and lead have become the leaders in this growth.

The analysts forecast also that in 2009 the supply of copper will exceed its demand by 178,000 tonnes, while in 2008 the difference was 706,000 tonnes. Moreover, the deficit of copper at 88,000 tonnes is expected in the next year on the market. Regarding aluminum, its surplus in 2009 is likely to come to 1.78 million tonnes, compared to 2.27 million tonnes in 2008. In 2010, the supply of this metal is expected to be more than the demand for it by 622,000 tonnes.

The Citigroup Inc. experts also increased their forecast. According to them, in the coming two years the cost of precious metals will go up. In their opinion, based on the performance results of 2009, gold will cost, on average, $940 per ounce, while the previous forecast was $908. The price forecast for this metal in 2010 has increased from $925 to $966 per ounce. The cost of silver, expected as of the end of the current year, has increased from $13.3 to $14.3 per ounce, while in 2010 it is likely to increase from $14.3 to $16.1 per ounce. The bank experts believe that the silver prices will be increasing more rapidly than the gold prices. The reason of that is the closer connection of silver with the industrial cycle recovery.

Citigroup Inc. also revised their forecast with regard to the average platinum price, from $1,172 to $1,147 per ounce, based on the results of 2009, and from $1,300 to $1,350 in 2010.

New technologies for metallurgists

The Akimat of Eastern Kazakhstan Oblast is planning to soon set up a regional Metallurgy Center and a design engineering bureau. According to the oblast Internal Policy Department, this step is aimed at furthering the development of the iron and steel industry and the machine building sector of the country through introduction of innovations. The main task of the center will be to increase the extraction of useful components by 10–15% from concentrates at the same volume and cost of production.

It is supposed to allocate KZT86 million for the development of the Metallurgy Center project feasibility study. The amount of financing on the setting up of the design engineering office will be KZT775 million.

Negotiations with the Finish Outotec Oyj Company over the provision of new process equipment to the Centre are now completed. The equipment will be supplied after signing of the relevant agreement between the Akimat of Eastern Kazakhstan Oblast, the RoK Ministry of Industry and Trade, and Outotec Oyj.

Kazakhmys ready to adhere to SMB

In September of 2009, Kazakhmys Corporation announced the adhering by all of its division to the State Program of Supporting Small-Scale and Medium-Scale Businesses (SMB), implemented in the framework of the first phase of the forced industrial and innovative development of the Republic of Kazakhstan.

In particular, the issues of participation of the Kazakhmys enterprises in the industrial development of the region were discussed on September 2nd at the meeting of Akim of Karaganda Oblast, Nurlan Nigmatulin, with Co-Chairman of the Council of Directors, President of LLC Kazakhmys Corporation, Vladimir Kim. The head of the corporation announced that despite the crisis, the Kazakhmys enterprises do not experience today “big shocks; tax support and the financing of the social sector remains at the previous level and even better than in the first half of the year”.

Nurlan Nigmatulin, in his turn, reminded that the five-year program of the forced industrial and innovative development of the country will be launched in 2010, and the Karaganda region is given a special role in this process, as it is here the industrial giants are concentrated, which “are expected to give an impetus to the development of small-scale and medium-scale businesses that is one of the basic conditions of industrialization”.

Mr. Kim pointed out that Kazakhmys is ready to provide support to small-scale and medium-scale businesses in a form of supplying of its products to them, and is ready to become the consumer of goods and services, produced and provided by such companies, as well as to take part in the setting up of their capital. The head of the corporation added that in the coming three months Kazakhmys will produce a new energy-saving program. Also Mr. Kim applied to the Akim of the oblast with a request to announce the forthcoming year in the region as The Year of Zhezkazgan.

Along with that, as it became known, based on the first half of 2009 performance results, the proceeds of Kazakhmys was $1.648 billion. For comparison, it was $2.838 billion for same period of 2008. The net profit of the company in the first six months of the current year came to $515 million, compared to $610 million in January–June of last year. The assets of the group of companies, as of the end of the reporting period, reduced to $9.246 billion, compared to $12.290 billion as of the end of the first half of 2008, and to $10.680 billion, as of the beginning of 2009, while their own capital reached $6.393 billion. By the estimate of experts, the dominating factor, affecting the financial indicators of the group in the first half of the year, was the fall of world prices for the major product of the group – copper. Thus, the average selling price of copper in January–June of 2009 was $4,024 per tonne, compared to $8,192 in the first half of 2008.

Bogatyr Komir is calculating the losses and hopes for better

In January–August of 2009, JV Bogatyr Komir sold 20.25 million tonnes of coal to their consumers 33.4% less than in same period of the last year. Supplies to the domestic energy carriers market was 10.8 million tonnes 22.8% less than for the same eight months of the last year. The reason for that, according to the company experts, was considerable reduction in the purchase of the given raw material, and, thus, the processing volume by the largest consumers of the company, such as the Ekibastuz hydroelectric power station-1 and JSC Station Ekibastuz hydroelectric power station-2. At the same time, the supply of coal to the domestic market of Kazakhstan for household needs have remained at the 2008 level and came to 1.1 million tonnes in the past year.

Moreover, coal exports to the Russian Federation fell by 45.2% to 8.35 million tonnes. The decrease in supplies resulted not only from the economic crisis that our neighbor is experiencing now, but also from that fact that in May of 2009 the Reftinskaya hydroelectric power station, one of the largest Russian consumers of the Ekibastuz coal, launched capital repairs to its facilities. As a result, the volume of consumption by only this station alone has reduced by 61% to 5.45 million tonnes.

By the estimate of experts, Bogatyr Komir operates steadily, on the whole, shipping coal to its consumers in a volume, as agreed under the contracts. While in July there were 20.8 shipments of cargo a day, in average, dispatched from the spur tracks of the company in the direction of Kazakhstan and Russian hydroelectric power stations, In August this figure increased to 21.4 shipments a day. In September, it is planned to dispatch 23 trains a day, loaded with coal. In aggregate, in 2009 Bogatyr Komir intends to sell 33 million tonnes of coal.

Developing the 2010 Program, the company takes into consideration economic growth trends, both in Kazakhstan and Russia. The demand for increased electric power generation will give an impulse to the coal-mining industry development. Proceeding from that, Bogatyr Komir is planning in the next year to produce and sell not less than 34–36 million tonnes of coal.

JV Bogatyr Komir is the largest company in Kazakhstan, producing coal in open pit mines. The company extracts to 70% of all coal, produced in the Ekibastuz coal mine. At present, 12 hydroelectric power stations in Kazakhstan and 6 thermoelectric power plants in the Russian Federation operate by using the raw material produced by Bogatyr Komir.

The Transnational Company Kazkhrom sets up new facilities and modernizes old ones

An official ceremony of the forth melt department commencement for melting of high-carbon ferrochromium was held on September 10, 2009 at the Aktobe ferroalloy plant. President of the Republic of Kazakhstan Nursultan Nazarbayev took part in the event. He put a symbolic capsule in the foundation of the new shop.

The design capacity of the melt department is expected to be 441,000 tonnes of high-carbon ferrochromium a year. It will comprise four furnaces, each with the capacity of 70 MWt. The raw material for production will be small chromium raw material and cheap kinds of reducing agents.

According to President of JSC TNC Kazkhrom, Viktor Til’, “the uniqueness of the shop is in its innovative technologies of high-carbon ferrochromium production that has no parallel in the world, and also in the use of up-to-date electric equipment and automation systems”. The project implementation will allow reducing the cost of product by 25% and to increase the output of commercial high-carbon ferrochromium by almost twice. It is proposed to allocate some $590 million for design and construction of the new melt department. The completion of construction is expected in 2012.

Meanwhile, at the end of August at the Aksusky ferroalloy plant that comprises the TNC Kazkhrom’s structure the smelting furnace No.25 was again put into operation after capital repairs. The repairs alone cost KZT653.5 million and became one of the major events of the innovation program of modernization and technical re-equipment of the plant.

The repairs provided for replacement of the kiln liner and blast-furnace jacket. Also, the upper part of the molten-pool of the furnace was changed; the design of the short electric network, current distributor, and cooling system were modernized. The furnace is equipped with new furnace transformers and a series compensation unit, allowing to considerably enhance the furnace parameters. Moreover, all air ducts and flue ducts were repaired. The furnace is equipped with a high-efficient (98%) duo-block gas-cleaning installation of the “wet” type.

The previous capital repairs of the furnace, built in 1970, were carried out in 1986. The design power of the furnace No.25 is 21 MVA.

TNC Kazkhrom is the Kazakhstani asset of ENRC. Apart from Kazkhrom, ENRC owns JSC Aluminum of Kazakhstan, JSC Kazakhstan Electrolysis Plant, JSC Zhairemsky Ore Mining and Processing Plant, JSC Sokolovsko-Sorbaiskoye Ore Mining and Processing Production Association, JSC Eurasian Energy Corporation, LLC ENRC Logistics, and ENRC Marketing & Sales.

ENRC has boughtassets in Africa

The Kazakhstan holding company Eurasian Natural Resources Corporation, engaged in raw material production, officially confirmed that it has bought 55.18% stake of British Central African Mining & Exploration (CAMEC) at 20 pence per stock in money terms. It is supposed that following the transaction completion, ENRC will invest in copper/cobalt assets in Congo with the purpose to increase the copper output to 75,000 tonnes a year within the next three years.

The amount of investments for the first five years is expected to come to $230 million. Meanwhile, the greater part of the investments is supposed to be made in the first three years. Investments will also be directed for conversion of the historical resources in accordance with the JORC international system and for delineation of extra mineral resources to optimize industrial waste, profitability, and the output of copper cathode of an A grade according to the LME classifier. The ENRC experts believe that the licenses for exploration and production in Congo will allow carrying out delineation of the extra reserves of copper oxide and copper sulfide.

In the opinion of the ENRC managers, the acquisition provides access to enormous reserves with a high concentration of copper and cobalt in the Democratic Republic of Congo that is in prospect, and will maintain the large-scale and cost-effective production. This will also help ENRC to enter the market of copper – a metal with attractive analytical indicators, which is in high demand on the market.

It is known that CAMEC has a large projects portfolio on raw material deposits development. Among them, there are projects on coal, platinum, and bauxites that gives the advantage to ENRC for its further development. Moreover, CAMEC has its own logistic company in Africa, which is among the largest in the given country, allowing ENRC to use all advantages of the integrated transport business.

ENRC is the integrated group, engaged in production and processing of minerals. Besides assets in Kazakhstan and Russia, it holds a 50% interest in the joint venture with Bahia Minerals BV (BML), the project of iron ore exploration in Brazil, and a 50% interest in Xinjiang Tuoli Taihang Ferroalloy Company in China. In the first half of 2009, the profit of the group is $1.7 billion that is half that of the same period of 2008 ($3.4 billion).

CAMEC produces cobalt, copper, platinum, and bauxites in Central and South Africa. In the last financial year, the profit of the company was 96.6 million of pound sterling, having increased by 39%. The Brazilian Vale Company also had an interest in buying the assets of CAMEC. The stock of the latter one is listed on AIM.

Performance indicators in January–August of 2009

According to the Statistics Agency, in the eight months of 2009, in the republic 2,599,000 tonnes of raw steel was produced that is 17.8% less than in same period of last year.

For this period, there was produced 1,959,000 tonnes of flat section (90.9%, compared to the level in January–August of 2008), including 132,037 tonnes of tinned steel sheet and tin plate (95%), and 366,963 tonnes of zinc-coated sheet (94.7%). Also 897,988 tonnes of ferroalloy (77.5%) was produced.

Along with that, in January–August of 2009 the output of refined gold and refined silver was 7,009 kg and 437,110 kg, respectively. This is 28.4% and 5.1% more, respectively, than in same period of 2008.

In the eight months of 2009 in Kazakhstan 1,146,743 tonnes of alumina (100.9%) and 221,977 tonnes of raw zinc (90.9%) were produced. The output of refined copper in a form of billets, except for sintered things, which are subject to rolling, extrusion and forging, has reduced to 229,805 tonnes (90.9%).

The coal production in January–August of 2009 decreased to 60,129,900 tonnes that is 14.6% less than in same period of 2008.

 


Table of contents
Caspian Gas: One for All?   Sergei Smirnov 
Insurance Market: Sight from Outside  The special report of Standard & Poor’s 
Macroeconomy. September 2009  Sergey Kasyanenko, Edilberto L. Segura 
· 2016 №1  №2  №3  №4  №5
· 2015 №1  №2  №3  №4  №5  №6
· 2014 №1  №2  №3  №4  №5  №6
· 2013 №1  №2  №3  №4  №5  №6
· 2012 №1  №2  №3  №4  №5  №6
· 2011 №1  №2  №3  №4  №5  №6
· 2010 №1  №2  №3  №4  №5/6
· 2009 №1  №2  №3  №4  №5  №6
· 2008 №1  №2  №3  №4  №5/6
· 2007 №1  №2  №3  №4
· 2006 №1  №2  №3  №4
· 2005 №1  №2  №3  №4
· 2004 №1  №2  №3  №4
· 2003 №1  №2  №3  №4
· 2002 №1  №2  №3  №4
· 2001 №1/2  №3/4  №5/6
· 2000 №1  №2  №3





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