Leadership through Innovation: the Formula for Success for Mining & Metallurgy
On July 4th–5th, Astana hosted the second International Congress named Astana Mining & Metallurgy 2011 (AMM 2011), which became the main dialogue platform for miners and metallurgists not only in Kazakhstan, but in the entire Central Asian region. The range of issues discussed there matched the status of the event. The chief thing among them was how to preserve and strengthen the country's positions as one of the leading metallurgical centers in the world.
At this time more than 1,300 delegates from 25 countries, including the heads of the largest mining and steel corporations, representatives of public authorities, scientists, independent analysts and industry experts, gathered in the capital of Kazakhstan. The event was organized by Expo.kz, while official support provided by the Ministry of Industry and New Technologies. The highlight of the Congress program was the forum with the motto "The mining and metallurgy sector of fast growing economies: To the leadership through innovation." The other important events of the AMM 2011 involve the sectoral exposition, where 85 exhibitors from 10 countries demonstrated their achievements, and professional competition "Golden Hephaestus."
Landmark on the rise
The President of Kazakhstan, who always paid special attention to the development of the mining and metallurgy sector (MMS), personally opened last year's forum. Today’s event started as usual with a message from the Head of the state, which was presented to the event participants by Prime Minister Karim Masimov.
In his message Nursultan Nazarbayev announced that mining and metallurgy is one of the key sectors of the Kazakhstani economy that demonstrates the high dynamics of development. Currently, it accounts for more than 7 % of the GDP, about 17 % of total industrial output and 20 % of exports. He also recalled that the domestic metallurgists face new challenges. "The Accelerated Industrial and Innovative Development (AIID) program started in Kazakhstan. In the coming years we will carry out radical modernization of the industry and create tens of thousands of new jobs. An important step is to increase financing for geological exploration. I am confident that with the coordinated actions of the government and business all the set goals will be successfully achieved, and in the XXI century, our country will strengthen its position as one of the leading extractive metallurgy center."
In his turn, Karim Masimov assured the AMM 2011 participants in the serious approach of the Kazakhstani government to the MMS development. "We clearly realize that the new investment in the mining and metallurgical complex is a highly risky, capital-intensive and long-term endeavor. But we have to fight and will fight to increase its competitiveness.” With this purpose, Kazakhstan adopted a sectoral program for development of the mining & metallurgy sector until 2014; particular investment projects and promising niches to attract the investors are identified. We’ve got certain results. "In the last year alone in Kazakhstan in the framework of the industrialization map more than 150 new businesses were opened and over 23 thousand permanent jobs created. This year we plan to launch about 200 projects worth some 730 million tenge and create 40 thousand jobs. Of them, 61 projects worth more than $10 billion fall on the mining and metallurgy sector – this is 20 % of the total funding of the AIID program."
The implementation of these investment programs already added to the performance growth of the Kazakhstan's MMS. According to First Vice Minister of Industry and New Technologies, Albert Rau, last year the volume of production in the mining sector increased by more than 5 %, amounting to over $50 billion, and the metal products output reached $11 billion. "Positive development continued this year as well: in the mining industry in 5 months metal products were produced to the amount of 4 trillion tenge, a 102 % increase, compared to the same period of last year. The physical volume index within the extractive metallurgy sector reached 112 %.”
Priorities of the State
It is clear that the main engine for growth in the market condition is private initiative. The challenge of the state is to guide, encourage and support business initiatives. According to Mr. Rau, one of the key directions here is to provide necessary infrastructure, and, in particular, the establishment of industrial parks. Thus, the state has already invested 30 million euros in an industrial park of metallurgy and metal processing in the Karaganda region; another 100 million euros will be invested in the near future. The State Committee for Modernization of the Economy is considering certain incentives for large projects. Concerning small businesses, the infrastructure development for them goes through the Business Road Map 2020 program.
Speakers at the forum, the representatives of the mining companies, consistently stressed that in practice they feel that their views are listened today, while the government and local executive bodies have indeed started carrying out more active work in the MMS. Along with that, as the executive director of the Association of Mining and Metallurgical Enterprises (AMME), Nikolay Radostovets, said, still there are a number of issues that need special attention. The first thing is the accelerated completion of the rolling stock to ensure the dramatically increased production rates in the industry. The second thing is the necessity to force the enactment of a law on special economic zones that will stimulate the creation of productions manufacturing products with a higher added value. And the third thing is that it is necessary, as soon as possible, to build up a system of partnership relations "with large companies that have global significance." For its part, the AMME promised to study best international practices of encouraging the industry and to submit proposals as to the development of a separate code of mining and metallurgy.
Alexandra Pugachevskaya, Senior Energy and Mining Specialist of the World Bank’s Oil, Gas and Mining Division, said about the need for separate legislation for the mining sector, such as a Mining Code. "The oil and mining sectors are different in structure. They have various investment aspects. The participation of the state in them is also different. Sometimes, as it appears in international practice, the countries which are successful in the oil business think they can copy their experience and transfer it for use in the mining industry. But as a rule, the mining sector suffers from the application of oil practices, and we try to explain this by the example of other countries." In her opinion, Kazakhstan should take a look at the experience of Brazil, Chile and Peru, which are now actively reforming their legislative framework for the mining sector.
Deputy Chairman of the Board at Samruk-Kazyna Aidan Karibzhanov drew attention to the fact that today the mining and metallurgy sector in our country is more focused on exports of raw materials and primary metals. In this regard, the main task in the coming years should be the creation of new processing plants: higher added value, higher rate of local content. "We are trying to develop this industry from the viewpoint of development of the entire economy; we engage in various master plans, in building railways, infrastructure, new power stations and power transmission lines. We want that all the large projects that are implemented in the industry both by private companies, public corporations and state-run enterprises, would be closely connected with the development of a single national economy."
The main challenge facing Kazakhstan is to diversify the economy, and here, Mr. Karibzhanov believes, we cannot do without creating a related domestic demand (including the one for metals) through cooperation with transnational corporations. "We should make every effort to attract international companies, embedding ourselves into their chains, so that they will open up their productions here. We have a good example – last year we set up a joint venture with General Electric for the production of locomotives. Together with Russian Transmashholding and Alstom we will be producing French electric locomotives. This supposes the boost of domestic demand."
The key point capable of arousing the foreign players’ interest to participate in the industrialization of Kazakhstan is, of course, the access to raw materials. Although today our country is among the top ten in terms of the mineral resource base potential, at the same time, according to Mr. Rau, the reserves get depleted, the depths of extraction operations increase, the concentration decreases, and, therefore, emphasis should be made on exploration. By his estimates, in the last two years the budget funds allocated to this sector increased twice; however, in the future the budget has to increase four times, as a minimum. "Only this way we will be able to reach the cherished formula – 1.5 tonnes of the reserves increment per 1 ton of the reserves mined."
In view of the above, the efforts are being taken now to set up a special state exploration company to be the main driver for the development of geology and techniques in this area. The Government expects the national operator will give impetus to the development of transparent partnerships with international leaders in the given field, as well as will promote new investment and joint developments.
Problems of partnership and integration
The Kazakhstan’s mineral resource potential should allow to realize in practice "the subsurface in exchange for technology" principle and to build up equitable relations with developed countries. In the first place, this applies to cooperation with the European states, which, on the one hand, are deemed the main holders of technologies, but on the other hand, they are the consumers of the Kazakhstani resources.
As the Ambassador and Head of the European Union Delegation to the Republic of Kazakhstan Norbert Jousten noted at the forum, now the EU is the largest trading partner and largest investment source for Kazakhstan. Thus, in comparison with the year 2000 the exports by Kazakhstan to the EU increased from 15 % to 48 %. "The mineral resources play an important role in the European Union’s economy. If we take, for example, non-ferrous metals, this sector in the EU employs about 315,000 people, while the total annual turnover of it is around 55 billion euros. Therefore, non-ferrous metals are a very important source of the EU’s economic growth."
It is not a surprise that in the first place the European Union is interested in an uninterrupted supply of mineral raw material to their markets through the signing of strategic agreements. Currently, the EU is considering a new Agreement on Partnership and Cooperation with Kazakhstan, in which a considerable focus is made on the mining and metallurgy sector of Kazakhstan. "Along with that, export duties are a key obstacle to signing of the agreement. From a practical point of view, we are currently working on a list of items that will limit the Kazakhstan’s export duties to import certain types of raw materials to the European market. We want to reduce these customs duties to zero."
Meanwhile, Oleg Soskovets, President of the Association of Financial and Industrial Groups of Russia and Chairman of the Coordinating Council of the Association “Business Council of Eurasian Economic Community”, believes the metallurgical enterprises in Russia and Kazakhstan are discriminated on the EU market, since the latter considers our countries, first of all, as an ideal raw material base. Sharing his view on this matter he said opposing to Mr. Jousten: "Dear colleague said nothing about the fact that the EU should consider issues of deep processing also in Kazakhstan, including the production of primary metals industry, which requires completely new technology-based productions today." According to Mr. Soskovets, at present it is practically impossible to enter the European market with finished products produced in Kazakhstan and Russia. The extremely low rates of so-called quotas, which the EU fixes for our metallurgical plants, show the limit of competition in the market of finished products in Europe.
The outcome here can be a co-operation within the Common Economic Space. "Only further integration in the field of economic cooperation among the member states of the Customs Union, and in the future, the Common Economic Space, will be able to solve the complex problems faced by each of the states today: the creation of jobs, increase in labor productivity and, especially, issues concerning the development of an engineering base as the primary consumer of finished metal products."
Mr. Jousten tried to strike back the thrust of his opponent: "According to our basic policy, we maintain open trade; we also advocate a policy of low tariffs. Therefore, we have to take the so-called "autonomous" measures against the Russian and Kazakh steel producers. However, with regard to Kazakhstan, such measures have never been taken in a full amount, and therefore they cause no damage to the Kazakhstani steel producers. We hope we will be able to sign a new agreement with Kazakhstan on steel, and that all issues will be resolved, especially those related to scrap metal.”
Speaking of the Kazakhstan's metallurgy prospects, Soskovets noted that there are not so many countries in the world which could provide their metallurgical sectors with their own raw material and fuel and energy resources. These are Russia, USA, Canada, Australia, and Kazakhstan. Since the iron ore provides the uninterrupted operation of metallurgical companies, metallurgists have begun actively entering the mining industry. First and foremost, the investors’ attention is drawn by iron ore and energy resources in Africa, South America, eastern territories of Russia and Kazakhstan. He gave an example of POSCO – the largest iron and steel company in South Korea, which announces the desire to build up a full metallurgical cycle enterprise on the base of Kazakhstani resource for production of electrical steel with a capacity of 500,000 tonnes. This is quite an important trend for further development of the domestic MMS, Mr. Soskovets summarized.
Returning to the innovative technologies issue it is worthy to note the speech by Chris Welton, Ganeral Manager Exploration-Central Asia, Rio Tinto, which focused on the prospects of a copper resource base development in Kazakhstan. Being well-studied as early as in the Soviet times due to traditional methods of exploration, this industry remained underfunded for many long years. Of 2,069 companies that invest in the global mining sector, only 23 are currently operating in Kazakhstan. In 2010 they invested $76.2 million in geological exploration that is less than 1 % of the global budget. Of this amount, $56 million came from gold. For comparison, in the same year, Chile spent $392.8 million for exploration, Mexico $630.3 million, while Canada more than $2 billion.
In view of the above, according to Mr. Welton, the carrying out of geological exploration with the use of advanced methods, such as 3D integration, as well as deeply penetrating physical and chemical studies through deep drilling have big potential, from the viewpoint of discovery of new extensive high-quality reserves of copper in Kazakhstan. "These studies entail high cost and high risk. Nevertheless, I believe their carrying out is the way forward for Kazakhstan, and our company is ready to provide our technologies for that."
Well, today neither geologists, nor miners or representatives of government agencies do not dispute the fact that in previous years almost no attention was paid in our country to up-to-date methods of geological exploration. So, probably we will not succeed without the help of international companies here. However, in other areas Kazakhstan has its own new technologies it can offer to other countries.
In particular, Nikola Popovich, Chairman of the Board of Directors at Kazzinc LLC, presented at the forum the Gidropolimet project that can increase the integrity of metals extraction. It is based on a breakthrough technology of atmospheric leaching of collective polymetallic concentrates, which is the Kazakhstan's know-how. Construction of the plant will begin next year. The new production will allow the company to divide the complex raw material into the three products that will be used for production of lead, zinc and copper at other facilities of Kazzinc. Simultaneously, sulfuric acid, tin, bismuth, mercury, palladium, platinum, tellurium, selenium, gold, silver, antimony, thallium and cadmium will be extracted from the ore. "Metaphorically speaking, this can be called the "liver" of Kazzinc which extracts all the contaminants and heavy metals, converting them into a "digestible" form that can be used by primary productions", – Mr. Popovich said.
One more example is a three component "Kazakhstanski" alloy, created at the RSE "National Center on Complex Processing of Mineral Resources of the Republic of Kazakhstan". The given product is an alloy of iron, silicium and aluminum with additions of modifier elements of non-metal inclusions (calcium, barium, etc.) and alloying elements (vanadium, titanium, and others). Intended for deoxidation, modification and alloying of steel, this alloy, owing to its properties, has a high degree of recovery by the liquid steel, provides the reduction in non-metallics and visible hot cracking, improves the structure and quality of the processed steel. The technology of its smelting is based on direct obtaining of an alloy from man-made raw materials instead of traditional techniques for production of standard ferroalloys, master alloys and pure metals. Experimental batches of the "Kazakhstanski" alloy were successfully tested at POSCO and ThyssenKrupp Metallurgie (Germany), as well as underwent industrial tests at the Trade House "Ferroalloys" (Russia) and Colakoglu Metallurgy (Turkey).
As the Managing Director of ThyssenKrupp Metallurgie GmbH, Andreas Beier, said, creation of a new alloy is a critical step in development of the ferroalloy industry – the last discovery of this level was made back in the 60s of the last century. Already this year in Kyrgyzstan there will be launched the first plant to produce the "Kazakhstanski" alloy with a capacity of 50,000 tonnes a year. In addition, there will be built similar enterprises in Kazakhstan and other countries. In this case, the world production of the alloy will total 500 thousand tonnes.
The paradox here is that ThyssenKrupp Metallurgie got the exclusive rights to sell the alloy around the world; the patent for its production is held by the Swiss holding company ICMD, while the German SMS Group will be manufacturing equipment which further will be supplied to all the factories where the allow will be produced. Here is the "Kazakhstani know-how."
Well let's hope that other innovative technologies and materials that are now being developed by our national research institutes will be by one hundred percent of the Kazakhstani origin.