Legally defining measures of state support for industrial innovation of subsoil users, the government of Kazakhstan obliged them to fund scientific researches and introduce advanced technical solutions in Kazakhstan.
On January 9, 2012 the President of Kazakhstan, Nursultan Nazarbayev signed the Law “On state support of industrial innovative activity”. The document prescribes the legal, economic and organizational principles of stimulation of industrial innovation activity and determines the measures of state support. At the same time the Law “On State Support for Innovative activity” dated March 23, 2006 was considered to have lost force.
Among the support measures for the industrial and innovation entities the new law provided right for granting subsoil use to carry out operations in exploration, extraction, simultaneous exploration and extraction of mineral resources related to operating activities (process cycle) without a tender on the basis of direct negotiations in accordance with the Law “On Subsoil and Subsoil Use”. This opportunity will be afforded to individuals and/or entities that implement the industrial-innovative projects in the priority sectors designated by the President of RoK.
In addition to this normative act, the Law “On introducing amendments and addenda to some legislative acts of the Republic of Kazakhstan on state support of industrial innovative activity” was also signed. In particular, the Land and Tax Codes, the Laws “On local government and self-administration in the Republic of Kazakhstan”, “On Joint Stock Companies”, “On Public Procurement”, “On Concessions”, “On the National Welfare Fund” and “On Subsoil and Subsoil Use” shall be amended.
Thus, in accordance with the amendments to the Law “On Subsoil and Subsoil Use” was introduced the regulation that every subsoil user is obliged to provide funding for research, scientific, technical and (or) development activities (RSTDA) provided by the Kazakhstan’s producers of goods, works and services in an amount not less than 1 % of total annual income from contract activities. In this case the contract for subsoil use shall contain obligations on the size of the cost of RSTDA in Kazakhstani territory.
However, such obligations shall not apply to subsoil users who have contracts for exploration and (or) the extraction of widespread mineral resources, ground water and therapeutic muds, as well as the construction and (or) the maintenance of underground facilities not related to exploration and (or) production.
Performance of obligations on funding of RSTDA will be actually the costs incurred by subsoil user for the work under the subsoil use contract, as well as activities aimed at production of goods with high added value. This includes costs on research in the field of ecology, health, provision of operations safety and energy efficiency within the scope of process cycle, as well as the costs for funding of research and creation of elements of the industrial and innovation infrastructure. Subsoil users will have to submit reports on the implementation of commitments to fund RSTDA to the competent authority on a quarterly basis no later than the 15th of the month following the reporting period.
Due to the introduction of the preemptive right to purchase fine gold in bars to replenish gold exchange assets by the state, the new law amends as to the tax exemption of refined precious metals, gold and platinum when it is sold to the National Bank of RoK by residents of Kazakhstan.
In addition, novel legislations provide exception of restrictive measures on imports of excisable products within the Customs Union by revocation of the right to deliver such products only through certain checkpoints, which will allow the taxpayer to cross the border at any checkpoint.
Let’s produce more scrap
As stated by Mr. Albert Rau, the Senior Vice-Minister of Industry and New Technologies at the board of MINT on February 2, 2012, in the near future, Kazakhstan plans to reduce the export of scrap metal. He argued the fact that, in view of the creation of new plants of small metallurgy industry and expansion of the company ArcelorMittal Temirtau, by 2015, “we can reach a deficit of scrap metal,” thus during the year will be adopted a package of measures aimed at reducing its export from the country. In Kazakhstan in 2010 the need for scrap metal amounted to 2.7 million tons, in 2011 – 3.4 million tons, despite the fact that by 2015 it will reach 5 million tons. "This is not a problem today, but it will grow year by year" – concluded the First Vice-Minister.
Kazatomprom invests in geological exploration
In 2012–2015 National Atomic Company Kazatomprom plans to invest in geological exploration about 3 billion tenge that will allow it to raise reserves and resources at least by 20 thousand tons of uranium. In addition, by 2020 Kazatomprom plans to increase its reserves for another 500 thousand tons, including due to development of new technologies for processing of out of balance ores and state registration of these reserves. And if in 2011 the enterprises of the company produced more than 19 thousand tons of uranium than in 2012–2015 it is planned to increase production up to 25 tons. In this regard, for the short-term one of the main objectives of NAC Kazatomprom is to increase the company's share in Kazakhstan reserves and resources of uranium from 41% up to 51.5%, and in the future – up to 60%.
Konyrat will be unfrozen
Corporation Kazakhmys resumes copper production at the Konyrat mine which suspended its operations in 2008. It is assumed the deposit will be developed for about 9 years. The volume of the mined rock will exceed 99 million tonnes and ore production – about 57 million tons. In 2012 the company plans to produce 3.5 million tons of the ore for processing at the Balkhash dressing plant. Mining operations will start at the beginning of summer and reach design capacity as early as in July 2012.
Stripping operations are currently in progress at the deposit. Processing of rock mass of the eastern wall of the pit will be carried out by open-cut mining. In this regard, the company has already allocated more than 1 billion tenge for the purchase of mining equipment and auxiliaries. The vehicle fleet of the mine will be fitted with 17 units of mining equipment, including excavators, bulldozers and motor graders, and “BelAZ” dump trucks with load capacity of 130 tons.
ENRC Group is planning to build another ferroalloy plant. This was announced at the meeting of Mr. Arkhimed Mukhambetov, Akim of Aktobe region with Mr. Alexander Mashkevich, a major shareholder of ENRC PLC and Mr. Felix Vulis, Chief Executive Officer of ENRC PLC.
Now the 4th workshop for the production of 440 thousand tons of high-carbon ferroalloy is under construction on the base of Aktobe Ferroalloy Plant. This workshop will replace the outdated production in the future. As a result of the implementation of this project, Kazakhstan's export potential for this type of production will increase by 16 %. Use of innovative technologies will not only significantly increase the production of high-carbon ferro-alloys, but also reduce threefold the amount of solid emissions.
During the meeting Mr. Alexander Mashkevich informed the head of the region about solution of a range of issues related to the construction of a new plant, including the expansion of the carrying capacity of Zhenishke (Aktobe) and Don (Khromtau) stations and the power supply of new facility with an average designed energy consumption of 320 MW, which requires an expansion of the substation in Ulke and the construction of two high-voltage lines.
In addition, the parties have agreed to increase the supply of chrome ore in order to provide stable operation of JSC Aktobe Plant of Chromium Compounds (AZKhS), which is the country's only producer of chromium salts.
During the meeting, Mr. Arkhimed Mukhambetov mentioned social-oriented policy of ENRC which regularly invests substantial resources in this area. In his turn, Mr. Alexander Mashkevich confirmed the company's commitment to allocate 700 million tenge for social projects in the region, which was fixed in a memorandum in December 2011.
This year the company will also commit 723.3 million tenge for social projects in the Karaganda region. The ENRC and regional akimat signed corresponding memorandum on mutual cooperation in 2012. In particular, the construction of the museum of the first President of Kazakhstan in Temirtau will be continued and the ENRC allocated 300 million tenge for this purpose. Funding will be made by the ENRC Komek Corporate Foundation and JSC TNC Kazchrome.
The next step is the conclusion of similar agreements with the executive bodies of Pavlodar and Kostanay regions.
Meanwhile, in February 2012 the international rating agencies the Moody's and Standard Poor's slashed the scores of the ENRC group to “Ba3” and “BB-” and changed the forecast to the “negative”. This occurred after the ENRC had signed an agreement with the First Quantum Minerals Ltd (FQM) to acquire assets in the Republic of the Congo for $1.25 billion in January. Both agencies have explained their actions by saying that ENRC continues to conduct aggressive financial policy and the policy of acquisitions. In particular, Moody's believes that the projects acquired by the company will be profitable in the future, whereas a significant capital investment to bring them to the acceptable level of performance are already required in the next year. Moody's also believes that all future acquisitions will be funded from borrowings, and this may worsen the ratio of debt to EBITDA, which will exceed the level in 2.5.
In its turn, S&P expects that the debt of ENRC will grow significantly due to the proposed purchase of assets in the Congo, as well as a very ambitious capital investment program for 2012–2013. The agency notes that the downgrade of the rating reflects the assessment of the financial policy of the company as "very aggressive", and its liquidity – as “below adequate levels”. As a result, S&P changed the assessment of business risk of the company from “significant” to “aggressive”. SP also takes into account that ENRC planned to purchase Kazakh coal producer Shubarkol Coal for $700 million, payments of approximately $500 million related to previous acquisitions, and a number of other financial obligations. “Negative” forecast of S&P rating reflects the opinion of the agency about the possibility to downgrade rating in the next year, particularly if the debt of ENRC will exceed $5.5 billion.
In this regard, it should be noted that on February 28 ENRC obtained a credit line from OJSC Sberbank of Russia in the amount of $2 billion for a period of 5 years. The raised funds will provide additional liquidity and will be used for general purposes of the company, including funding of recent acquisitions and an extensive investment program of the group. The credit line will be granted with amortization, which will be activated after 24 months.
KazCopper launched production of copper
This Kazakh company has put into operation plant on ore processing and production of cathode copper from oxidized ores of Benkalinskoe field in Aytekebiysky district of Aktobe region.
The cost of the project is about 7 billion tenge, and the designed capacity – 20 thousand tons per year. While the purity of produced copper will reach 99.9%. Its production will be done by heap leaching, solvent extraction and electrowinning, which refer to high-tech operations, and is unprecedented for Kazakhstan on a commercial scale. The technology used makes it possible to carry out extraction from oxidized ores and development of numerous fields with low copper content.
KazCopper LLP commissioned this complex under the program of forced industrial and innovative development. Design made by the Australian company Calder Projects, which has experience in building of plants using SX-EW technology (solvent extraction and electrowinning). Basic and auxiliary process equipment was acquired from the world leading manufacturers such as Consolidated Alloys Pty Ltd. (Australia), Ancor Techmin (Poland), Brochot S.A (France), G Corner Electrical Systems (India), Servicios Integrales a La Mineria E Industria Plastenort Ltd. (Chile) and others.
Format Mach Company expands production
The company has invested 450 million tenge in the launch of a new foundry line for cold-hardening mixtures with a capacity of more than 6 thousand tons of castings per year. The project on creation of the entirely new site for production of medium-size castings using modern equipment and technology with a high level of automation was funded by the Pavlodar branch of JSC BTA Bank. This site also has its own equipment for the production of rods, hand ground with the ability to manufacture castings weighing up to 4.5 tons and with the dimensions of up to 3 meters, as well as the site for sand treatment, and the stock yard.
We remind that Format Mach Company LLP was established on the basis of the former Pavlodar instrument plant. Since 2000, the company has been refocused on the production of equipment for oil and gas and railway systems, and in 2006, here, the production of equipment and spare parts for mining and metallurgical and energy industries was organized. At the present time more than 500 types of products are manufactured here. At the end of the last year the company turned out products in the amount of 1.4 billion tenge, which is 200 million tenge more than in 2010.
Casting LLP will have a second mill
In 2012 Casting LLP plans to launch construction of a second ball-rolling mill with a capacity of 40 thousand tons per year. The capacity of both mills, current and under construction will be 70–80 tons after completion of all work. Besides that, by the end of 2012 it is planned to complete reconstruction of the cogging mill for production of reinforcing steel with a capacity of 15 thousand tons per year. Today, the company produces three types of steel feed (part of which is exported), the rolled ball, reinforcing steel of class A-2, as well as grinding rods. In 2011 Casting LLP increased the total output of its production by 12 %.
Casting LLP has been operating since 1994 and is a diversified enterprise engaged in processing of secondary ferrous and nonferrous metals and having in its composition steel plant in Pavlodar, as well as copper plant and non-ferrous metals works in Almaty.
The world market of metals
According to the forecasts of Dow Jones Newswires, the growth in world demand for iron ore in 2012 may slow, but annual average prices will be below the record level in 2011 ($168 per ton) and amount to $150–$160 per ton of iron-ore fines with Fe content of 62 % and delivery to Chinese ports. Last year, prices for iron ore were 14 % higher than in 2010. Regarding the maximum level of spot prices, it was recorded in March 2008, when prices exceeded $200 per ton. In the judgment of experts, in 2012, they may decrease because of the slowdown in demand for steel in China.
According to forecasts of steel company Alcoa, the world aluminum consumption will grow by 7.5 % by the end of 2012 – from 43.7 million to 47 million tons. If China is excluded, the increase will amount to 3.6 % – from 24.7 million to 25.6 million tons. The demand for primary aluminum in Russia expected to grow by 4 % – up to 0.9 million tons, in Brazil by 5 % – up to 1 million tons, while in India by 10 % – up to 1.9 million tons. The demand for “winged” metal in Asia (excluding PRC) will reach 5.8 million tons (+9 %) in North America – 5.9 million tons (+3 %) and in Europe will remain at the level of 2011 – 6.7 million tons. A record growth is expected from China – 12 % – up to 21.3 million tons. As for the aluminum market in other countries, it will be 3.4 million tons (5 % increase).
The forecast for the Celestial Empire was also presented by Nexans SA, which is one of the world's largest producers of copper cable and wire. It is estimated that in the next few years, copper consumption in China may recover against a background of growing demand from the renewable energy sector and specific industrial sectors. Thus, in 2012–2014 the average annual growth may reach 6–7 %. We remind that China is the world's largest consumer of copper, while its energy sector accounts for almost half of All-China demand. In December of last year, PRC imported a record volume of 406 937 thousand tons of copper.
However, it is expected that China, which is the world's largest supplier of rare-earth metals, can nearly double their exports, since lower prices contribute to the increase of demand. Rare-earth metals become cheaper from the end of the third quarter of last year, because consumers, including manufacturers of electric cars and wind turbines reduced their purchases. For example, the average price of lanthanum oxide in the fourth quarter was $20 508 per tonne, which is 15 % lower than in the third quarter. This year as forecasted by Bloomberg, the export quota for rare-earth metals is likely to remain the same – 31.13 thousand tons.
As for gold, then, according to the World Gold Council (WGC), its supply in 2011 decreased by 4 % – up to 3.994 thousand tons. Meantime, the metal mining increased by 4 % within a year, reaching 2.81 thousand tons and the total supply (including the volumes of net hedging of producers) increased by 9 %. Physical demand for gold remained at a level close to the 2010 – 4.067 thousand tons, while in money terms it rose by 29 % – to $205.5 billion (excluding precious metal purchases by central banks). Investment in the ETF and similar tools have fallen by 46 % – to $7.783 billion with an increase in investment in physical metal (bars, coins, etc.) by 59 % – to $75.114 billion, which as a whole contributed to an increase in investment demand by 34 % – to $82.897 billion. The cost of the metal consumed by jewellers during a year increased by 25 % – to $99.175 billion.
In 2012, gold prices continue to rise, forcing mining companies to adjust their plans for its production. According to the review of Pricewaterhouse Coopers, the majority of gold mining companies that participated in the survey predicts that the price will exceed $2,000 per ounce. 40 companies took part in the study of PwC. In 2011 the total production of this companies amounted to 26.5 million ounces of gold, while the forecast for 2012 is 37.75 million ounces. The average price of gold this year, built into the strategy of corporations that will be the basis for drawing up a production plan by the heads of companies, is $1,420 per ounce (compared with $1,130 in 2010).
It is expected that in the next few years the diamonds will rise in price more dramatically than gold. This will occur against a background of increasing demand for premium products in China, India and the Middle East, which will account for about 40 % of purchases on the world diamond market by 2015. According to the forecast of Edward Stärk, the analyst of BMO Capital Markets, the average price of diamonds will increase by 9 % in 2012 – up to $145 per carat, by 1.4 % – in 2013, by 4.8 % – in 2014, by 2.6 % – in 2015 and by 3.2 % – in 2016.
Production statistics in 2011
According to the Agency for Statistics, in 2011 in Kazakhstan, the volume of investments in fixed assets amounted to 4,985.9 billion, increased by 2.4 % comparing to the 2010. Meanwhile, 31 % of investments were aimed at the development of the mining industry, 18 % – of the transport industry and nearly 10 % the processing industry.
The volume of industrial production in the country within the year increased by 3.5 %. In particular, the production of coal, natural gas, gas condensate and iron ore increased. The production of chemical and metallurgical industry, machine building and other non-metallic mineral products has also increased.
Regionally, incremental growth was observed in 13 regions of the republic. In Kostanay and Kyzylorda regions the overall production corresponds to the level of the last year and in Mangistau region a decline was registered.
As for the performance of mining and metallurgical complex, in January–December 2011 it was produced 4,807.751 tons of crude steel, which is 12 % more than in 2010. There was yielded 3,092.223 thousand tons (+6.6 %) of flat products, 598.281 thousand tons (+2.5 %) of galvanized mill products, and 190.746 tons (-9.3 %), of tinplate and tinned sheet metal.
Volume production of ferroalloys decreased to 1,668.625 thousand tons (-1.9 %), whereas the production of aluminum ore (bauxites) increased up to 5,495.3 thousand tons (+3.5 %). In addition, there was produced 51,796.8 thousand tons of iron (+3.2 %), 34,491.6 thousand tons of copper (+7.7 %), 4,857.6 thousand tons of copper-zinc (+1.5 %), 7,094.2 thousand tons of lead-zinc (+5.5 %), 2,949.6 thousand tons of manganese (-2.9 %) and 5,058.2 thousand tons of chrome ore (-0.7 %).
Production of copper concentrate totalled 349.2 thousand tons (-8.1 %), lead concentrate – 34.6 thousand tons (-5.2 %), zinc concentrate – 350.4 thousand tons (-13.5 %), and iron ore pellets – 7,803.2 thousand tons (-4.3 %). While there were produced 1,918.77 thousand tons (+2.8 %) of raw aluminium, 319.75 thousand tons (+0.3 %) of raw zinc and 338.35 tons (+4.6 %) of raw refined copper.
Production of raw and semi-finished gold reached 36,670 kg (+21.1 %), and of the fine gold – 16,632 kg (+23.6 %). As for the raw and semi-finished silver, it was produced 644,676 kg (+16.8 %) of it.
Kazakh coal miners also finished the year in the black, having increased production by 4.9 % – up to 116,343.1 thousand tons of coal.