Over the past 15 years, $228.4 billion have been invested in mineral production of Kazakhstan. However, the active exploitation of mineral resources should be accompanied by replenishment of minerals of the priority group. The country's top leaders announced the course aimed at a considerable simplification of the mineral production contract system, increased budget allocations for state geological studies, the attraction of innovative technologies, and the development of the staff potential.
As you know, oil and gas production, mining & metallurgy, uranium production and coal mining are the sectors that form the basis of the economy of Kazakhstan. The powerful development of these sectors became possible due to the abandance of mineral reserves in the country. In terms of reserves of some of these minerals, our country is among the world leaders. For example, in terms of reserves, Kazakhstan ranks 12th (1.8%) for crude oil, 21st (less than 1%) for natural gas, 7th (4%) for coal, 2nd (19%) for uranium, 6th (6%) for iron, 3rd (30%) for manganese, 14th (n/a) for bauxite, 1st (38%) for chromites, 8th (5.5%) for copper, 3rd (10.1%) for lead, 4th (9.5%) for zinc, and 14th (2.7%) for gold.
The large proven reserves of a number of other types of metallic and nonmetallic ores are also taken into account by the state balance books. The forecast resources of many mineral deposits are a few times higher than the proven reserves and have high potential for production in the long run. Along with that, for the mineral resources sector of the country, the lack of replenishment of on-balance reserves of gold and non-ferrous metals is still a topical issue.
In this regard, the Government approved the 2015–2019 Program of Geological Exploration in the Republic of Kazakhstan with the budget of about 120 billion tenge. About 900 billion tenge more ($5 billion) will be raised through national companies (KazMunaiGas, Kazatomprom, Tauken-Samruk, Kazgeologiya), as well as large mineral producers (Kazzinc, Kazakhmys), and investors. The program provides for the exploration and study of deep horizons, coupled by the application of innovative technologies. This will allow discovering new deposits and, accordingly, increasing the mineral reserves. The latter thing is especially important for the areas adjacent to the single-industry towns in Central and Eastern Kazakhstan.
It should be noted that with the introduction of the contract system of mineral production, almost the entire increase in mineral reserves in Kazakhstan was due to the investment in exploration. Mostly they were aimed at the production of hydrocarbons (over 90%) and other minerals of the priority group (gold, base metals, copper, iron, manganese, nickel, cobalt, tin, tungsten, molybdenum, titanium, uranium, coal, etc..).
As of January 1, 2015, the total number of operating facilities in Kazakhstan whose mineral production activities were covered by the monitoring was 2,553. These include 267 facilities engaged in the area of hydrocarbons, 430 facilities in the area of solid minerals, 186 facilities in the area of underground waters, 1,643 in the area of common minerals, and 27 in operations not related to the production.
In general, over the period from 2000 through 2014, $228.4 billion have been invested in mineral production. Of this, $20.6 billion, or 9%, were directed to conduct geological exploration (GE). Over the 15 year period, capital investments have increased by 56 times to $22.5 billion in the past year (See Table 1). $1.077,7 million, or 4.8%, were allocated for exploration. According to forecasts, by the end of 2015, these figures will reach $25.2 billion and $1.2 billion, respectively.
If we talk about the structure of investment by types of minerals, here some certain trends have been observed for a long time. The oil and gas industry is still the leader in it — in the last year alone, $15.8 billion, or 70% of all capital investments, was invested in the mineral raw material sector; it is 5 times more than in 2000. Then it follows the mining sector with its $6.3 billion, or 28%, of investments (a 6-fold increase), then common minerals with its $255.6 million, or 1.1%, of investments (an 8-fold increase by 8 times), and groundwater with its $60 million, or less than 1%, of investments (a 2-fold increase).
As for the mining sector, the priority areas for investment here are coal — $1,073.2 million, uranium — $1,010.2 million, base metals — $1,003.6 million, iron and manganese — $942.4 million, copper — $1,027.4 million, and the gold — $755 5 million. It should be noted that investments in geological exploration in 2014 accounted for only 1.6% of the total investment in production of solid minerals.
Capital investments by mineral producers in creation and development of production infrastructure (buildings and structures, construction and reconstruction, machines, equipment and vehicles), as well as the costs on installation of control equipment, treatment systems, resource saving equipment, and utilization and other systems that mitigate the harmful impact on the environment, are provided as part of implementation of the contract terms and conditions, in addition to the funding of exploration and production operations. Considerable funds are spent on social development of the regions, staff training, new technologies, research and development, and monitoring of contamination of soils and groundwater. All expenses are in line with the requirements to the local content in the purchased goods, as well as works and services outsourced.
In total, over the past 15 years mineral producers have invested $2,993 million ($219.5 million in 2014) in development of the social sector and infrastructure, $1,345.5 million ($192.9 million) in training of specialists, and $378.4 million ($8.6 million) in acquisition and application of technology. With regard to the number of personnel engaged under the contracts, it amounted to 178 thousand employees, as of the end of last year, against 175 thousand in 2000.
In terms of reserves and quality of gold-bearing ores, our country is comparable with leading producers of the metal, such as China, Australia, USA, Russia and Canada. The on-balance reserves of gold in Kazakhstan, as of January 1, 2014, amounted to more than 2.3 thousand tons. A total of 325 fields (329 facilities) were accounted for the gold-bearing ores, of which 94 fields were in operation, 117 in exploration, and 118 are reserve ones. Most of the reserves are located in the East Kazakhstan (36%), the Akmola region (22%), Karaganda region (12%), and Kostanai (9%) region, and the rest reserves are spread throughout other regions of the country.
Among the companies that have the largest contracted volumes are Kazzinc (more than 22%), Kazakhmys Corporation (about 14%), Bakyrchik Gold Mine (11%), and MMC Kazakhaltyn (more than 5%). Among large mineral producers there are also Varvarinskoye (4%), Altynalmas Gold (more than 2%), Metal Trading (2%), and Maikainzoloto (2%).
Projected resources of gold in Kazakhstan are estimated at more than 9 thousand tons; of them 80% are gold-bearing ore resources and 20% are complex resources. Future prospects for growth in gold reserves are associated with the deep horizons of earlier explored deposits of Central and Eastern Kazakhstan, as well as promising ore occurrences of the northern and southern regions of the country.
It is worth of noting that the greater part of the gold ore deposits refer to refractory ores and their development is associated with a number of technological difficulties. In addition, there is a need for new technology for the production of low-margin ores, since easily accessible near-surface (oxidized) gold-bearing ores are almost all exhausted. Solving the problem of enrichment of refractory ores will make it possible to involve in operation the Bakyrchik ore deposit which is unique in reserves, and a number of analogous smaller deposits.
As of the beginning of this year, gold mining was carried out on 123 sites, of which mining was carried out on 32 sites, exploration on 47, and combined exploration and mining on 44. In the years 2000–2014, 566 tons of gold was produced in Kazakhstan, including 50.4 tons in the last year. The growth in the gold reserves amounted to 897 tons and 103.2 tons, respectively. The total investments in this period reached $6.7 billion including $500.6 million — for geological exploration.
In the last year $755.5 million (a 12.5 times increase, compared with 2000) was invested in gold mining; of this amount, $35.6 million in exploration. Over 90% of this amount came from companies such as Kazzinc (33%), Altynalmas (15%), MMC Kazakhaltyn (11%), Varvarinskoye (11%), FIC Alel (7%), Yubileinoye (4%), Orion Minerals (3%), Maikainzoloto (3%), SE Sekisovskoe (3%), Raygorodok (2%), and DTOO SE Sekisovskoe (2%).
With regard to projections for 2015, capital investment in the sector is expected to reach $846.9 million, including $40 million in geological exploration.
At the moment, in terms of explored reserves of copper, Kazakhstan lags behind Chile, Australia, Peru, Russia, the USA, Mexico, and China. As of January 1, 2014 the on-balance reserves (categories A+B+C1+C2) of copper were some 39 million tons. A total of 115 sites were accounted for the copper, of which 58 sites were in operation, 31 in exploration, and 28 are reserve ones. The greater part of the reserves is concentrated in the East Kazakhstan region (41%) and Karaganda region (37%).
The lion's share of contracted copper reserves is distributed between a few companies: Kazakhmys Corporation (72%), Koksai-Muzbel (5%), Kazzinc (4%), and Copper Technology (4%).
Projected reserves of copper estimated at 100 million tons, are concentrated within the ore fields, flanks and deep horizons of copper sandstone deposits of Central Kazakhstan, pyrite-polymetallic basins of East Kazakhstan, and chalcopyrite deposits of Western Kazakhstan. The largest deposits of the copper-porphyry type (Aktogay, Aidarly, Boschekul, and Koksai) have a significant potential. Their development is associated primarily with the solving of technological problems that will allow carrying out profitable mining of low-grade ores.
At the moment, development of copper fields is being carried out on 53 sites, of which mining is being carried out on 13 sites, exploration on 22 sites, and combined exploration and mining on 18 sites. Over the past 15 years, Kazakhstan produced 7.3 million tons of copper, while reserves increased by 9 million tons. The total investment for this period increased more than 33-fold, reaching $8.2 billion; of this amount, $176.1 million was allocated for geological exploration.
In the last year alone, $1.0274 billion was invested in the sector. Of this amount, 98% came from companies such as Kazakhmys Corporation (84%), Copper Technology (8%), Kazakhmys Bozshakol (4%), and Fonet Er-Tai AK Mining (1%). According to forecasts for 2015, the amount of investment in copper production will likely to reach $1.1517 billion, including $16.9 million in geological exploration.
In terms of proven reserves of zinc, only Australia, China and Russia are ahead of Kazakhstan, and in terms of lead, Kazakhstan lags behind Australia and China. At the moment, the on-balance reserves (categories A+B+C1+C2) are 35 million tons for zinc, and 17 million tons for lead. A total of 91 sites were accounted for zinc (42 in operation, 21 in exploration, and 28 reserve ones) and 96 sites for lead 96 (36, 20 and 40, respectively). Considering by regions, polymetals reserves are concentrated in the East Kazakhstan region (38% of zinc, 21% of lead), Karaganda region (34% of zinc, 62% of lead), and Kyzylorda region (18% of zinc, and 21% of lead). The greater part of the contracted sites are developed by Zhairem (26% of lead, and 17% of zinc), Kazzinc (14% and 23%), Kazakhmys Corporation (13% and 14%), Shalkiya Zinc Ltd (9% and 15%), and NC SEC Saryarka (8% and 3%).
Inferred resources of zinc are estimated at more than 136 million tons, and of lead at about 58 million tons. They are mostly concentrated in the eastern, southern and western regions of the country. Lack of mining and processing plants in the areas where explored deposits are located does not allow conducting their full-scale development. The latter is the main problem of the lead and zinc industry. With this, reserves life of the deposites under development does not exceed 10–15 years.
Development of polymetallic deposits is being conducted on 32 sites; of them, production is being carried on 17 sites, exploration on 9, and combined exploration and production on 6. Over the past 15 years 2.4 million tons of lead and 8.7 million tons of zinc were produced in the country, and the increase in reserves was 1 million tons and 1.9 million tons, respectively. Last year’s output was 93 thousand tons (an increase by about 5 thousand tons) for lead and 447 thousand tons (+29 thousand tons) for zinc. Over the period from 2000 to 2014, more than $9.7 billion had been invested in the industry, of which $131.7 million was directed for geological exploration. As for the last year, capital investment reached $1.0036 billion that is 5 times more than in 2000. Among the major investors there are Kazzinc (68%), Vostoktsvetmet (21%), Kazakhmys Corporation (4.3%), Nova-Zinc (3.7%) and Shaimerden (1.4%). It is expected that this year's investments in mineral production of lead and zinc will grow to $1.125 billion, including $3.2 million in exploration.
Iron and manganese
In terms of explored reserves of iron ore, Kazakhstan ranks 6th in the world after Russia, Australia, Brazil, Ukraine, and China, and 3rd after Ukraine and South Africa in terms of manganese ore.
The on-balance reserves (category A+B+C1+C2) are about 19 billion tons for iron ore, and 700 million tons for manganese. A total of 66 sites were accounted for the iron ore, of which 32 sites were in operation, 19 in exploration, and 15 are reserve ones, and a total of 39 sites for the manganese (16, 10 and 11, respectively). More than 92% of manganese ore reserves are concentrated in the Karaganda region and about 6% in the Mangistau region. In terms of iron, the leaders are the Kostanai region (85%), Aktobe region (5%), Karaganda region (4%), and Akmola region (4%). The main deposits of iron ore are currently developed under the contracts by SSGPO (21%), Orken (9%), DP Aktobe-Temir Sun (5%), Masalskiy GOK (4%), and NC SEC Tobyl (2%), and the deposits of manganese by Orken (51%), Zhairem (31%), and NC SEC Saryarka (2%).
Projected reserves of iron ore are estimated at 123 billion tons. Over 60% of this volume is concentrated in the Kostanai, Karaganda and Aktobe regions. The resources of manganese ore, accounting for more than 4 billion tons, are mainly (80%) spread in the Karaganda region within the manganese ore pools of the known manganese and manganese-bearing deposits. About 19% more resources of manganese ore are spread in the Aktobe and Zhambyl regions.
Mineral production of iron and manganese ores today is carried out on 52 sites; of them, mining is carried out on 17 sites, exploration on 20 sites, and combined exploration and mining on 15. For 15 years, Kazakhstan produced 646.3 million tons of iron ore and 38.3 million tons of manganese ore, including 49.8 million tons and 2.6 million tons, respectively, in the last year. The increase in reserves for the said period amounted to 1.9 billion tons for the iron ore (no increase in the last year), and 86.5 million tons for the manganese ore (+147 thousand tons in the last year). The amount of investments throughout the period of 2000–2014 reached $8 billion, including $76.8 million in geological exploration. The largest investors are such companies as SSGPO (73%), Zhairem (8%), Orken (10%), TNK Kazchrome (2.6%), Bapy Mining (2.5%), and Temirtau Electric Steel Works (2%). In 2015, capital investment in mineral production of iron and manganese is likely to reach $1.0564 billion, including $8.7 million in exploration.
Kazakhstan ranks 14th in the world in terms of bauxite reserves. All commercially important deposits of bauxite are concentrated in the bauxite-bearing province Torgai, Kostanai region. Its reserves in categories A+B+C1+C2 amount to 338 million tons. The state balance books cover 28 sites for mineral production of bauxite; of them, 10 are in operation, 2 in exploration, and 16 reserve ones. Over 65% of the reserves are being developed under the contract by KBRU, the division of JSC Aluminium of Kazakhstan, followed by the second division of this company — TBRU (2.2%) and LLP Didar (1.7%).
Projected resources of bauxite in Kazakhstan are estimated at 809 million tons. The major part of them are also concentrated within the Torgai bauxite-bearing province, while the most promising area to identify commercially effective sites for bauxite production is the Central Torgay ore province.
Currently, mineral production of bauxite is being carried out on 5 sites; of them, 4 sites are in operation and 1 in exploration. Over the period from 2000 through 2014 the country produced 71.5 million tons of bauxite (4.5 million tons in 2014); the increase in reserves was 1 million tons (no increase in the last 5 years). Total investments for the period amounted to nearly $1.4 billion, including $21.3 million in geological exploration. Last year, JSC Aluminium of Kazakhstan invested in mineral production of bauxite $75.6 million (82% — KBRU, and 18% — TBRU), which is 4 times more than in 2000. This year the capital investments are expected to increase to $84.7 million.
In terms of total reserves of chrome ore, our country ranks 2nd in the world, and in terms of the quality of chrome ore, Kazakhstan is the world leader. The ore is characterized by a high content of Cr2O3 (over 50%) and low content of harmful impurities. As of January 1, 2013, the on-balance reserves (categories A+B+C1+C2) accounted for over 366 million tons at 18 sites (10 in operation and 8 reserve ones). They are concentrated in Western Kazakhstan on a relatively small area within the Kempirsai dunite-periodite solid mass (Millionnoye and Almaz-Zhemchuzhina deposits and others). Projected reserves of chrome ore are estimated at 2 billion tons, of which 90% are concentrated in the Aktobe and Kostanai regions.
TNC Kazchrome is engaged in extraction and enrichment of chromite ores and has in its structure a division of ferroalloy production. 92% of all reserves of chromite ore in Kazakhstan are under development by this company, and another 6% — under development by Voskhod-Oriel.
Mineral production of chromite is carried out on 8 sites, which are now at the phase of production. Over the past 15 years, 60.7 million tons of chromite (5.2 million tons in 2014) were produced in the country. The increase in the reserves amounted to almost 1 million tons. In total, over this period, $3.1 billion was invested in the industry, including $25.5 million directed for geological exploration. Last year, the capital investments in the sector exceeded $294 million (no exploration was conducted), which is twice more than in 2000. Apart from TNC Kazchrome, which has 78% of all chromite ores under development, the other major investor in the sector is Voskhod-Oriel (22%). As for the forecasts, in the current year these companies are expected to allocate $329 million for mineral production of chromite ores.
As you know, on December 29 last year a great deal of amendments was made to the Law on "Minerals and Mineral Production". The most conceptual among them are as follows:
- A significant reduction in the number of mandatory examinations of contracts;
- Optimization of the provisions of the contract templates;
- Exemption of the mineral producers operating under the contracts of production of solid minerals, except for uranium, from the obligation to negotiate changes in production volume of to 20% from the projected volume, but no more than the project maximum;
- Introduction of a new type of granting mineral production rights through competitive bidding;
- Introduction of a simplified procedure for granting mineral production rights using the principle "Who comes the first will get the first" with an annually increasing charge for the use of the site;
- Provision of geological information on a free basis to national companies performing geological exploration at their own expense under the state geological assignment;
- Exclusion of the feasibility study of the list of mandatory project documents.
The remaining amendments are of the systemic and editing nature. Among them are as such: removing the gap in expansion of the contract area, the simplification of procedures for the extraction of minerals from technogenic mineral formations by means of direct negotiations, legal technique, excessive regulation, and elimination of ambiguity of the provisions.
Extractive Industries Transparency Initiative
In October 2013, Kazakhstan was given the status of the "EITI Compliant" country, which means full compliance of our country with the requirements of the given initiative. This event was preceded by 9 years of hard work on the project, aimed at ensuring the transparency for the population of the structure and amount of income of companies and governments in the extracting sector.
The regulatory framework, worked out at the legislative level, obliges the mineral producers to comply with the terms of the Memorandum of Understanding of the Initiative by providing reporting on the taxes and other mandatory payments to the state budget, confirmed through the audit in line with international standards.
In addition, funds are allocated annually from the national budget to make national EITI reports, which are prepared by an independent auditing company, attracted on a competitive basis in accordance with the law on public procurement. Funding of EITI is also actively supported by international organizations such as the World Bank, GIZ, USAID, Soros Foundation, the British Embassy and others.
To coordinate the implementation of the EITI, the National Stakeholder Council (NSC) operates in the country, which is composed of deputies of the Mazhilis of the Parliament, representatives of the Government, industry associations of oil producing and mining companies, as well as NGOs. All decisions there are taken on a consensus basis.
In connection with the adoption in 2013 of new EITI international standards, the eighth and ninth national EITI reports for 2012 and 2013 were prepared with maximum consideration of their requirements. In addition to the reconciliation of revenues of mineral producers and the state, the reports include contextual information, such as a description of the extractive industries, budget revenues, dividends on state shares in the ownership, production and export volumes, data on transportation, data on the contribution of extractive industries to the economy of the country, social investment, and so on. In addition, a brief version of the report was published, reflecting the key and conceptual data in an accessible infographic format.
The priority for the next issues is the release of popular versions, which will be of graphic and analytical nature. Our goal is to ensure transparency and openness of revenue and expenditure of the Government. The wide distribution of the popular versions among all segments of the population is the key to understanding the role and impact of operation of the extractive sector on the level of socio-economic development of the country as a whole.
The big breakthrough is the introduction in the current year of an electronic version of EITI reports through the portal of the Unified State System of Mineral Production Management, available on-line to everyone.
It should be noted that prior to the introduction of the EITI, the policy of Kazakhstan’s government with regard to tax revenues was absolutely transparent. For example, on the website of the Ministry of Finance information on the taxes paid by all natural and legal persons in the last 5 years is available online. In addition, the Accounts Committee on its website openly publishes annual reports on the results of audits to control the expenditure of the national budget.
However, exactly the implementation of the EITI became one of the main evaluation criteria of attractiveness of our country for companies investing in exploration, which, along with such factors as geological potential, access to geological information, a stable regulatory framework, taxation, personnel, contractors, reliable partners and strong infrastructure, pay quite a lot of attention to transparency and the level of corruption.
Moreover, the extensive coverage of the actual expenditures of the national and regional budgets for the social sector, especially at the regional level, makes it possible to reduce social tensions of the local population. Starting from this year, by order of the Presidential Administration, extended meetings with participation of akims (governors), heads of state bodies and deputies, as well as representatives of extractive companies, local NGOs and the media will be held annually in the regions. This will ensure the transparency and accountability of the state to the public, and will contribute to the raising of the anti-corruption rankings for our country.
Elvira Dzhantureyeva, Ph.D, Head of Service for Analysis of the Mineral Raw Material Sector and Transparency of Extractive Industries of the Kazgeoinform National Center for Geological Information of the Ministry for Investment and Development of the Republic of Kazakhstan