Mining sector of Kazakhstan: Not Easy Times
Considering the world economic recession in the first half of the year many companies of the Kazakhstani mining sector significantly reduced their production volume. Meanwhile, the difficulties, faced by some domestic enterprises today, make them quite attractive acquisition targets for foreign players.
The world market of metals
According to the experts of the World Steel Association (WSA), in January – June of 2009 steel production in 66 major producing countries reduced (comparing same period of last year) by 21.3%, reaching 549 million tonnes. At the same time, steel production in Asian countries dropped by 8% to 360 million tonnes while in North America the output dramatically decreased by 49% to 35.8 million tonnes! In June of 2009 the world output reached 99.8 million tonnes of steel, which is 16% less than in June of 2008.
Analyzing the indicators of separate large producers, we have the following picture. In the first half of the year
According to the International Aluminum Institute (IAI) the world output of primary aluminum in January-June of 2009 dropped by 8.1% comparing to the same period of last year and reached 11,761 thousand tonnes. At the same time,
Astana and Seoul are going to cooperate in copper production
In the near future
According to the already signed framework agreement, JSC National Company Saryarka Social Entrepreneurship Corporation is going to represent the Kazakhstani side while
The distribution of participants’ shares will be defined after exploration works. According to the preliminary estimate of the experts, the copper reserves at Zhetymshoky reach about 100,000 tonnes. The expected volume of investment for the entire project implementation period is estimated at $93 million.
At the second project phase it is planned to build a copper products plant in the territory of the Metallurgy-Metalwork industrial park in
Russian Polymetall is buying Varvarinskoe
OJSC Polymetall signed a legal agreement of sale for acquisition of a 100% stake in the Varvarinskoe Kazakhstani gold and copper field from Orsu Metals Corporation.
In accordance with the agreement conditions, Polymetall buys 100% in Three K Exploration and Mining Limited Company that totally belongs to Orsu and performs as the current owner of Varvarinskoe. The total payments from Polymetall to the benefit of Orsu reached $8 million at the moment of closing the deal plus $12 million (including the interest for deferred payment), depending on and calculated on the basis of future gold and copper prices.
In January of 2009 Orsu prepared an updated plan of mining works, including a new calculation of reserves and resources as of January 1, 2009 based on gold priced at $700 per ounce and copper priced at $1.5 per pound. Nevertheless, the planned indicators of industrial production were not achieved due to a number of reasons. As a result, Orsu was not able to timely service their debt and process payments, related to hedge obligations before the syndicate of banks (Investec Bank, Nedbank Limited and Natixis Bank) for the total amount of $213 million.
As one of the deal conditions Polymetall achieved a preliminary agreement with creditors on restructuring the current debt and hedging obligations. The repayment schedule will be restructured so that final return takes place in 2013 (35% of total volume of debt) and 2014 (65%). At the same time, free cash flow, produced from operations at Varvarinskoe until 2013, will be directed to the long term repayment of these liabilities. Moreover, Polymetall agreed to offer a corporate guarantee to the creditors in the amount of $90 million.
Also a press-release of the Russian company notes that the deal is possible only if the creditors, Orsu and Polymetall sign the Transaction Document on refinancing and the deal itself gets the necessary approval of the regulating authorities in Kazakhstan.
OJSC Polymetall representatives are affirmed that the upcoming acquisition has a number of strategic advantages. The company has already developed an anti-crisis plan both for the improvement of the production indicators of Varvarinskoe in the short term and for ensuring the long term viability of the enterprise. According to Vitaly Nesis, the General Director of OJSC Polymetall, "This acquisition allows reaching two strategic goals: substantially increasing the volumes of gold production and reserves as well as setting our presence in Kazakhstan, which is, in our opinion, the ideal country for the first acquisition by our company outside Russia. This is an excellent opportunity to show our operational competence, to improve the problem asset and, thus, create substantial value for our shareholders".
The Varvarinskoe field is located in the north-west of Kazakhstan, 130 kilometers away from Kostanai and 10 kms away from the Russian border. The Orsu Company (as well as its predecessor European Minerals Corporation) invested about $240 million in the construction of an open pit, processing plant with the capacity of 4.2 million tonnes of ore per year and supporting infrastructure. The gold production at the field began in December of 2007 while the production of gold and copper concentrate was launched in March of 2008. In the first quarter of this year 13,599 ounces of gold and 1,743 tonnes of copper concentrate were extracted at Varvarinskoe.
OJSC Polymetall is a leading company in the precious metals production industry. Its stocks are quoted at LSE, RTS and MICEX. Polymetall is the largest in Russia and 3rd in the world of top producers of primary silver as well as the 4th largest gold producer in the RF. In 2009 the company is planning to extract 8.7-9.3 tonnes of gold and 530-560 tonnes of silver while by 2012 the enterprise is going to improve these indicators to 19.6 tonnes and 796 tonnes respectively.
The deal between Polus Zoloto and KazakhGold is expected to be closed in September
It was announced that the deal on the purchase of a controlling stake in the KazakhGold Company by OJSC Polus Zoloto will most likely be closed in September of 2009. Earlier the deal was expected to be signed by July 30, 2009.
Jenington, the subsidiary company of OJSC Polus Zoloto, made an official offer on the purchase of 50.1% of KazakhGold shares. In accordance with the deal, Polus will initially acquire KazakhGold shares in exchange for their own stocks: one share of Kazakh company is exchanged into 0.423 shares of Polus (overall – 5.9% of the Russian company shares). Along with partial acquisition Jenington will process a forced buyback of 5% of Polus shares (85% of total amount of stocks, involved in the deal) at $20 per share. Therefore, the shareholders of KazakhGold will keep 0.9% of Polus stocks.
After closing the deal KazakhGold will conduct an additional issue in the volume of $100 million at $1.50 per share. At the same time, Polus will buy at least 50.1% of the issued shares while the remaining stocks will be offered to large shareholders of the Kazakhstani company. It is expected that an additional issue will be organized in September-October of 2009.
KazakhGold is the largest producer of gold in
KazakhGold also owns a number of assets in
Kazakhmys increased copper production
On July 30 of 2009 the Kazakhmys Corporation published its operation data for the first half of the year. Specifically, the copper production in cathodic equivalent from their own raw material reached 170 thousand tonnes that is 8% higher, compared to the first half of 2008.
According to the report, the growth of production became possible due to the effective management of production assets and processing of materials, including storage ore. Also production at the Southern and
As a result of shrinking inventory and increasing coefficient of extraction at beneficiation plants there was the growth of the association production volume. Thus, the production of gold grew by 8% to 67.9 thousand ounces. The production of silver increased by 10% to 9,145 thousand ounces while the output of zinc in concentrate increased by 15% to 76 thousand tonnes.
Commenting on the half year results, Oleg Novachuk, the Chief Executive Officer of the corporation noted: "These are good results, reflecting the successful efforts on raising the efficiency of operations, attempted since the beginning of the year. At the end of last year we stopped production at four high-cost pits and, at the same time, increased production at other pits and processed earlier produced ore. This all helped us increase the volume of the final production. Considering the success, we reached by processing of storage ore, probably, the production volume in the second half of the year will be lower, but our results continue meeting the operational indicators for 2009".
At the same time, in July of 2009 Kazakhmys acquired two BelAZ-75131 haulers with a carrying capacity of 130-136 tonnes for the Maykuben coal strip mine. These machines with a total value of over $2 million were purchased under the project of the strategic partnership with the BelAZ production association. The corporation expects that application of Belarusian vehicles will allow cutting operational costs and improving the production indicators at the coal strip mine. Thus, the export of overburden rocks from the strip mine will increase by 1.6 times.
It has to be noted that this is the first time that BelAZ trucks with this carrying capacity have been acquired by a Kazakhstani enterprise. Prior to this, the company was using 18 BelAZ with a carrying capacity of 45 tonnes.
The list of coal monopolists is revised
In July of 2009 the RK Agency for Fostering Competition conducted an analysis of the coal sales market in regional segments. This survey was initiated by the Agency Executive body in concern with the upcoming heating season and the impact of the coal’s price into the utility service price as well as in consideration of the social importance of this issue for domestic users.
Based on the analysis of the results, a session of the executive body made a decision to include coal producing companies into the State register of market players, holding dominant or monopolistic positions. This was done with the purpose to prevent possible misuse by coal producing companies in the issue of coal supply for heat and electricity generators.
Specifically, from now on the Register includes such companies as Bogatyr Komir LLC, Karazhyra LLC, JSC Eurasian Energy Corporation, JSC Shubarkol Komir, Maykuben-West LLC, Borly Coal Department and Kazakhmys Corporation LLC.
The privileges for the export of aluminum are cancelled
Effective of June 26, 2009 and based on the RK Government Decree #732, the temporary zero export rate for primary aluminum is cancelled. Thus, the output of JSC Kazakhstani Electrolysis Plant is the subject for 15% (of customs value) export duty again; at the same time, the minimum rate for 1,000 kilograms is at least 100 Euro.
The Ministry of Industry and Trade has developed a draft government decree that assumes the removal of unalloyed aluminum from the List of goods, exported from Kazakhstan both on a permanent and temporary basis.
It is worth mentioning that the governmental decision on cancellation of the export customs duty for primary aluminum, which was effective of October 1, 2008, was made in February of 2009. According to the experts, at that time this measure was quite reasonable since aluminum prices dropped by several times compared to the mid 2008; also considering the duty, the price of metal, produced in Kazakhstan, became uncompetitive.
The output volume of JSC Aluminum of
In January-June of 2009 JSC Aluminum of Kazakhstan produced 793.5 thousand tonnes, i.e. 0.8% less than in the same period of last year. It is common knowledge that major products of the company are represented by alumina, gallium as well as electric and thermal power energy. In value terms the output of the company has reached 24,599 million tenge since the beginning of the year.
Remember the production capacity of this enterprise, a member of Eurasian Natural Resources Corporation (ENRC), is 1.5 million tonnes of alumina per year. As a result of last year, JSC Aluminum of Kazakhstan produced 1.6 million tonnes, which is 4% higher than in 2007.
The uranium output is up by 9% of the plan
In January-June of 2009 Kazatomprom national atomic company produced over 6,000 tonnes of uranium. This is 57% more than in the same period of last year and 9% higher than the planned volume, set for the first half of the year. By the end of the year Kazatomprom is planning to produce about 8,000 tonnes of uranium. The experts of Kazatomprom note that the number of uranium consumers remained at the same level. None of the company partners asked to decrease the volume of the contract supply of uranium products or to revise the cooperation programs.
In the first half of the year the company also produced 102.3 tonnes of tantalum and columbic products, reaching about 106% of the plan. In its turn, MAEK-Kazatomprom LLC, a member of the holding company and electricity generating plant, produced 2 billion kilowatt/hours of electricity.
Therefore, these production indicators reflect the earlier statement of the enterprise’s management that they do not expect radical changes in operations.
In January-June of 2009 the total capital investments in Kazatomprom national atomic company holding reached 33.4 billion tenge that is 8% lower than in the first half of 2008. The pilot mining is launched at the plants of JSC Akbastau and Bayken-U LLC. New pits were also launched in the fields of Khorasan-2 and Irkol. The development of mines at Khorasan-2 and Semizbay fields are in progress. The company is working on the output growth at the
The project implementation on the construction of two sulfuric plants is also in progress. It is expected to build one of them in the Zhanakorgan rayon of the Kyzylorda Oblast. Its capacity is projected to reach 500 thousand tonnes per year. The construction is estimated at $216 million. The launch of the plant is scheduled for 2011 while it is going to reach the projected capacity in 2012. The second plant is being constructed in Stepnogorsk. Its capacity will reach 180 thousand tonnes per year. The project costs are estimated at 8.8 billion tenge. The industrial launch is scheduled for 2010.
Moreover, today, the company is developing a preliminary feasibility study for a joint Kazakhstani-Canadian project on the production of hexofluoride of uranium under JV Ulba Konversia. The stake of Kazatomprom in this JV will be 51% and the rest 49% will belong to Cameco Company.
Areva Company continues works on transferring the fuel production technologies for French design reactors. The signing of constituent documents of joint venture is scheduled for the upcoming visit of the French President Nikola Sarkozy to
Kazakhstani-Chinese JV produced first copper and beryllic items
By November of 2009 Yingtan Ulba Shine Metal Materials Company Limited, joint Kazakhstani-Chinese Company, established in February of 2008 is planning to reach their projected capacity – 2,000 tonnes of copper and beryllic alloys line per year. The parity-based founders of this JV, located in the industrial park of Intan city (Jianxi province of China) and specializing in the production of flat section of beryllic bronze, are JSC Ulba metallurgical plant (a member of NAC Kazatomprom) and Chinese Ningbo Xingye Electronic Copper Strip Co., Ltd. (NXECS).
So far the enterprise has finished the construction of production facilities and installed the equipment. JV started the production of its first tonnes of items. Also the production of lines, the assortment of goods includes sheet, stick, wire and rolled section. The main buyers are Chinese companies.
The output statistics for January-June of 2009
According to the Agency for Statistics, in the first six months of 2009 the republic produced 1,878 thousand tonnes of raw steel, which is 20.5% less than in the same period of last year.
1,608 thousand tonnes of flat section (99% to the level of January-June of 2008) was produced in this period, including 94.891 thousand tonnes of tin plate and tinned flat section (90.1%) as well as 268.607 thousand tonnes of zinc-coated section (93.3%). Also, the production of ferroalloys dropped by 27% to 627.869 thousand tonnes.
The output of alumina and natural zinc reached 854,191 tonnes (101.4%) and 168,268 tonnes (91.7%) respectively. The production of refined copper in the form of feedstock, also sintered body, exposed to section, extrusion and hammering was set at 184,907 tonnes (100.2%).
The coal production in January-June of 2009 dropped down to 43,423 thousand tonnes, which is 19.3% lower, compared with the same period of last year.