The news in Kazakhstan is that soon the responsibility of companies for the way they make public purchases will be toughened, and also all mineral extraction companies will be obliged to transfer to electronic purchasing of goods, works and services. Thus, retaining the operating tax rates in the subsurface minerals sector, the government hopes to increase the level of Kazakhstani content in the extraction sectors.
At the end of October, the government of Kazakhstan submitted for consideration to Parliament a draft law on amending certain statutory acts concerning the local content.
Thus, the government intends “to introduce administrative liability for violation of laws on public purchases and to lay the foundation for monitoring of the purchases of goods, works and services of national managing holding companies, national holding companies, national companies and other organizations, the fifty per cent of the shareholding (participating interest) of which or more are held directly or indirectly by a national managing holding company, national holding company, national company, as well as of the system-forming enterprises and mineral extraction companies”.
In particular, new amendments contain changes to the Code of Administrative Violations, which “provides for the imposing of administrative liability for violation of provisions of the law on public purchases in part of applying criteria, affecting the bid proposals of the bidders”.
Along with that, in the enactment of the given draft law, certain amendments will be made to the effective Law on Subsurface and Subsurface Use, which provides for the obligation of the mineral extraction companies (subsurface users) to transfer to electronic purchasing of goods, works, and services, and for the inclusion into the terms and provisions of contracts with the mineral extraction companies of the provision to obligatorily comply with the local content requirement, for violation of which the administrative liability will be imposed.
The Senate of the Parliament at the plenary session on October 22 approved the draft Law on Amending Certain Statutory Acts Related to Taxation.
The major goal of the draft law is the extension for the years 2010–2012 of the currently effective rates of corporate income tax and tax on mineral extraction (TME) at the 2009 year’s level. In the opinion of experts, the given measure will allow to provide extra inflows to the budget in the amount of KZT83.7 billion in 2010, KZT200.6 billion in 2011, and KZT219.7 billion in 2012. These inflows are already allowed for in the draft Law on the Republican Budget for 2010–2012.
At the same time, “with the purpose of avoiding double taxation for a mineral producer, who makes a commercial discovery in the same territory under the exploration contract, the law provides that the subscription bonus under the minerals production contract is not subject to payment”. Instead of this, the commercial discovery bonus shall be paid under such contracts.
Also, the document provides for the detailed procedure of calculation of quarterly payments in those cases, when the amount of historical costs under the contracts is set in a foreign currency. Also, the document provides for a single method of determining the market price of commodity exchange goods. This method determines the list of international exchanges, united sources of publicizing the prices, procedure of price calculation and their translation into the national currency. The given method is applied for calculation of all specific payments of mineral producers, including rent tax, TME, subscription bonus, and commercial discovery bonus.
We should remind our readership that in the effective Tax Code, the TME for metal mining is set for 2009 and 2010, respectively, at the rates as follows: 5.7% and 7% for copper, 7% and 8% for zinc, 8% and 8.25% for lead, 0.25% and 0.28% for aluminum, 6% for tin and nickel, and 5% and 5.5% for gold, silver, platinum, and palladium. The rates for mining of ferrous, non-ferrous, and radioactive metals are set for the years 2009 and 2010, respectively, as follows: 16.2% and 16.8% for chromium ore (concentrate), 2.5% and 2.8% for manganese and iron-manganese ore, 2.8% and 3.2% for iron ore (concentrate and pellets), and 22% and 23% for uranium (pregnant solution from the underground mining method).
According to the forecasts of Credit Suisse Group AG’s experts, the price of gold in the beginning of 2010 will reduce slightly. Nevertheless, by the end of the said year, the ”yellow” metal price is expected to increase again. “By the end of the first quarter of the next year, the gold price will be ranging between $900 and $1,000 per ounce”, head of commodity research Credit Suisse Group AG, Tobias Merath, said. Along with this, in his opinion, at the end of the current year the gold price will be at the level of $950-$1,050 per ounce.
The analysts believe that the there is a risk of price adjustment: The U.S. dollar is likely to “win back” partially its recent fall by the end of 2009 that can become a negative factor for gold prices. At the same time, in the beginning of 2010 the United States Federal Reserve System will specify more precisely the time the discount rate will begin increasing.
Credit Suisse Group AG stated that the gold price has increased by 25% from the beginning of the year, since investors were seeking for the ways of protecting their investments from inflation risks in the condition, when the states contributed record amounts in backing up their economies. Thus, the dollar index, keeping track of the American national currency’s rate to the currency basket of six major trade partners of the USA, has dropped by 7.6% from the beginning of the current year.
Prices of other precious metals will repeat the gold price trend: Silver will become cheaper in price at to $15-$16 per ounce, compared to the year’s maximum of $18.085, recorded in October. The increase in the platinum price will be backed by the high demand from the motor industry’s side: In January–March of 2010 it will increase from the current $1,351 to $1,500 per ounce.
The analysts of the Bank of America Merrill Lynch also improved their price forecast for nonferrous and precious metals in 2010. Specifically, they raised the estimate of average value of metals by 16% to $0.92 per pound for aluminum, by 2% to $3.23 per pound for copper, by 8% to $9.07 per pound for nickel, and by 17% to $0.96 per pound for zinc.
Bank of America Merrill Lynch expects that the average annual price of gold will reach $1,110 per ounce (up 6% compared to the previous forecast), silver – $17.6 per pound (+17.5%), platinum – $1,440 per ounce (+6.5%), palladium – $370 per ounce (+23%).
Kazakhmys Corporation, the largest copper producer in Kazakhstan, reduced the production of cathode copper in January–September of 2009 to 256,900 tonnes, compared to 275,400 tonnes in same period of the last year. The output of this commodity product from its own raw material has not changed greatly, making 252,300 tonnes (252,100 tonnes in same period of 2008). Along with that, the output of copper concentrate reduced to 269,900 tonnes, compared to 291,100 tonnes in same period of 2008, while zinc concentrate, on the contrary, increased from 104,600 tonnes to 108,800 tonnes. The production of metallic zinc in the nine months of 2009 reduced by 75.6% to 8,600 tonnes, compared to 35,200 tonnes in same period of 2008).
At the same time, the output of precious metals increased: By 8.9% to 13.198 million ounces for silver, compared to 12.124 million ounces in same period of 2008, and by 13% to 110,700 ounces for gold, compared to 93,400 ounces.
According to the corporation’s performance indicators, they expect a reduction in the output in the fourth quarter of the year because of a scheduled overhaul and specific features of the process. This will not however hinder Kazakhmys from producing 315,000 tonnes of cathode copper, based on the 2009 year results.
Kazakhmys specializes in the production of refined copper and copper raw material, other non-ferrous and precious metals and coal mining. In aggregate, the company owns 20 mines, 10 ore mining and processing plants, and 2 copper-smelting plants.
On October 1, 2009 Social-Entrepreneurship Corporation Yertis (SEC Yertis) and Kazakhmys Corporation signed a contract of joint activities, providing for the development of the polymetallic ore deposit Anisimov Klyuch in the Eastern Kazakhstan Oblast.
The parties intend to set up a limited liability company, the participating interests in the authorized capital of which, as per the contract, will be set after the said Social-Entrepreneurship Corporation executes a contract for minerals production with the Ministry of Energy. At the given moment, SEC Yertis has already submitted a relevant request to the ministry. The cost of the project on joint development of the deposit Anisimov Klyuch is over $30 million.
Along with that, on October 29 SEC Yertis and LLC Tausogar signed a Memorandum of Understanding on the issue of joint development of the golden ore deposit Sharyk in the Eastern Kazakhstan Oblast. The initiator of the given project is Tausogar. Currently, Yertis has queered and asked for geological information on the deposit.
Under the procedure of consideration of mineral production contracts, prior to queering of geological information on the deposits, the said SEC has to execute with the project initiator the memorandum of understanding so as to familiarize the company with the procedure of implementation of the projects and to confirm the seriousness of the initiator’s intents. After obtaining the geological information package, SEC Yertis will announce the bids, in which all interested parties can take place. The winner shall meet the criteria, specified in the requirements to the bids.
At the given moment, 22 projects related to the mineral production area are under the consideration of SEC Yertis. The total amount of investments in them is expected at the level of some KZT88 billion.
Social-entrepreneurship corporations were created for the purpose of setting up a competitive export-oriented economy, management of assets, attraction of domestic businesses to projects of social importance, and directing the profit for solving of social tasks. At present, seven social-entrepreneurship corporations are operating in Kazakhstan. They are Saryarka, Zhetysu, Yertis, Ontustik, Kaspiy, Tobyl, and Batys.
On October 22, at a meeting of the Kazakhstan-Japanese Council for Economic Cooperation, the National Atomic Company Kazatomprom executed a number of documents with Toshiba Corporation and Sumitomo Corporation, aimed at setting up in the republic of joint productions of rare and rare-earth metals and products from them.
In particular, the Protocol of Intents on Cooperation in the Area of Rare Metals was executed with Toshiba, while the Memorandum of Understanding and Reciprocal Cooperation on the Project of Rare Metals Production in Kazakhstan and the Agreement Concerning Major Provisions on Joint Activities in the Feasibility Study Development of the Rare Metals Production Project with Sumitomo.
Implementation of the given projects will allow the National Atomic Company and its Japanese partners to set up in Kazakhstan the large-scale output of high-tech products from rare-earth metals, which are in demand in the world market. The given direction is new for Kazatomprom. In the opinion of Kazatomprom’s specialists, the matter concerns the setting up of productions of a quite different type – “science-intensive productions of the finite repartition, which will give an impulse to the domestic science‘s development and training of personnel”.
Regarding the current activity of the given company, the results of the three quarters of 2009 recorded 9,535 tonnes of uranium produced, having exceeded the planned amount by 3% and the last year’s indicator by 61%. In the nine months of 2009, the Ulbinsky metalworks, comprising the company’s structure, produced 5% more tantalum-niobium products than it was planned, having satisfied by one third the world’s demand for beryllium.
Based on the 2009 year’s results, Kazatomprom is expecting a net profit in the amount of KZT49 billion. The consolidated net income of the company in the nine months of 2009 was KZT29 billion. The plan is over implemented by 27%, while the increase to the same period of 2008 has reached 55%.
In January-September of 2009 Kazatomprom invested KZT52.9 billion in the sector. Thus, the capital investments remain at the level of same period of 2008, or KZT59 billion. The company’s assets, as of the end of September, were recorded at KZT378.35 billion, compared to KZT341.67 billion, as of the beginning of the year, while their own capital of the company has increased from KZT231 billion to KZT272.4 billion.
The National Atomic Company Kazatomprom is the national operator of exports of uranium and its compounds, rare metals, nuclear fuel for nuclear power plants, special-purpose equipment, technologies, and materials of double purpose. The major directions of the activities of the company are geologic exploration, production of uranium and nuclear fuel cycle products, reactor engineering, construction of nuclear power plants, rare metals metallurgy, production of structural material, power engineering, and scientific research.
On November 10, 2009 ArselorMittal entered into a contract with Karaganda Vtorprom LLC for the supply of square blanks for production of profiled metal products. Under this contact, before the end of November a pilot batch of casting square blocks will be delivered to the profiled metal products producing shop of ArselorMittal Temirtau, and the rolling shop workers will check it for compliance with the necessary condition for processing into steel reinforcing. From February–March of 2010 Vtorprom is planning to monthly supply 8,000-9,000 tonnes of blanks to the metalworks.
At present, ArselorMittal Temirtau does not have its own unit for manufacturing blanks for the production of profiled metal products. Thus, the company had to purchase them from Ukraine and Russia.
ArselorMittal Temirtau comprises the structure of the transnational steel producing concern ArcelorMittal, which bought this company in the mid nineties of the last century. The steel foundry is a fully integrated metalwork’s, with the production capacity of 5.5 million tonnes of products per year. It owns 15 coal mines and iron ore mines.
On October 29, SAT & Company completed a transaction on joining the structure of the participants of three ferroalloy producing plants in North-Eastern China.
Under it, the subsidiary of the said Kazakhstan holding company, SAT Sino FerroAlloy Ltd, bought a 51% participating interest in companies Taonan City Jinsheng Metallurgical Products Co. Ltd., Ulanhot Jinyuanda Heavy Chemical Industry Co. Ltd., and Baicheng Jinsheng Nickel Industry Co. Ltd, from the Chinese company Tianjin Jinsheng Metallurgical Products Co. Ltd.
Besides this, SAT Sino FerroAlloy Ltd. set up jointly with Tianjin Jinsheng Metallurgical Products Co. Ltd. a joint venture for trading, Jinsheng SAT (Tianjin) Commercial&Trading Co., now having a 51% stake in it.The new trading company, based in Tianjin, carries out management and deals with sales of the ferroalloy products of the three above-mentioned plants.
The acquisition of assets in China gives large market opportunities for trading the SAT & Company’s products, and is part of the company’s strategic plan of development of its metallurgical vector of activities.
The companies carried out modernization of all of their equipment in 2004-2009.At the given moment, the plant of Taonan City Jinsheng Metallurgical Co., Ltd., based in the province of Jilin, is the producer of high-quality ferroalloys, produced on the basis of manganese. The company operates five electric furnaces with the total capacity of 47,000 tonnes of ferroalloys per year and produces high-carbon, medium-carbon and low-carbon ferromanganese and silicon manganese. Ulanhot Jinyuanda Heavy Chemical Products Co., Ltd., based in Ulan Hot, has three modern electric finances, capable of producing 68,000 tonnes of ferroalloys per year. The company produces silicon manganese of grade SiMn 65/17, low-carbon and medium-carbon ferromanganese. Baicheng Jinsheng Nickel Industry Co., Ltd. with its new plant in the city of Baicheng produces ferronickel and ferrochromium. It is equipped with a modern, fully automated production line with the capacity, capable to output 60,000 tonnes of ferronickel, or 100,000 tonnes of ferrochromium per year. The completion of the plant construction and the putting of the production line into operation took place in October of this year.
By the estimate of experts, 179,000 tonnes of ferroalloy products are expected to be produced at these Chinese plants in 2010 that will bring about $188 million of profit from sales.
Along with that, in November of 2009 SAT & Company became the holder of the license for the development of the Gornostayevskoye cobalt and nickel ore deposit through buying out a 100%-stake in LLC Kaznickel. The industry experts believe that with the acquisition of Kaznickel, SAT & Company has expanded its raw material base greatly, and is considered an important project in the framework of the development of the metallurgical direction of the group of companies’ activities.
According to the preliminary estimate, the Gornostayevskoye reserves account for more than 13.1 million tonnes of ore by В and С1 categories, including 118,000 tonnes of nickel, and 13.2 million of ore by С2 category, including 117,000 tonnes of nickel, as of April of 2008.
Currently, the company’s experts are carrying out works to collect and analyze basic data in order to develop the feasibility study of the project, providing for the processing of ore and the launch of a metalwork’s with the production capacity of 50,000 to 150,000 tonnes of ferronickel per year.
Moreover, SAT & Company completed a transaction on the buying of the ore mining company Darkhan, engaged in the development of the Kumyskuduksky site of the Upper Sokurskoye brown coal deposit in the Karaganda Oblast of Kazakhstan.The reserves of the given area account for more than 356 million tonnes of coal. Of them, 124.3 million tonnes refer to А, В and С1 categories. The coal produced at the deposit is low-ash coal of grade Б3 with a low content of impurities. It can be used as a fossil fuel for household needs and for coking as well.
Mining operations at the Kumyskuduksky site started in the mid of 2009. The coal is produced by using the open-pit mining method, by drifting and then transporting the rock by trucks. Before the end of the current year, the overburden operations are planned in the volume of 820,000 m3 and coal mining in the volume of 250,000 tonnes. In parallel to mining operations, the extra exploration of two reserve areas is in progress. This is seen as having a large potential that will add to increasing the company’s resource base. The plans for 2010 is to reach the level of output of 1 million tonnes, while in 2011 to increase it to 1.5 million tonnes of coal.
JSC SAT & Company is a multi-vector holding company, engaged in the following sectors of the economy: petroleum products trading, petrochemical sector, exploration, iron ore mining and metallurgy, and construction and transport. The major shareholders of JSC SAT & Company are LLC Alliance Group (a 20.07% stake) and Kenes Rakishev (53.44%).
In February of 2010 the top management of Open JSC Polyus Zoloto is going to consider the strategic model of KazakhGold development, the works on preparation of which is currently in progress.
At the first phase, the company sets a goal to restore the production facilities and to provide the output of gold at the level as it was in Soviet time. This is 7–7.5 tonnes of gold per year that is about three times more than today’s performance indicators of KazakhGold.
At the second phase it is planned to increase production by a few times due to new production facilities. For this, the company intends to develop production by dredging and construct new gold-extracting plants.
According to the company’s plans, the amount of investments can come to $100 million in 2010. On the whole, the production activities will be coupled mainly with the development of Kazakhstani deposits.
Russian JSC Polyus Zoloto bought a 50.1% stake in Kazakhstani KazakhGold in August of 2009. The major assets of KazakhGold are the deposits Aksu, Bestyube and Zholymbet, located in Northern Kazakhstan, with the total reserves of some 60 million ounces.
The shareholders of British Central African Mining & Exploration (CAMEC) sold a 91.65% stake to the Kazakhstani raw material holding company Eurasian Natural Resources Corporation.
It is known that ENRC announced the acquisition of CAMEC in September. The proposal was 20 pennies per CAMEC’s ordinary stock. Based on this, the British company was estimated at 574 million pounds sterling, or some $950 million. On September 17-18, ENRC Africa, the subsidiary of the parent holding company, bought 825,120.595 thousand of CAMEC’s stocks, or 28.7% of the authorized capital of the company. On November 9, ENRC got approval for buying of 1,812,290.982 thousand stocks that is about 88% of those shares issued. The necessary threshold for approval, after which the transaction becomes unconditional, was originally 90%; however it reduced to 85%. Thus, on November 12 of 2009, the transaction was completed.
According to the Agency for statistics, in the first 10 months of this year Kazakhstan produced 8,743 kilogram of affined gold and 549,801 kilogram of affined silver, which is 33.5% and 5.6% higher than in January–October of the last year respectively. In this period 1436 thousand tonnes of aluminum oxide (+0.8%) and 275.398 thousand tonnes of unprocessed zinc (-9.4%) were produced.
The production of affined copper in the form of blocks, except for the sintered items, the subject for rolling, extruding and hammering, reached 292.466 thousand tonnes (-11.4%), flat section – 2.5 million tonnes (+3.1%), ferroalloys – 1.2 million tonnes (-19.1%). Meanwhile, coal production dropped by 11.9% to 68.862 million tonnes.