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Metals, Minerals and Related Equipment, Services and Technology Sector Profile[1] - Almaty, Kazakhstan
PDF Version (167 KB) *
March 2010
Produced by the Canadian Trade Commissioner Service
1. Sector Overview
Landlocked in Central Asia and bordering on Russia, China, the Kyrgyz Republic, Uzbekistan, Turkmenistan and the Caspian Sea, the Republic of Kazakhstan is one of the world's best-endowed states for minerals and it produces vast quantities of base, precious and ferrous metals, as well as industrial and energy minerals. Its diverse geography provides very substantial reserves that generate 29 non-ferrous, 3 ferrous and 2 precious metals, and 84 industrial minerals. Kazakhstan is one of the 10 leading countries in the world for a significant number of mineral resources. It possesses major global reserves (>10%) of lead, zinc, chromium, gold, uranium - all under production - and is also an important producer of alumina and aluminum, asbestos, copper, coal, iron ore, ferroalloys, manganese, molybdenum, silver, titanium and tungsten. Mining and metals rank second in importance providing 30% of Kazakhstan's export earnings, 16% of the GDP, and 19% of industrial employment.
The economy of Kazakhstan had been growing at about nine percent annually from 1998 through 2006, slowing to 8.5 percent in 2007. Owing to the world financial crisis, and the concomitant drop in the price of oil and metals on the world markets, the Kazakh Ministry of the Economy and Budget Planning expects growth of real GDP to contract to around 3% for 2008. However, the main driver of growth in Kazakhstan has and continues to be the natural resources industry - mining, oil and gas - accounting for about 74% of GDP. Given Kazakhstan's proximity to resource-hungry China, as well as Indian and Asian markets in general, coupled with the state's solid balance sheet and prudent management of natural resource revenues, the prospects for continued growth in the mining sector are good.
Canadian cumulative investments into Kazakhstan's mining sector are valued at approximately $1 billion.[2] Canadian exports of mining related equipment to Kazakhstan was valued at approximately $33 million, equal to approximately 13% of Canada's total merchandise exports to Kazakhstan in 2008.[3] Data for the services sector is unavailable, but its inclusion would further increase the importance of this market for Canadian exporters of mining equipment and services.
The growth in Kazakhstan's economy is attributed to the state policy of attracting foreign investment to its extraction industries. Kazakhstan was the first CIS country assigned with investment sovereign rating and in 2006, the World Bank listed Kazakhstan among the 20 most attractive countries for investment. However, amendments proposed to the Law on sub-soil usage that would grant the government rights to renegotiate contracts, to pre-emptive purchase and to nationalization when conflict exists with national interests, could drive foreign investment away from Kazakhstan.
The Kazakh government has moved forward on the implementation of international standards and has signed a Memorandum of Understanding on the introduction of the Extractive Industries Transparency Initiative (EITI).
Production, deposits, players
Copper - Lead - Zinc
Kazakhstan reported its 2008 production as 398,000 t[4] refined copper, 106,000 t lead in concentrates, and 366,000 t zinc in concentrates. The state register records 93 copper deposits, half under production, 85 lead deposits and 79 zinc deposits. Two integrated mining companies dominate the production of these metals - Kazakhmys for copper and Kazzinc for lead and zinc. The main investor in Kazzinc is Glencore International AG of Switzerland.
Chromium - Manganese - Iron ore
Kazakhstan is ranked third in chromium production with 320 Mt[5] chromite in world reserves (International Chromium Development Assosiation) - 23 deposits, 10 of which are being exploited - 9 by Kazchrome and one by Voskhod-Oriel, the latter acquired by Mechel OAO of Russia in 2008. Kazchrome is a division of ENRC (Eurasian Natural Resources Corporation), a transnational corporation headquartered in Astana, Kazakhstan. ENRC is an integrated and diversified producer of chromium, manganese, iron ore, ferroalloys, bauxite, aluminum and coal - in 2008, it produced 4.3 Mt of chromite ore, 2.3 Mt of manganese ore, 1.55 Mt ferroalloys, 15.5 Mt of iron ore concentrates from 4 open pit mines, 5.2 Mt bauxite, 1.6 Mt alumina, 106,000 t aluminum and 19.8 Mt coal.
Coal
Kazakhstan is among the world's top-ten coal rich countries and the tenth largest coal producer with 2007 production of 86 Mt - 75 Mt thermal and 11 Mt metallurgical coal. The state register records 49 mines with 197 structures, defined as separate facilities, consisting of 142 underground and 55 open pit mines. In total, 28 local and 5 foreign companies and one joint-venture are mining these deposits. The major players are: Bogatyr Access Komir, Shubarkol Komir, Mittal Steel Temirtau, the Eurasian Energy Corporation, Maykuben West, Karazhira Ltd., Kazakhmys Corporation and Gamma. Kazakhstan consumed 80% of the coal it produced and exported the remainder.
Gold - Silver
Kazakhstan reported its 2008 mine production of gold as 20,867 kg (refined - 8,201 kg) and its silver production as 645,723 kg (refined - 628,752 kg). There are 260 gold deposits in the country, albeit low grade, and 105 deposits are being mined or under development. A total of 71 companies are operating in this sector: 48 local, 18 foreign and 5 joint ventures. The Vasilkovskoye Zoloto joint venture (Floodgate Holding BV from The Netherlands and Kazakhstan's Finance Ministry), Bakyrchik mining enterprise (majority interest by Canada's Ivanhoe Mines Ivanhoe), Kazakhmys Corporation, Kazzinc and KazakhGold have large gold reserves, accounting for about 52% of the total. Most of the silver produced in Kazakhstan is via the processing of non-ferrous sulphide ores with Kazakhmys representing the largest portion.
2. Market and Sector Challenges (Strengths and Weaknesses)
Subsoil and others laws
Use of the subsoil for exploration and mining is controlled by the Law on Subsoil and Subsoil Use (Subsoil Law). Under the Law, any minerals contained therein are owned by the State. The subsoil user obtains rights to explore and mine through a government contract and has rights to own any mineral extracted. Information on available mining licenses can be obtained either through tender notices from the State Committee on Geology or through private license holders looking for foreign investors.
In 2005, Kazakhstan added a controversial "pre-emption" amendment to the Subsoil Law that guarantees the State the right of first refusal when a party seeks to sell any part of its stake in a mineral extraction project. In 2007, Kazakhstan proposed to amend the Law to allow the government the right to renegotiate the terms of an existing contract, if the subsoil activity is on a site of "strategic importance" deemed to affect national security or economic interests of Kazakhstan. If the subsoil user refuses to negotiate, the government can terminate the contract.
In addition to the Subsoil Law, the primary laws governing trade and investment include the Customs Code, the Law on Currency Regulation, the Law on Foreign Investments, and the Tax Code. In January, 2009 the government of Kazakhstan approved a new Kazakhstan Tax Code that stipulates the application of duties for the export of natural resources. The new Tax Code introduced a mineral production tax that will replace royalty tax on produced mineral resources.
A value added tax is also imposed on all imports, determined by the combined total of the customs clearance value and the customs duties. The value added tax rate is 12% in 2010. Additionally, a customs clearance fee is charged on each import transaction.
Kazakhstan law requires that a foreign employee working in Kazakhstan apply for a labour permit and also establishes a system of quotas limiting the number of labour permits issued to foreign personnel.
Canadian exporters should be aware of the local content rules for the use of foreign mining equipment and services in Kazakhstan, as stated under Kazakhstan's subsoil legislation.
Other structural barriers to investment are a weak system of business law, lack of an effective judicial system for breach of contract resolution and a burdensome government bureaucracy.
Canadian companies doing business in Central Asia are concerned by high-level corruption and a lack of transparency. Before entering the market, Canadian companies are encouraged to review and/or implement internal policies related to corporate social responsibility, consult Canada's Corruption of Foreign Public Officials Act, and take stock of regional and global treaties dedicated to fighting corruption.
When selecting joint venture partners in the region, investors should understand that domestic players have highly developed networks of pre-existing relationships that trump new relationships with foreigners. In the case of Kazakhstan, seen to be stable country, clarity exists as to who is in control with a highly functioning elite that is tightly knit, and that works in tandem towards common objectives.
The Frazer Institute's 2008-09 Mining Survey ranks various mining countries on their attractiveness to winning investment for mineral exploration and development based on an annual survey of executives and exploration managers from around the world. Investors' key concerns with Kazakhstan's mineral potential relate to uncertainty over interpretation and enforcement of existing regulations, the taxation regime and poor infrastructure.
In October 2007 Kazakhstan signed agreement with Russia and Belarus on formation of customs union. Starting January 1, 2010 these three countries will apply common external tariffs. By July 1, 2010 customs checkpoints along the Belarus - Russian border are to be removed; checkpoints at the Kazakhstan-Russia border will be removed a year later by July 1, 2011. According to the current timeline, .it is expected that the full implementation of the Customs Union will be achieved by January 1, 2012. The rates of Customs Union common external tariffs based on import tariffs of Russia which results 2% increase on average for Kazakhstani tariffs.
Canada and Kazakhstan are currently considering negotiation of a Foreign Investment Protection and Promotion Agreement (FIPA) that would add an additional layer of asset protection to Canadian investors.
3. Sub-Sector Identification
Uranium
The crown jewel of Kazakhstan mining industry is its uranium sector. It has been experiencing dramatic growth, consistent with the strong demand for nuclear energy as a solution to some of the planet's challenges associated with energy, climate change and carbon dioxide emissions. In 2008, Kazakhstan produced 8,512 t uranium, a 28.5% increase over 2007 production of 6,637 t. In line with Kazakhstan's aims to become the world's largest exporter of uranium, uranium production is increased to 13,900 t in 2009.
Kazakhstan ranks second in world reserves of uranium, with about one-fifth of the known global reserves, or 1.7 Mt. The state register lists 55 deposits, 70% of which are amenable to uranium extraction via in-situ-leaching. Most of Kazakhstan's mined production of uranium is accounted for by state-owned Kazatomprom, which has 16 uranium mines under production or development and a number of joint ventures with key foreign players. Areva of France owns 51% of the KATCO joint-venture (49% owned by Kazatomprom) that is mining two deposits, Zarechnoye uranium production joint venture involving Kazakh, Russian and Kyrgyz interests. The world's largest uranium producer, Canada's Cameco, entered into a joint venture agreement (60% - 40%) with Kazatomprom in 1998 to found the Inkai JV that will commence commercial production in 2010. Cameco and Kazatomprom also created Ulba Conversion LLP in 2007 to study the feasibility of a 12,000 t uranium hexafluoride conversion facility at the Ulba metallurgical plant at Ust-Kamenogorsk. Cameco would provide the technology and possibly hold an interest of up to 49% in the facility under the agreement. The Stepnogorsk mining and chemical complex, held in trusteeship and reactivated by Kazatomprom, has been Kazatomprom's main uranium production enterprise producing ore at the Vostok and Zvezdnoe fields via underground mining and heap leaching.
Kazatomprom is the national vertically integrated atomic company effectively controlling all uranium exploration and mining as well as other nuclear-related activities, including imports and exports of nuclear materials. A measure of the success of this state initiative is that Kazatomprom is rated as one of the largest uranium producers in the world. Coupled with the expansion of mining production, Kazakhstan is also pursuing a strategy to sell value-added fuel rather than just yellowcake. It has invested in a major plant making nuclear fuel pellets and is working to increase its role in the world uranium market through energy cooperation with other nations in the region. Kazakhstan's goal is to supply 30% of world uranium fuel fabrication by 2015. This strategy is sustained politically by Kazakhstan's leadership via intergovernmental cooperation agreements with key customers, namely China, France, India, Japan, Korea and Russia. Indeed, the involvement of Kazakhstan as a stakeholder in the commercial aspects of its nuclear industry profoundly impacts on the structure and activities of this sector.
In October 2008, the President of Kazakhstan signed a decree creating the Fund for National Welfare, Samruk-Kazyna that would consolidate the state's holdings in various commercial activities, including Kazatomprom. The objective was to remove some of the obligations of state-owned companies to meet local requirements for procurement of goods and services that can cause considerable delays in project delivery. Furthermore, on January 15, 2009 the Government of Kazakhstan created a new national mining company, Tau Ken Samruk that will manage the state's block of shares in the mining sector, namely: 11.65% of shares of "ENRC PLC" 14.99% shares of "Kazakhmys PLC" and 50% of shares in the joint-venture "Bogatyr". These powers will enable Tau Ken Samruk to develop policies for more "effective and rational use" of the resources of Kazakhstan.
Canadian Government Contacts
Embassy of Canada in Kazakhstan
34 Karasai Batyr Street
Almaty 050100 Kazakhstan
Email: almat-td@international.gc.ca
Website: www.tradecommissioner.gc.ca/kz
Natural Resources Canada (NRCan)
580 Booth Street
Ottawa, Ontario, Canada
K1A 0E4
Contact: Martin Walters
Tel.: 613-995-0947
TTY: 613-996-4397
Email: questions@nrcan.gc.ca and martin.walters@nrcan.gc.ca
Website: www.nrcan-rncan.gc.ca
Canadian Manufacturers and Exporters (CME)
1 Nicholas St., Suite 1500
Ottawa, Ontario K1N 7B7
Website: www.cme-mec.ca
Export Development Canada (EDC)
Representative office in Russia and the CIS
c/o Embassy of Canada to Russian Federation
23 Starokonyushenny Pereulok
Moscow, Russia, 119002
Contact: Maxim Berdichevsky
Email: mberdichevsky@edc.ca
Website: www.edc.ca
Foreign Affairs and International Trade Canada (DFAIT)
125 Sussex Dr.
Ottawa, ON K1A 0G2
Website: www.international.gc.ca
Europe & Central Asia Commercial Relations Division (GRC)
Contact: France-Carole Duchesneau
Email: France-Carole.Duchesneau@international.gc.ca
Multi-Sectors Practices (BBI)
Contact: Ms. Rosaline Kwan
Email: Rosaline.Kwan@international.gc.ca
Contact: Michael Calvert
Email: Michael.Calvert@international.gc.ca
Kazakhstan Contacts
Embassy of the Republic of Kazakhstan in Canada
Email: kazconscan@on.aibn.com
Website: www.kazakhembus.com
Ministry of Energy and Mineral Resources of the Republic of Kazakhstan
Email: ayan@memr.kz
Website: www.memr.gov.kz
National Atomic Company "KazAtomProm"
Email: nac@kazatomprom.kz
Website: www.kazatomprom.kz
Useful Internet Sites
- Embassy of Kazakhstan in Canada
- Ministry of Energy and Mineral Resources of the Republic of Kazakhstan
- Customs Committee of the Republic of Kazakhstan
- Customs Union official web site (Kazakh, Russian and Belarusian only)
- Lists of classes of goods (Kazakh, Russian and Belarusian only)
[1] The Government of Canada has prepared this report based on primary and secondary sources of information. Readers should take note that the Government of Canada does not guarantee the accuracy of any of the information contained in this report, nor does it necessarily endorse the organizations listed herein. Readers should independently verify the accuracy and reliability of the information.
[2] Natural Resources Canada. Properties, plant and equipment, deferred exploration expenditures at cost (book value) less accumulated amortization and write-downs (C$). Canadian public companies are defined as companies having physical offices in Canada (head-office or operating office).
[3] Industry Canada, Trade Data Online
[4] t = metric tonne
[5] Mt = million metric tonnes
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