Expert Opinion
An Overview of Kazakhstan’s Mining and Hydrocarbons Sector and Some Observations on Entering the Market
Javier Piedra, Head, Corporate Finance, KPMG in Kazakhstan
The results are in and there is no doubt about it – as of 2010, Kazakhstan, the 9th largest country in the world, has joined the ranks of the mining giants. This is by no means a product of one or two lucky ore strikes by a bunch of “wildcatters” salivating over speedy profits and fame, but results rather from decades of hard work in the trenches. In Kazakhstan, miners, big and small, are now looking to dig more, drill deeper and tunnel faster; and perhaps unlike in the past, they now recognize that successful mining operations involve more than a few pans, a pick-up truck and some good contacts at the border. Success today requires a more sophisticated approach: understanding where you are in the mining cycle, specific knowledge of in-situ challenges (technical, financial, legal, logistical, tax and regulatory) in order to get the resource properly identified, out of the ground and to market in a timely manner at minimal cost, and, finally, a savvy ability to operate within the country.
Kazakhstan’s mining sector is vibrant and has proven to be attractive for investors – that’s why Chinese, European, Indian, Korean, Japanese, Russian and North American companies and just about everyone else are trying to set up a long term presence in country with anchor assets. And geopolitics aside, the international consensus in foreign ministries from Canberra to Ottawa and from Pretoria to Oslo is that access to Kazakhstan’s mineral resources and hydrocarbons makes for good economics.
The LSE listings of Kazakmys in 2005, KazMunaiGas (“KMG”) in 2006 and ENRC in 2007 turned heads and continues to raise interest, but there are more such listings to come because there is a lot more value in the ground. The most recent listing of a Central Asian mining company with assets in Kazakhstan was in October 2010 – Central Asia Metals Plc, which raised US$ 60 million on AIM. That’s good news for miners and for Kazakhstan.
Since independence from the Soviet Union in 1991, Kazakhstan, bordering China, Kyrgyzstan, Russia, Turkmenistan, and Uzbekistan, has attracted over US$ 70 billion in FDI. In October 2010, PM Massimov confirmed that Kazakhstan seeks to attract up to US$ 100 billion in investments to the oil and gas sector alone over the next decade. "We are currently exporting 1.31 million barrels (of crude oil) a day and we aim to take it to 3 million barrels a day. KazMunaiGas (the national oil company of Kazakhstan) cannot do it alone. We are looking for partners for KMG\'s projects," said Massimov. In the non-hydrocarbons space, the government aims to draw in a minimum of an additional US$ 13 billion by 2015 and those figures are at best conservative. Even in the midst of continuing economic turmoil in global capital markets, for the 1st 9 months of 2010, FDI in Kazakhstan in the energy and natural resource sector was US$ 2.5 billion with most of that in oil and gas. – That is not a trivial amount. Total net FDI for 2010 is expected to be US$ 11.2 billion; that compares to US$12.6 billion and $15.8 billion in 2009 and 2008, respectively. Kazakhstan\'s GDP growth in 2010 amounted to 7%.
In terms of mineral reserves, there is no doubt the country is a global player. Kazakhstan is currently neck and neck with Australia and Canada in total uranium reserves. Its chromium reserves are the second largest in the world while zinc and lead are in 3rd and 4th places, respectively. Moreover, Kazakhstan is in the top ten for coal, bauxite, iron ore, gold and silver reserves and holds leading positions in copper, tungsten, molybdenum, cadmium, tantalum, barite, beryllium, bismuth, fluorine, titanium and arsenic as well as in phosphates and nitrates. And that’s just for starters.
In the uranium sector, Kazakhstan is ranked the #1 uranium producer in the world with almost 28% of the global total, and this, in part, is due to the government’s willingness to set up partnerships with top mining companies. Kazatomprom has joint ventures with French AREVA and Canadian Cameco. On 24 November 2010, Uranium One also announced that it had consolidated its joint venture with ARMZ Uranium Holding Co, a division of Russian nuclear agency Rosatom. Uranium One will acquire a 50 percent and 49.67 percent interest in the Akbastau and Zarechnoye mines in Kazakhstan, respectively. All in all, Kazakhstan plans to increase uranium mining output in 2010 to 17,588 tons up 3,500 tons from 2009.