We are wait changes


Today the AMM Congress is known as one of the most successful industrial venues for re leading figures from government, business and academia to interact. Over 960 participants from 23 countries took part in this seventh forum of miners and metallurgists. Having opened the event, Bakytzhan Sagintayev, the First Deputy Prime Minister has indicated that the AMM is a key industry of Kazakhstan’s economy. 300,000 employees are involved in the industry, and the AMM exerts a multiplicative effect on the development of adjacent sectors while increasing the employment rate and ensuring competitiveness of economy, in general.

The AMM also plays an important role in an industrialization program under which there are some tasks set for the industry such as increasing capacity of the existing metallurgical plants, creating new agile manufacturing of base metals, increase in efficiency, and boosting the demand in the domestic market and export incentive. It is clear that all these will require developing mineral resources base, creating new motivation and decreasing investments risks in subsoil use.

In that context, a milestone event at the Congress became affiliation of Kazakhstan Association of Public Reporting on Resources and Reserves (KAZRC) in the Committee for Mineral Reserves International Reporting Standards (CRIRSCO). According to Harry Parker, Chairman of CRIRSCO, it will facilitate the process of interaction between the government and investors on quality of assets which are required to be invested in.

Moreover, the obtained KAZRC code gives large opportunities for our AMM because national standards included in CRIRSCO system are recognized by leading international exchanges. As the government expects, transition to CRIRSCO reporting standards will help to develop the junior companies’ market, and will enable to discover new deposits thanks to the increased number of surveys.

The legislative basis for introduction of KAZRC standards will be the new Code “On Subsoil and Subsoil Use” which is based on Australian conceptual framework called First Come, First Served (FCFS). The Code which is to be adopted by the end of 2017 provides such innovations as simplification of the conditions of subsoil use and payment system (during exploration stage, only rental will be collected according to the progressive scale), and radical reduction of the procedures (when concluding contracts only environmental and industrial safety expert reviews will be required). Other significant know-hows will include introduction of the ‘possession’ status when a subsoil user can suspend /its operations for a certain period without being fined due to external economic or technological factors, and abolition of the State Committee for Reserves for any newly issued licenses.

The Code has not been adopted yet, however, its certain provisions are being tested in actual contracts. According to Aset Issekeshev (who was the Minister of Investments and Development then – Edi- tor’s note) 100 kilometers area around Stepnogorsk single industry town had been chosen as a pilot project. The exploration contracts are here awarded within 20 days instead of usual two years. The subsoil areas are divided into 2 kilometer blocks, and 11 contracts were entered into for 25 blocks for the first quarter. By the end of this year, we plan to negotiate a number of areas in East Kazakhstan Region, and around Zhez
kasgan and Arkalyk. If the pilot project is successful, the procedures tested will be implemented in the Code and extended nationwide. According to Mr. Issekeshev, it will enable to double the quantity of servicing companies in Kazakhstan during the next three years.

The more so they will have very large area for their activities: according to the Ministry’s estimates, the area of blocks which are promising in subsoil use terms is over 1 million square kilometers of which only 12% or 137,000 square kilometers are covered by the contracts for now. ‘That way, there is a real prospect of discovering dozens of deposits which is confirmed by estimations of specialists. I suggest they will provide tens of thousands of new jobs, especially in single industry towns, and additional taxes and a growth of our national state budget’ summed up Mr. Issekeshev. Investors agreed with the estimations given by the governmental officials during the forum. For example, Vitaly Nesis, CEO of Polymetal International, is confident about the potential of the Kazakhstan AMM, and mainly due to the favorable geological conditions. ‘Large areas in Kazakhstan are not investigated, and the probability of discovery of new, high-quality deposits is very high. Kazakhstan is very attractive for the players with long-term strategic plans. And we are no exception. At the same time he has noted that today’s global AMM is in difficult situation.

One of the negative trends is a poor quality of raw material basis which is evidenced by their reduced average content in both producing deposits and those planned to be closed. Secondly, there is a constant growth of engineering complications, capital intensity and projects’ deadlines which make them less attractive for investors.

Thirdly, there has been ta universal strengthening of environmental standards. For example, the maximum non-fined content of arsenic in copper concentrate has been reduced tenfold, and the fines for excessive concentration have risen about five times. ‘It is clear that the trends are negative. However, there are some ways for industry leaders to use for their compensation’ – says Mr. Nesis. – ‘First of all, it is necessary to intensify geological exploration works with the use of the latest technologies. Therefore, it is very important for “Polyme- tal International” as a subsoil user with active presence in Kazakhstan to adopt the CRIRSCO standards and transition to the declarative licensing principle which will sharply increase the volume of investment in the AMM.

Response to the growing capi- tal intensity and project complexity may be the use of centralized processing facilities, so called, hubs, for active involvement of small and medium deposits. It will reduce the time for their development, capital costs and risks of engineering, and will lead to quick and stable growth of profits, tax revenues and employment rate in the economy. Finally, the use of modern processing technologies will enable to compensate strengthening of environmental requirements and to ensure economic efficiency even in the case of difficult ore deposits.

The situation in geological sector was described to forum participants by Bazarbai Nurabayev, Chairman of Committee for Geo- logy and Subsoil Use of RoK Ministry of Investments and Development. According to him, over the last 5 years, 156 billion KZT including 22 billion KZT from the state budget were invested into geology survey of mining sector. As a result, the growths of gold stock were 475 tons, copper 8 million tons and zinc 988 thousand tons. And for the first time 15 solid mineral deposits have been included in the State balance sheet. The same work was carried out for hydrocarbon, uranium, coal, ferrous metal deposits, etc. At the same time there are some prospecting sites containing valuable projected resources of main commercial minerals on the unlicensed territories which confirm the need for carrying out their further investigation. Kazgeology JSC plays an active role in this process.

In early 2015 the company established a team equipped with geophysical equipment and software from the leading world manufacturers costing KZT 730 million. Their technical capabilities allow them to carry out gravitation survey, magnetic survey and electrical survey with the effective depth of survey up to 1.5 kilometers. As recently as last year the team performed about 3,500 running meters of magnetic survey and 1,400 running kilometers of electrical survey the results of which have revealed a number of sites with abnormal characteristics. Among the most interesting projects mentioned by Galym Nurzhanov, Chairman of Board of the company, were exploration works at Tastinskiy block in Ulytau District, and Kireysko-Oparskiy block in Nurinskiy District of Karaganda Region, and the deep seated geological mapping at Anomalniy site near Ushtobe Village and prospecting operations at Dyusembai block near Karsakpai Village. According to Mr. Nurzhanov, although many projects were cancelled due to economic crisis, continuing to explore only the most promising ones, all foreign partners of Kazgeology started a full-scale geological exploration in 2015 and confirmed their investment plans in Kazakhstan. Moreover, during the forum the national company has signed two new memorandums with Polymetal International on carrying out joint survey and exploration operations at nongerrous and precious metal deposits and with Kazzinc LLP in respect of polymetals. Nikolay Radostovets, the Executive Director of the Republican Association of Mining and Metallurgical Enterprises in Kazakhstan has much more critically assessed the situation in subsoil use and he believes that the government should the drastic measures for activation of geological system.

‘The first step which is Kazgeology has alreadystarted its active functioning. However, the funds allocated from the state budget are insufficient, and moreover, they are cut down for this year. Therefore I think that geologists must request for increased funding when generating and adjusting 2017 budget’. The second issue is the absence of economic incentives for private mining enterprises to establish and develop their own geological services. And this despite the fact that their raw material base is getting exhausted. For instance, the issues of abolition VAT on exploration and commercial discovery bonus have not resolved yet. Of course, many of the issues will be removed from a new Code; however, some of them must be resolved immediately. ‘I think that if Natural Resource Code is planned to be adopted only in the next year, then, the most important amendments must be adopted during this fall’ noted Mr. Radostovets. It seems that the head of AMM is really right: investors do not hide their interest in our subsoil resources; however, they are waiting for the state’s promises to come true. At least, the second auction for the exploration license which was to take place in the forum has not held yet. The reason was insufficient number of the requests submitted.

Sergey Gakhov