Kazakhstan metals and mining: Wooing investors while sitting pretty

Mariyam Zhumadil, CFAJanuary 21, 2013

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Kazakhstan contains massive reserves of base and precious metals measurable on the global scale. Currently only 10-15% of the country’s explored reserves are being mined, with considerable potential for growth. At the current production rate the operating mines will need at least forty years to exhaust their reserves. Challenging geology and complex mineralizations containing several metals require high-stake commitment, solid expertise, and impeccable execution, but for those investors who manage to bring these factors together the opportunities for above average returns are plentiful.  The combination of the underdeveloped mineral base, political and macroeconomic stability and the availability of functional infrastructure continue to attract foreign capital. Mining and metallurgy represent a large chunk of Kazakhstan’s economy. In 2011, metallurgy produced 6.8% of GDP and metals accounted for 20.4% of the exports.

Over the last decade Kazakhstan has become more assertive towards foreign miners: shifted the tax burden onto the mineral sector, adopted the ‘subsoil use law’, tightened the environmental regulation, and raised presence in the sector. Labeled ‘resource nationalism’, the policy represents the attempts to renegotiate the clearly lopsided (in retrospect) contracts signed more than a decade ago, to finance the industrial, economic and social development outside of the primary commodities, to address the concerns of the public about the ecological and environmental security. Often perceived as pure rent seeking, Kazakhstani version of the resources nationalism is milder than the one practiced by Russia or Mongolia, two other ex-communist states overendowned with mineral resources.

In the following report we provide an overview of the largest producers of metals, an assessment of the current regulatory and fiscal regime, examine the validity of claims of the resource nationalism, and risks and challenges that the industry players face today. We give an overview of the country’s main mineral reserves, deposits, production, their exports and large producers.

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