• Kazakhstan is one of the world's mineral-rich countries, possessing world-class deposits of minerals and raw materials, including coal and ferrous and nonferrous metals.
• Kazakhstan's mining sector is responsible for over 30% of export earnings, over 16% of GDP, and 19% of industrial employment.
• The reserves of the country are rated 4th in the world in copper, 6th in zinc, 7th in cobalt and cadmium, 8th in gold.
• Kazakhstan plans to increase coal production to 134 million tons by 2015 and up to 151 million tons by 2020.
• Kazakhstan’s mining industry was forecast to grow on average 9.2% annually from 2008-2012, with the industry value reaching $4.88 billion in 2012. The value of Kazakhstan's mining industry will grow at an average annual rate of 9.9% in real terms between 2012 and 2015, to reach US$64.2 billion, more than double the value of US$23.7 billion in 2011. Growth will be led mostly by the coal, iron ore and copper sectors, which together account for the majority of the value of Kazakhstan's mining industry.
Industry Overview & Market Demand
Kazakhstan is endowed with a wide range of mineral resources -- including coal, and ferrous and non-ferrous metals. Because of this mineral wealth, it has a large mining sector with over 230 enterprises producing or processing coal, iron and steel, copper, lead, zinc, manganese, gold, aluminum, titanium sponge, uranium, barites and many others. The sector is responsible for over 30% of export earnings, over 16% of GDP (one source estimated this as high as 27%), and 19% of industrial employment.
In 2011, Kazakhstan produced 107 million tons of coal. In 2010, Kazakhstan produced 103.5 million tons of coal and 105 million tons of coal in 2008, ranking it the world’s 9th largest producer. In 2009, coal production fell 12% to 93 million tons. The country is the 8th largest in iron ore reserves with 12.5 billion tons. The nation ranks second, globally, in manganese ore reserves, which are estimated at 600 million tons. Kazakhstan boasts 30% of worldwide chromite ore deposits. The country is also a significant producer of beryllium, tantalum, barite, and cadmium among the Commonwealth of Independent States (CIS). The country's current reserves of copper are estimated at 36million tons. Kazakhstan also hosts 30% of the worldwide chromite ore deposits, as well as 95% of the total chromium reserves within the CIS. Kazakhstan is paying particular attention to developing its gold mining (ranked 10th globally) and uranium mining (25% of world reserves) as commodity prices rise, and is seeking to attract foreign investment in order to expand current production. Overall, Kazakhstan’s mining industry is forecasted to grow annually on average 9.9% in real terms between 2012 and 2015, to reach US$64.2bn, more than double the value of US$24.7bn in 2011.
Once an industry in disarray following the break-up of the Soviet Union, Kazakh mining witnessed widespread technological upgrade and privatization in the 1990s. This has also been fueled in the past few years by soaring international metal prices, rapidly expanding demand from China and India, and streamlined procedures for obtaining permits and foreign investment. From a technological standpoint the industry still lags significantly behind more developed countries, as evidenced by the numerous mining accidents that continue to occur.
As global prices continue to rise, there are discussions in Kazakhstan to introduce an export duty on metals, following a trend that the government started in the oil and gas sector. New amendments to the tax code could result in the reduction of some corporate taxes, including corporate income tax and VAT, but it is unclear if there will be a reduction in the final tax burden for mines and metal manufacturers. Further, there are some concerns regarding the revised Mining Law of 2005 which stipulates that mining fees charged by the government would increase proportionally with the rise in annual mining volumes. The law also authorizes the government to purchase the mining rights of not only a mining company, but also of companies that have direct or indirect decision powers over mining operations.
Much of the technology and management practices of this industry date from the Soviet times, which has hampered foreign sales. Exports of mining equipment to Kazakhstan have been limited by a lack of investment in this sector. In the mid-1990's, many foreign investors entered the country and started exploration and development activities, but, with few exceptions, most have ceased their operations. The investors claimed that lack of transparency, poor financial incentives, unclear and arbitrary laws that favor local investors, bureaucracy, and unclear land tenure made it impossible to continue their operations. The government in turn, claims that many investors failed to deliver on promised commitments. As a result, under the current system, few foreign companies are willing to risk investment, with or without a local partner.
In general, about $55billion has been invested in the mining sector over the past decade, of which 15% was in prospecting. The bulk of this was spent on developing natural resources. According to forecasts for 2006-2010, investment in the raw material sector is expected to exceed $48billion, and reach about $52billion in 2010-2015.
Mining activities are currently being carried out at 2,000 mines in Kazakhstan, which consists of prospecting at 132 mines (7%), extraction at 1,213 (61%) and both activities at 641 (32%). According to the Agency of Statistics of the Republic of Kazakhstan, industrial production in Kazakhstan in 2009, compared to the results of 2008 increased by 1.7% due to higher volumes by 6.1% in the mining sector.
Taking into consideration the price increase for non-ferrous metals, gold, and uranium and the growing demand for coal, Kazakhstan’s mining industry is developing rapidly. Currently, Kazakhstan is an attractive market for U.S. mining equipment/machinery exporters. American companies can provide needed products and services to the Kazakhstani mining companies, such as bulldozers, drilling equipment, explosives, trucks, drill rigs, trams, cranes, crushing and pulverizing machinery, dredges, hydraulic excavators, quarrying machinery and equipment, elevators, conveyors for underground equipment, compressors, hammer mills, special trucks, etc. Also replacement parts for mining equipment are needed. Among the best sales prospects for services are diamond drilling contractors and people that perform geological, geochemical and geophysical surveying, equipment involved in bulk sampling such as a processing plant, small aircraft, fuel supplies and geological supplies like sample bags. Opportunities may also lie in the gold mining and the post-processing of base and precious metals. American companies that can provide goods and services that address erosion, formation of sinkholes, loss of biodiversity, and contamination of groundwater and surface water by chemicals from the mining process and products, which may minimize the impact on the environment, will also have great demand in Kazakhstan. Explosives also present interesting export opportunities in the region. Kazakhstani producers have experienced several mining accidents over the last five years, resulting in multiple fatalities, which may also result in growing demand for safety and ventilation equipment, compressed air and gas equipment, generators, pumps and valves.
More than half of Kazakhstan’s mining, processing, and smelting enterprises use outdated equipment that is often in need of repair. Almost all lack environmentally friendly technologies. Kazakhstan does not have its own mining machinery industry and relies heavily on Russian imports. U.S. mining equipment firms should explore trade opportunities in used and refurbished equipment, as well as turnkey project management. Demand in Kazakhstan for mining machinery grew 9% annually through 2008, but slowed in 2009 and 2010. Gains will be driven by an upswing in prices for copper, silver and gold and by strong demand for coal. U.S. mining equipment and services suppliers should target major players in the mining sector, such as Kazakhmys, Eurasian Natural Resources (ENRC), TNK Kazchrome, KazakhGold Group, ShalkiyaZinc, KazAtomProm and others.