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Kazakhstan wants to attract greater FDI to exploit its wealth of mineral resources and boost its mining sector as the Covid-19 pandemic dampens the world economy and depresses oil prices.
At the recent Kazakhstan Global Investment Forum 2020, Vice-Minister for Ecology, Geology and Natural Resources Brekeshev Serikkali was keen to stress how the country is “open for investment” as he highlighted the “active measures” it has been taking to “ensure openness”.
Kazakhstan certainly benefits from a sizable natural resources endowment. Its Energy Ministry claims about 30 billion barrels of proven oil reserves, equivalent to 1.8% of global reserves. Oil and gas revenues account for about 40% of the state budget.
However, with oil prices depressed and Covid-19 dampening the global economy, another kind of natural resource may be the country’s best bet for boosting growth.
Kazakhstan sees huge opportunities in attracting foreign direct investment (FDI) into its mining sector, and international investors seem to agree.
“At the end of 2019 and the beginning of 2020, Kazakhstan’s mineral exploration potential was seen as a real hot spot globally,” says Ros Lund, a mining and infrastructure specialist at the UK government’s Department of International Trade, who was a panellist at the Kazakhstan Global Investment Forum 2020.
While global FDI has been disrupted by the pandemic, those active in Kazakhstan’s mining sector are hopeful that after an initial pause investment will begin to flow again.
According to figures from the UN Conference on Trade and Development, Kazakhstan’s FDI flows dropped by 17% in 2019, but mining and metals attracted higher volumes than any other sector. Investments predominantly came from the US, China and Russia.
Kazakhstan is the world’s leading producer of uranium, with 13% of global reserves, is home to the world’s largest deposits of tungsten, and has sizeable deposits of gold, coal, bauxite, phosphate and titanium.
Kazakhstan also benefits from being strategically placed between Russia, China and Europe and the country forms part of China’s Belt and Road Initiative.
Most exploration in Kazakhstan was conducted in the 1980s, with no major new discovery in more than 25 years. However, previous exploration only went to a depth of 200m, and now deeper exploration is being incentivised.
TauKen Samruk (TKS) is the mining arm of Kazakhstan’s sovereign wealth fund Samruk-Kazyna. While much of the exploration, development, production, processing and marketing of metals is undertaken by TSK, it is increasingly seeking private partners for its projects.
A number of major mining companies such as Glencore, Rio Tinto, Rusal and Areva already operate in Kazakhstan, and the country is keen to attract more junior mining companies too.
A new mining code to help liberalise the mining sector was adopted in December 2017 and took full effect in July 2018. Chairman of the management board of TKS Kanat Kudaibergen says: “More than 650 licences have been issued, 50 of them for foreign companies, since the new mining code was adopted.”
TKS assists junior mining companies through project selection, feasibility studies and project financing before selling its stake. Any sale is either conducted via an initial public offering on the Astana International Exchange, launched in 2018, or through a direct sale.
Said Sultanov, founding partner of diversified mining exploration service provider Aurora Minerals Group, says: “Junior markets are doing very well around the world, and we are starting to see them find their feet here in Kazakhstan. They are doing the databases, they are analysing the historical data and prepping for 2021.”
James Assem, a managing consultant for Advisian, part of the Worley Group of consultancy businesses, says: “Things in the mining sector are still progressing in Kazakhstan. It has been fairly stable. There was a slight pause while companies got to grips with what was going on and adjusted their working practices, but there hasn’t been a big dip [due to Covid-19].”
Assem notes that many sites have adapted working practices to use digital communication and drones.
Sultanov of Aurora Minerals notes how industrial production dropped only 1.5% from 2019 levels from January to August and how “the government has provided a number of incentives to mining companies, including postponing contractual obligations until 2021 without any penalties”.
Central Asia Metals is the sole owner and operator of a copper project near the city of Balkhash that has been producing since 2012. At one point earlier in 2020, 10% of its total workforce on site had tested positive for Covid-19. No one fell seriously ill, however, and by adopting new social distancing and hygiene regimes, the site was able to maintain production uninterrupted.
CEO of Central Asia Metals Nigel Robinson notes that another major change for 2020 has been a greater focus on environmental, social and governance (ESG) issues, with the company producing its first ever sustainability report on 1 April 2020.
“It has been a good exercise and well-received by our investors, shareholders and other stakeholders,” he says. “Once you start measuring things like greenhouse gas emissions and water quality, you have to better understand how to manage them.”
Getting the ESG message right could be very important for mining companies in Kazakhstan, as the metals mined there have a role to play in the energy transition.
“We all want to build back better and cleaner and people are looking for more copper and zinc, strategic metals [for renewable energy],” says Lund of the UK’s Department of International Trade.
“Investment may be paused, but I do know there were some blue-chip major companies who were looking at the mineral potential of Kazakhstan for the first time [before the pandemic]. I think they will be keen to get back in as soon as possible.”
The nature of the global pandemic means long-term planning is difficult for any business, but the mining sector in Kazakhstan has coped well to date and should have opportunities to capture increased FDI in the years to come.