Austmine Industry Q&A with AMC Consultants: The Kazakhstan Mining Market

Kazakhstan is home to a wealth of different metals and minerals, producing everything from gold, copper, iron ore and zinc to coal and uranium. Due to this abundance of resources and project opportunities, it is a market that many Australian companies have sought to explore further.

Sheldon Varcoe from Austmine, the leading industry body in Australia for the mining equipment, technology and services sector sat down with two AMC mining experts with extensive experience in Kazakhstan to discuss the key considerations for any Australian METS company seeking to engage in business there. Marnie Pascoe, Director/ Geotechnical Manager/ Principal Geotechnical Engineer, AMC Consultants and Martin Staples, Director/ Principal Mining Engineer, AMC Consultants provide their insights into the current developments, local challenges and opportunities for Australian METS in this Q&A discussion.

Sheldon Varcoe: Kazakhstan boasts a rich endowment of a range of commodities, positioning it well on the global stage for mineral output. In coming years, which commodities do you believe will see significantly increased production in Kazakhstan and what current operations or development projects will drive this growth?

Marnie Pascoe & Martin Staples: It is certainly true that Kazakhstan is mineral rich. Over the past few decades the hydrocarbon industry has dominated but it is recognized by everyone involved that the solid mineral resources are going to be a growing part of the Kazakhstan story. Not only does the country have the mineral wealth covering an enviable portion of the periodic table, but it also has a long mining history and well-developed local mining companies like, ERG, Kaz Mineral, Kazakhmys, Kazatomprom , Kazzinc (with Glencore investment) and an active state mining arm in Tau-Ken Samruk. Many of these companies are already large producers but are looking to replace and add to their production. An example that AMC has been involved in would be Kaz Minerals. AMC worked on the feasibility studies for the Aktogay and Bozshakol projects. These new, large and long-life copper mines have come into production over the last 18 months and Kaz Minerals, again with AMC, is already working on the next projects in its pipeline of exploration and development opportunities. There are also new local players emerging such as Syrymbet who are working to develop the world’s largest tin resource.

As well as the strong local players, AMC is seeing more international interest in exploring in Kazakhstan. This has been encouraged further by the inclusion of the solid resources industry in President Nazarbayev’s 100 step plan. The steps outlined by the president include moving to a new system for allocating mining licences and adopting the CRIRSCO reporting codes that are more familiar to the global investment community. Large, international companies such as Iluka have been active for some time and we are seeing others increase their interest, for example the recent announcements of more exploration interest by Rio Tinto.

SV: Feedback from past Austmine missions to Kazakhstan has often focused on the need for mining operations to modernize and become more sophisticated. Working in the market for quite some time, have you observed this as well? In which areas does Kazakhstan lag on a global scale?

MP & MS: Kazakhstan has a long mining history and culture but it has been a little isolated from the global industry for much of the last century. As international suppliers and consultants become more active in the region, a two-way exchange of ideas follows. These ideas are around equipment, methods of operating, and new technologies.

There is also a need to train the local mining industry in the application and implementation of the new CRIRSCO-style reporting codes that are to be adopted in Kazakhstan. The international financing community is more familiar and comfortable with the CRIRSCO codes, and as Kazakhstan moves to the use of its own CRIRSCO adopted code KAZRC, there will be a role for international advisers to work with local organizations as the new reporting approaches are adopted. The function of the new codes is fundamentally the same as the existing GKZ system but there are material differences in where responsibility lies and the obligations of the reporting professionals.

In addition to the technical exchanges around mining technologies and public reporting, there are issues around environment and safety where increased exchanges are also important.

An area where AMC sees an important change occurring is around the strategy for developing a project, or planning for a continuing operation. There are a myriad of considerations including access to capital, utilization of the mineral resource, the longevity of the operation, and discounted cash flow measures such as NPV and IRR. As new projects are developed and as new players with different backgrounds and priorities enter the market, it becomes critical to identify the project objectives to develop the project such that it addresses all stakeholders’ interests. This involves consideration of project scale, cut-off grade strategy, phased project development, and where alternative projects exist, setting priorities.
In all of these areas, technology, operations, and strategy, Kazakhstan is taking its place in the international community and as it does so it needs access to global experience to augment its own local expertise.

SV: For an Australian company seeking to export or set up operations in Kazakhstan, what challenges and risks should they be wary of? What method of market entry did AMC Consultants take and what lessons can be drawn from this?

MP & MS: Operating in Kazakhstan presents a set of unfamiliar challenges for any new entrant. For mining companies, the issues around the sub-soil legislation are complex and unfamiliar. Similarly, for equipment and service providers, the contracting issues around taxation, local registration and local content have been a challenge and have required significant management effort to understand and comply with. For service providers, where the nature of the service is often a study or investigation and where the path of the work cannot be fully predicted, the use of fixed price contracts is difficult. These contracting conditions will hopefully see some simplification as the sub-soil act that governs them is revised.

AMC has taken a long-term view and has invested in its commitment to work with the Kazakhstan industry over the 10 years since our first projects there. As with all our other markets, we enjoy a good relationship with a number of clients and work repeatedly for them. Having this relationship makes communication and understanding each other’s needs simpler. We believe that our future in Kazakhstan is long term and have managed it that way, we are not there for one job and that attitude motivates our preparedness to invest time and energy in understanding the local systems and knowing the local market and people. That attitude and commitment have always been important to our success in a new region.

SV: Is there an urgent need for Australian technology and services in Kazakhstan? Do the major miners there have an appetite to invest in innovative technologies and processes?

MP & MS: The major miners, be they Kazakhstani companies or international companies, recognize that the best result is likely to come from a combination of local and international experience. There is a local willingness to investigate novel approaches, but with a healthy respect for the risks that being at the cutting edge brings.

Marnie Pascoe

Geotechnical Engineer

Martin Staples

Director / Principal Mining Engineer

This interview first appeared in the Austmine website. AMC thanks Austmine for agreeing to its inclusion in the May 2017 edition of Digging Deeper.