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Development Strategy for the Mining Industry in Kazakhstan: Trends, Challenges, and Investments

This document outlines the main trends, uncertainties, and challenges that the mining industry in Kazakhstan will face in the next 10-20 years. It also highlights the importance of sustainable development, regulatory environment, and social context. Additionally, the document discusses the need for increased investments in the mining industry and the government's role in supporting its development.

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Development Strategy for the Mining Industry in Kazakhstan: Trends, Challenges, and Investments

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  1. «Tau-Ken Samruk» NMC» JSCDevelopment Strategy for2017-2026

  2. Supply Demand Market The next 10-20 years the mining industry will encounter a range of trends and uncertainties that will affect its development • Main trends and uncertainties in the mining industry Sustainable development, regulatory environment and social context • Forthcoming operational and cost disadvantages (e.g., skill/energy/water shortages, moderate performance indicators) • Decline in production (capital and operational costs) • Growing importance of environmentally safe production and focus on the local suppliers/communities support • Small skilled labour force • New market players (e.g., Chinese, Indian companies) Resources and Implementation conditions Macroeconomic situation • Global macroeconomic shocks/slowdown in growth • Funding problems (both classic loan-based and alternative financing) • Downturn in IPO, M&A • Higher taxation, including mineral tax • Beneficiation encouragement • “Resource nationalism" • Process enhancement (e.g., data and automation application in engineering and estimates, mining and processing) • Minerals depletion and low ore quality • Isolated location of deposits that entail operational and infrastructure complications • Raised project costs and ensuing focus on capital productivity enhancement • Urgent need in effective exploration

  3. Investments in mining industry of Kazakhstan are at a much lower level compared to countries with similar investment attractiveness Investments in the mining industry and investment attractiveness • Investment attractiveness indicator1Maximum= 100 • 90 • Australia • 85 • Canada • Finland • USA Rate of Kazak Mining and Metals investment attractiveness considerably raised from 51 to 75 in 2015. Factor analysis proved that the positive change was mainly due to the legislation enhancement based on global best practices, reduced uncertainties in environmental regulation, upgraded infrastructure and quality of geological database • 80 • Chile • Sweden • 75 • Kazakhstan • 70 • Mexico • Peru • Indonesia • 65 • Russia • Brazil • 60 • China • RSA • Zambia • 55 • 50 • India • 0 • 0 • 20 • 40 • 60 • 80 • 100 • 120 • 140 • 160 • 180 • 200 • 220 • 240 • 260 • 280 • 300 • 320 • 340 • 360 • 380 • 840 • Costs per sq. km2USD/sq.km 1 Fraser Institute Index. A weighted value, where 40% falls on the perception of politics and 60% on the mineral resources potential 2 Exploration investments in the country per 1 sq.km Source: Frazer Institute, SNL Financial, Work Group analysis

  4. Goals of the Government outlined in the public speaking of politicians Government participation in the mining industry of Kazakhstan should be retained Reference percentage • Applicable to Kazakhstan • Encouragement of investments in the mining sector • Growth of mineral production • 29 Economic development in the country • 19 Ensure future welfare • 6 • Ensure privileges to the local communities State-owned property • 2 Environmental protection • 12 Social development and new jobs in the region • 6 Occupational safetyand human rights • 3 • Retaining mining industry profits within the state Normally increased share of Government participation is practiced National revenues (e.g., tax, subsoil use deductions) • 8 Other government issues(e.g., anticorruption efforts) • 4 Domestic supply • 4 • Increase of state control in the minerals sector Political or strategic control of minerals • 7 SOURCE: citations of politicians (2010-2014)regarding mineral sector in Australia, Canada, Chile, Ghana, Brazil, Sweden, Botswana, Russia, South Africa, India, Mexico, China; media and Internet review

  5. Vision Meaning TKS new strategic vision Driver of mining industry development in the Republic of Kazakhstan, where meaningful and complex deposits are developed, with involvement of best technologies and partners. • Governmental support in terms of access to assets1, infrastructure development2and otherpreferences3 • Implementation of different-scale projects with different priority commodities • Direct, indirect and induced employment, and GDP growth • Development of complex deposits and skills upgrade (including the planned foundation of research and development center) • Reliable4partnerships with small and large businessesabroad 1 First refusal of any deposits acquisition (strategic and non-strategic ones), retaining the right of direct negotiations, etc. 2 Construction of railways, highways, pipelines, power lines for deposits development . 3 Co-investment of 20 to 40% of the project cost through Samruk-Kazyna, JSC to get a loan-based funding. 4 With proven experience of projects implementation SOURCE: Work Group analysis

  6. Company’s Mission and Vision Company’s main records by 2026 Mission to develop mining and metals sector in the Republic of Kazakhstan by successful implementation of investment projects and efficient operation of priority solid minerals assets based on sustainable development principles 1 • Medium and smallprofitable assets with a long operational period and steady annual cash inflow subsequently distributed and reinvested in new projects. 2 • Active search for new investment projects. Vision determines the Company as a driver of mining industry development in the Republic of Kazakhstan, where meaningful and complex deposits are developed with involvement of best technologies and partners. • Foundation of Research and Development Centrebased onNazarbayev University to facilitate innovation activities. 3 • Engagement of competent engineering and financial partners in the projects. • Attraction of a strategic investor until the end • of 2020. 5 4

  7. 4priority solid minerals Number of commodity items left Current strategy Previous strategy Priority solid minerals Titanium is under consideration • 75commodity items in the international market 75 74 55 54 1 • Availability in Kazakhstan 36 36 2 • Market share more than USD 1.0 billion • Minerals should be produced as core rather than associated components 29 30 3 19 19 4 • Consumption should not depend on the local market only 16 16 • Exception of basically unattractive opportunities for Kazakhstan 5 7 8 6 • Exception of solid minerals developed by major players 4 7 • Market outlook Other solid minerals will be considered in case of RK and its partners strategic interest or significant economic attractiveness of the project • Gold • Copper • Zinc • Lead SOURCE: Work Group analysis

  8. Strategic initiatives focused on TKS objectives within the chosen business model • 2020-2026 • 2017-2019 • Initiatives on becoming an industry driver • Assets sale • Acquisition of new assets • Reinvestments in new projects • Skills development initiatives • Implementation of the current projects • Search and building relationships with the external partners • Search of possible assets for organic and inorganic growth • Organizational chart restructuring and expertise development for searching and implementation of new projects SOURCE: Work Group analysis

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