Kazakhstan – Tau-Ken Samruk is open for foreign investors – Kanat Kudaibergen

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Kanat Kudaibergen

(Exclusive interview with Kanat Kudaibergen – CEO of JSC NMC Tau-Ken Samruk)

Excellent conditions for business development and mineral wealth-rich subsoil make Kazakhstan very attractive for investors, so the authorities’ plans on privatization of the national operator of state-owned mining assets, Tau-Ken Samruk, are of their increased attention. What methods of the company privatization are being considered, what other assets can be transferred to it in order to increase attractiveness for investors, and on what conditions Tau-Ken Samruk is ready to enter new projects, Kanat Kudaibergen, Chief Executive of Tau-Ken Samruk, to tell in the interview with RIA Novosti:

– In 2017, the management of your parent company (Samruk-Kazyna) reported that it planned to realize JSC NMC Tau-Ken Samruk to the strategic investments. At what stage is this question?

– The issue of realization of JSC NMC Tau-Ken Samruk to the strategic partners is ambiguous. To date, there is no certainty, whether it will be carried out through IPO, direct sale, or equity participation.

The management of Tau-Ken Samruk believes that one of the best ways is to enter the IPO after consolidating all mining assets that are now owned by the state. We consider that in such a way the company’s assets will demonstrate a gradual and steady growth. Growing business is always of interest of the investors. For example, we will complete construction of ShalkiyaZinc – the value of the company will increase. We will launch Alaigyr – another value-adding. Northern Katpar will produce its first products – it will also positively affect the attractiveness of the company’s shares for investors.

We presented our conceptual vision of the company’s realization prospects to the strategic investors to the Fund (Sovereign Wealth Fund Samruk-Kazyna – Editor).

It is also planned to attract international consultants who will explore all the possibilities and draw the appropriate conclusion about which option is the most feasible. The Fund will take final decision given this conclusion.

– In 2018, JSC NMC Tau-Ken Samruk updated its development strategy for the period up to 2028. What are the goals and objectives of the company?

– Yes, indeed, we updated the development strategy and set goals: the formation of a high-quality diversified asset portfolio and their further development together with strategic partners. We are reviewing the existing portfolio of projects and are looking for new ones. We also consider the possible transfer of any mining assets owned by the State from the Government.

Tau-Ken Samruk is focused on the development of gold, copper, and lead-zinc deposits. However, we also participate in the implementation of projects on other metals (Northern Katpar and Upper Kairaktinskoye – tungsten and molybdenum, Massalskoye – iron). We also see prospects in the development of the rare metals and rare earth elements sector, which have great growth potential.

I want to underline that we are open to investors, both Kazakh and foreign, and are ready for various options for mutually beneficial cooperation. In particular, National Company Tau-Ken Samruk does not pretend to control shares and operational management in joint projects. The Company will own minority stakes and participate as the Government’s representative, while providing full support to investors in the development of joint ventures.

In general, quite favourable conditions are formed in Kazakhstan for doing business in the mining industry. The country has significant reserves of mineral deposits, world-class deposits. The Kazakh land contains 99 elements of the Mendeleyev’s Periodic Table, reserves on 70 of them are explored. Kazakhstan ranks second in terms of uranium and chromium reserves, fourth – in manganese and silver, fifth – in lead and zinc.

The Government uses best endeavors to create comfortable environment for investors. The Republic of Kazakhstan takes the 36th place in the World Bank’s Doing Business ranking, and the first place in “protecting the rights of minority investors” category.

– What company assets are key one? Tell us about the progress of these projects.

– Shalkiya and Alaigyr are our key investment projects.

The Loan Agreement was signed with the EBRD for the construction project of the mining and processing plant at Shalkiya lead-zinc deposit, the funds were allocated and now, the relevant tender procedures to be carried out within the bank’s rules. We will launch the construction of the mine this year.

The project of mining and processing of polymetallic ores of Alaigyr deposit is financed by the Eurasian Development Bank, and active construction is already in progress there.

Essentially, these are projects for which there is reserved money, we are ready to finance and carry out work. However, in parallel, we are looking for strategic partners that, at some stage may share the risks of financing with us. For example, active negotiations with a large Turkish company are in progress on Alaigyr project, but they have not yet reached their logical conclusion now.

– In 2017, it was reported that the construction of the first stage of the processing plant of ShalkiyaZinc LTD JSC with a capacity of two million tons of ore per year, as well as related facilities of MPP is scheduled for completion in 2019. Reaching its design capacity with a productivity of 4 million tons of ore per year was scheduled for 2021. Have these plans been changed?

– The plans have been changed. The tender procedures took a long time under the rules of the EBRD. Now these questions to be completed, we entered the homestretch. As I have already said, this year we plan to launch the design and construction of facilities of MPP.

– Let’s speak about existing production facilities. In 2017, Tau-Ken Altyn LLP exceeded its plan, having produced 18 tons of refined gold. What are the results of the company in 2018? What is the plan for 2019? When, in your forecast, will the enterprise reach its design capacity? Are there any plans to expand it?

– Yes, in 2018, Tau-Ken Altyn plant also exceeded the production plan. It was planned to refinish 20 tons of gold, and, actually, 22.7 tons were produced. We are absolutely convinced that in 2019 we will reach the design capacity – 25 tons of refined gold. The increase in gold production in Kazakhstan as well as the fact that we have worked out the issue of the cost price of gold refining, have improved conditions for our suppliers – all these factors contributed to the abovementioned plan exceeding.

Due to the optimization of technological processes, we have achieved that the plant today is able to double the design capacity without additional investments.

Our goal is to increase gold production in the country. According to statistics, in 2017-2018, we mined over 80 tons of gold. However, no more than 45 tons fell to domestic refineries. There are a number of factors that prevent the gold ore mined in Kazakhstan from being processed in domestic refineries.

The first is the lack of capacity. Small companies cannot afford the construction of gold mining plants, respectively, they export gold in the form of ore. We need a sufficiently high cooperation between large companies that have gold extraction plants and small ones that could be processed there.

The second is legal issues. In some cases, our gold in the concentrates, as a passing metal, is not taken into account at all. So, now we bring up this problem to the Government level.

In addition, we actively work with junior companies. Now, at the initiative of the National Mining Company Tau-Ken Samruk, the Association of Gold Mining Enterprises is being created, it is intended to resolve the issue of cooperation and consolidation of medium and small companies, to exclude all “shady” schemes. Fortunately, the Code “On Subsoil and Subsoil Use”, which entered into force last year, makes it possible to introduce activities of prospecting companies into circulation.

– Currently, Kazakhstan’s Tau-Ken Altyn refinery receives gold from the Varvarinskoye field of Polymetal company. What are the refining volumes last year, what are the prospects for the current year? How effective is the cooperation, is it possible to expand it with participation of the other Russian companies?

– Our cooperation with Polymetal company is developing well. They supply us with gold-bearing raw materials, mainly from Varvarinskoye field. We know that Polymetal is

increasing volumes at the expense of Bakyrchik field. Last year, we received an insignificant amount of raw materials from that field, but already this year we are counting on a significant increase in supplies. Over the course of several years, we have been successfully working with another Russian company, Nordgold, we maintain constant business relations with the Ekaterinburg Refinery.

Given that there are legislative restrictions on the export of gold both in the Russian Federation and in Kazakhstan, we believe that it is necessary to expand cooperation on tolling terms.

This year, we used the export insurance mechanism for the first time when selling refined silver to Russian jewellery companies. The experience was successful; we are ready to continue such interaction in future.

At that, I should underline that Russian companies are rather poorly represented in the mining industry of Kazakhstan. For example, is we can see high interest from Chinese or Turkish companies, then Russian business does not show such activity? Taking into account the territorial proximity, lack of legislative and language barriers, opportunity of moving labor and financial capital within the EAEU, I am sure that we can significantly expand the range of cooperation with Russian companies.

– When can a deal on the sale of Turkish Lidya Madencilik gold deposit at the South Moiyntinsky area be concluded? Is it still a 100 percent stake?

– With Lidya Madencilik, we are at the stage of signing an agreement on the alienation of the right to use subsoil. The gold-bearing deposit – Southern Moyintinsky area – is small in terms of reserves. Its estimated resources are about 8.5 tons of gold. National Company Tau-Ken Samruk, according to its new development strategy, focuses on the development of deposits with reserves of at least 25-30 tons of gold. Southern Moyintinsky area does not meet these criteria, thus, it was taken a decision to withdraw from the project.

By the way, at the moment, we have several projects to which we invite potential investors. We sell some small assets in full (for example, Progress, Shokpar, Gagarinskoye gold deposits), in some assets we sell the shareholding. I should note that such proposals are of keen interest among investors, especially junior companies.

– What projects does your company implement in cooperation with Chinese partners? What are the prospects for this cooperation? In particular, at what stage is the Massalskoye iron ore development project?

– We have been conducted negotiations on Massalskoye deposit with the large Chinese company for a long time. Initially, it was assumed that the potential partner would act exclusively as a contractor for the construction of the Massalskoye MPP. However, we abandoned that idea in the process, since, given the characteristics of the deposit, in particular, the low iron content in the ore, the project cost was very high.

According to the new development strategy, Tau-Ken Samruk participates in the implementation of large projects only under the condition of attracting a strategic investor. We offered Chinese partners to take and share the risks, but they refused.

Now, it is necessary to completely change the technological scheme of the development of the deposit and ore dressing. Possibly, we will use direct iron reduction or other optimal technologies to reduce capital costs. There are issues about the final product. Perhaps, it will not be a rolled steel, but, for example, blanks for metallurgy, it will provide for a wider market.

In general, we want to get a cost-effective, profitable project. The work in this direction is in progress, I think we will resolve this issue by the end of the year.

– At what stage is the implementation of the project for production of high-added tungsten products with the participation of Chinese investors? Are there specific plans for the development of large tungsten deposits – Upper Kairaktinskoye and Northern Katpar? How favorable generally is the situation on the tungsten market for the implementation of such large projects?

– Northern Katpar and Upper Kairaktinskoye are two fields that are located 30 kilometers from each other. Upper Kairaktinskoye is one of the largest in the world in terms of reserves.

I confess, we have been looking for partners for quite a while before Xiamen Tungsten responded. This is a public company, their shares are listed on the Shanghai Stock Exchange, Sumitomo Corporation from Japan and European Sandvik are among its shareholders.

Initially, potential investors expressed interest in only one field – Northern Katpar. The Upper Kairakty was not interesting to them, because, in fact, the content (of tungsten) is low there, although the deposit is much larger in terms of reserves. In addition to the impressive capital costs for the development, it is extremely important to fine-tune the technological processes.

Preliminary works were carried out during almost a year. Through negotiations, constant exchange of information, we agreed to start a transaction with the condition that the Chinese partners acquire our share in the company – 67%, and 33% is owned by Tau-Ken Samruk. At that, we have a blocking stake package and influence the project management process.

At the moment, Chinese investor is conducting a comprehensive analysis of deposits (due-diligence). Given the complexity and financial capacity of the project, the investor is also considering the option of attracting a group of partners from Japan, the EU and China, and the relevant negotiations are is progress.

The construction of two mining and processing plants is scheduled on the basis of Northern Katpar and Upper Kairaktinskoye tungsten deposits. The resulting concentrate will be processed on a single hydro metallurgical complex.

I can definitely say that this project is very important for us. First, the country will enter a completely new market and become its key player. Approximately, we will annually produce up to 12 thousand tons of powdered ammonium paratungstate. We look forward to take second place in the world in the production of tungsten products given such indicators.

Second, it is a technology transfer. Our goal is to attract not only finance to Kazakhstan, but also international experience and technologies of our partners. Today, Kazakhstan does not have an enrichment technology that corresponds to the peculiarities of the ore of domestic tungsten deposits. Xiamen Tungsten, on the other hand, has great competencies in the development and enrichment of tungsten.

Finally, Kazakhstan will receive a huge positive effect in the form of taxes, dividends, and social issues solvation.

As for the influence of the situation on the world market of tungsten on the project’s prospects – there are risks, of course. Since the content of valuable components in the ore, the technological indicators of extraction and other factors are lower than that of similar tungsten deposits in the world, the implementation of Northern Katpar and Upper Kairaktinskoye projects implies the maximum possible increase in production capacity.

At the same time, a significant increase in finished-product output is limited by the factor of potential oversupply in the market, and, as a result, the risks of lower prices for tungsten concentrate and ammonium paratungstate.

– Does the company negotiate the acquisition of new projects? Does JSC NMC Tau-Ken Samruk consider investing in overseas projects?

– Yes, we are moving in this direction, we are analyzing free and private fields and production; we are carrying out active negotiations, and due diligence studies. Our priority is to develop the local market, but we are ready to consider foreign high-quality assets, for example, currently, we are studying materials on several Russian fields.

But, let me stress it once again, we are ready to enter projects only together with strategic partners.

– Currently, JSC NMC Tau-Ken Samruk is a partner of Glencore International and owns a 29.97% stake in the share capital of Kazzinc LLP. Does the company have plans to change the size of this share?

– Yes, our share in Kazzinc LLP is 29.97%. There are no plans to change the size of this share. We maintain our status and, together with Glencore International, develop this project.

– How successful was the whole year 2018 for the company?

– 2018 was make-or-break year for us: due to the adoption of a new strategy, we revised many aspects of our operations. A number of practical steps have been taken, mainly due to the attraction of investments in the mining industry.

In terms of operational activities: Tau-Ken Altyn has reached a good level; we are carrying out restoration works at Tau-Ken Temir plant, where metallurgical silicon is produced. As I’ve said before, we completed the design on Alaigyr investment project and moved to the stage of active construction. On Shalkiya, we summarize the tender outcomes. Revenues from the participation share in Kazzinc LLP has increased by 15% as compared to the previous period, respectively, we plan to pay a fairly good dividend amount to Samruk-Kazyna JSC following results of 2018.

– How, in your opinion, has the potential of Kazakhstan in terms of solid minerals been realized today? What are the most promising areas in the coming years? What are the main challenges in realizing this potential?

– I think that, of course, the potential of Kazakhstan in terms of solid minerals is not fully realized. The country has not carried out exploration works to a depth of more than 200 meters. At such a depth, there is a probability of finding industrially significant deposits.

In general, the development of the mining and metallurgical industry of the country is hampered by several serious problems. These are insufficient investment attractiveness of existing subsoil use facilities (due to low content, small reserves, complex mineralogical composition of ores), lack of new deposits, and, finally, insufficient development of the country’s innovative and technological potential.

National Company Tau-Ken Samruk offers a set of measures to solve these problems. First, it is extremely important to pay special attention to exploration issues. Geological exploration (GE) in a volume sufficient for the full reproduction of the mineral resource base, requires a significant amount of funding. In Canada, for example, an average of US$200 is invested in GE per one square kilometer of territory. In Australia – about US$170. Whereas, in Kazakhstan this figure does not exceed US$10.

We suppose that the vertical integration of National Company Tau-Ken Samruk and Kazgeology will give a new impetus to the development of the geological exploration sector and the metallurgical industry adjacent to it. Exploration should be integrated with the subsequent production and withdrawal of objects to target volumes. We know that the control over the full technological cycle (from exploration and production to the processing of raw materials) gives a steady positive result on the example of many successful companies in the world.

Second. We need to combine science and the real sector. For this purpose, we propose to open an integrated research and production and analytical center on the basis of the Almaty Institute of Metallurgy and Enrichment and the Institute of Nuclear Physics that will deal with applied science. Thus, we will provide existing and future enterprises of the mining and smelting complex with new technologies, which, in turn, will contribute to the growth of their profitability. It is planned to create a test center and laboratories with international certificates of conformity.

Finally, today the issue of consolidating state-owned mining packages in Tau-Ken Samruk has brewed. As National Company, we have the necessary experience and expertise in the effective management of mining projects. We consider that the consolidation of state-owned assets will contribute to the fullest realization of the potential of the mining and metallurgical industry in the country.

All these proposals of the Sovereign Wealth Fund have already been submitted to the Government of Kazakhstan.

Edited by Dr Shahid Qureshi Group Chief Editor

views expressed are not of The London Post

 

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