MINING INDUSTRY

Mining and smelting industry is a basic sector of the economy of Kazakhstan has traditionally been the basis for the economy. Kazakhstan is the second largest country of the CIS after Russia and is endowed with numerous economical exploitable minerals and metals. The mining industry accounts for approximately 27% of the Kazakhstan’s GDP. About 90% of all MSS products are exported to above 30 countries making 35% of the total exports of the country. Mineral resources produced in Kazakhstan contain 76 elements of Mendeleev’s table. 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 was the eighth-largest producer of manganese ore in gross weight and ninth in manganese content of ore. Kazakhstan was the CIS's leading producer in chromite, lead, and zinc. The country was also a major producer of beryllium, bismuth, cadmium, chromium, ferroalloys, magnesium, rhenium, titanium, and uranium, and produced significant amounts of arsenic, barite (75% of the former Soviet Union's output), molybdenum, natural gas, phosphate rock, and tungsten. Among other minerals, Kazakhstan produced cobalt, magnesium, nickel, vanadium, and all grades of asbestos, as well as the industrial minerals boron, cement, and kaolin. Kazakhstan had commercial reserves of three ferrous metals, 29 nonferrous metals, two precious metals, 84 types of industrial minerals, and coal, natural gas, and petroleum. The eastern region of Kazakhstan was rich in alumina, arsenic, bauxite, beryllium, bismuth, cadmium, chrome, copper, gold, iron ore, lead-zinc, manganese, molybdenum, rhenium, silver, titanium, and tungsten.

The Republic of Kazakhstan is one of the world's best-endowed states, possessing world-class deposits of minerals and raw materials. Vast quantities of base and precious metals have been discovered, with countless others waiting for discovery and development. Kazakhstan is the ultimate mining and metallurgical country producing 25 different kinds of ferrous, non-ferrous and precious metals. Some 233 mining enterprises produce a wide variety of commodities: coal, iron ore, chromites ores and ferroalloys, alumina, copper, lead, zinc, steel, titanium sponge, uranium, barites and others.

In general, about $55bn 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 $48bn, and reach about $52bn 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..

Kazakhstan has an abundant supply of accessible mineral and fossil fuel resources. According to some estimates, Kazakhstan has the first largest uranium, chromium, lead, and zinc reserves, the third largest manganese reserves, the fifth largest copper reserves, and ranks in the top ten for coal, iron, and gold. It is also an exporter of diamonds.

Precious Metals

Gold Kazakhstan's territory is a major auriferous province. In terms of gold reserves (4% of world deposits), the country occupies seventh place after South Africa, the USA, Australia, China, Russia, Canada and Indonesia, whereas in terms of output Kazakhstan is only among the top 20 countries. Gold reserves are concentrated in 260 deposits in our country (40% in sulphide ore and 60% in gold ore). The Vasilkovskoye Zoloto joint venture, the Bakyrchik mining enterprise, the Kazakhmys Corporation, Kazzinc and the Kazakhaltyn mining company have large gold reserves (together accounting for 52% of the country's total reserves). Gold is being mined at 199 deposits. The Vasilkovskoye mine in north Kazakhstan is considered to be the fourth largest gold mine in the world.

Kazakhstan has many known gold deposits, representing a variety of geological environments. The country has gold reserves reported at over 1 500 t of gold with average ore grades of over 6g/t. At least 60% of these reserves are hosted in lode gold deposits, 38% hosted in polymetallic deposits and the remainder in placer deposits. Currently, most gold is derived as a co product from polymetallic mines. An emphasis is being placed on developing the primary lode gold deposits. It is estimated that at only 40% of Kazakhstan’s gold reserves is economically exploitable using current extraction technology (standard gravity and flotation techniques). Kazakhstan aims at increasing gold production to over 50t per year, but in order to achieve this the industry would require an estimated $1bn. This would ensure the latest technology (e.g. heap leaching) is introduced to the gold sector.

A total of 71 companies are operating in the sector: 48 local, 18 foreign and five joint ventures. These companies have invested about $1bn over the past decade (82% in extraction).

Most extraction (about a half) comes from composite sulphide deposits developed by Kazzinc and the Kazakhmys Corporation. A further 40% is extracted by Vasilkovskoye Zoloto, Altynalmas, Kazakhaltyn, Yubileynoye, Andas-Altyn, Altyn-Tobe and Dank companies which are developing their own gold deposits.

These companies have gold reserves that will last between 10 and 80 years. These resources can be increased through placer deposits, mineralised formations and secondary quartzite that have a quite high concentration of gold in ore. Developing hard and complex ore will also increase the ore base. As a result, according to forecasts, Kazakhstan will become a leading gold producer by 2015.

In 2009 Kazakhstan produced 10,3 thousand ton of refined gold, which is 26% up from the year 2008.

Silver Silver reserves are discovered in 100 deposits of which 60% are cooper-lead-zinc deposits. Silver production is concentrated on affiliated companies of Kazakhmys i.e. Zhezkazganzvetmet and Balkhashzvetmet. In 2009 Kazakhstan produced 673,3 thousand ton of silver, up 7,1% from the year 2008.

Nonferrous Metals

Copper In terms of proven copper reserves Kazakhstan occupies fourth place in the world’s reserves (5,5% of world deposits), behind Chile, Indonesia and the USA. The state register records 93 copper deposits, half of which are being developed. The major enterprises operating in the sector are the Kazakhmys Corporation, Kazzinc, Aktubinsk Cooper Company, Maikainzoloto (in total, there are nine companies, including two foreign).

During the past decade, over $1.7bn was invested in the sector; 99% of this was into extraction. Kazakhstan will be among the world’s top 10 copper producers by 2015. The sector has reserves to last from 20 to 30 years. An additional source that will strengthen the raw material base are a number of sulphide, polymetal and copper disseminated deposits and cupriferous sandstone.

Kazakhstan’s export of cooper concentrate varies between 100-200 thousand tons per year. Main export markets are China, Russia and Uzbekistan. In 2009 Kazakhstan produced 400 ton of refined copper.

Lead, zinc In terms of proven zinc (9,5% of world deposits) and lead (10% of world deposits) reserves Kazakhstan occupies fourth place (behind Australia, the USA and Russia) and sixth place (behind Russia, Australia, Canada, the USA and China), respectively. The state register records 85 lead deposits and 79 zinc deposits. The mining of polymetals is being carried out at 32 deposits, consisting of extraction at twenty (63%), prospecting and extraction at nine (28%) and prospecting at three (9%). The main raw material base is composite sulphide and polymetal deposits in Rudnyy Altay, which produces over two-thirds of the country’s total lead and zinc outputs. Deposits are developed using underground methods. The main enterprise in the sector is Kazzinc. Kazakhmys is involved in collateral production and accounts for a third of the total lead and zinc ore outputs. In total, there are 14 enterprises operating in this sector (11 local, 2 foreign and 1 joint venture) and they enable Kazakhstan to occupy sixth place in the world in terms of lead and zinc production. A new zinc production plan with capacity of 30 thousand tons per year has been built by “Uzhpolimetal”. Another plant with production capacity of 100 thousand tons is under construction by metallurgical company “Shalkiya”.

The sector has reserves to last about 25 years. Replenishing reserves is a topical issue at the moment. The prospects for developing the raw material base in this sector depend on discovering new high-quality deposits, developing major deposits with complex and poor ores and reprocessing scrap metal.

85-88% of zinc production is exported with main destinations as Netherlands, Turkey, Italy, Ukraine and China.

Aluminium (bauxite) In terms of proven bauxite reserves, Kazakhstan occupies tenth place behind Guinea, Australia, Jamaica, Brazil, India, China, Guyana, Suriname and Venezuela. The state register lists 20 bauxite mines. Aluminium of Kazakhstan, which includes the Pavlodar Aluminium Plant and the Krasnooktyabrski and Torgay bauxite mining departments, accounts for the entire bauxite and marketable aluminium outputs.

Investment in mining bauxite totalled $394m in the past decade. Almost all the funds came from Aluminium of Kazakhstan. Kazakhstan is currently producing 4.5 million tn of bauxite a year, and this figure is expected to grow to 5 million tn by 2010.

The sector has sufficient reserves to last about 50 years. Adopting a new technological line at the Pavlodar Aluminium Plant has created conditions to produce alumina from low-quality bauxite which makes it possible to increase the raw material base of the sector from the existing deposits. Technology to extract gallium, aluminium sulphate and sodium-sulphate mixture has been improved to boost the deposits’ productivity.

Kazakhstan does not yet produce metallic aluminium because the main consumers of our raw material are Russian enterprises. However, in December 2007, Eurasian Natural Resources Corporation announced the inauguration of the Kazakhstan Aluminum Smelter (KAS), the first state-of-the-art aluminium smelter in the Republic of Kazakhstan and CIS. KAS has achieved its initial production capacity of 62.5 thousan tons of primary aluminium a year.

KAS is a key element of a significant future aluminium cluster being developed by ENRC within the Republic of Kazakhstan. The $900mln. investment project represents the largest private capital investment in the metals and mining industry in the Republic of Kazakhstan.

KAS’s initial production capacity was 62,500 tons in 2007, 125,000 tonns in 2008 and will rise to 250,000 tons by 2011. The smelter, which will work in close partnership with ENRC’s Aluminium of Kazakhstan (AoK), is poised to service the growing demand for aluminium both in the Republic of Kazakhstan and worldwide.

Nickel, cobalt In terms of nickel and cobalt reserves Kazakhstan occupies twelfth and seventh places in the world, respectively. The state register records 39 nickel deposits and 55 cobalt deposits. Kazakhstanskiy Nikel, Kyzyl Kain Mamyt and the Sokolov-Sarbay Ore-enrichment Production Association own major deposits. Five companies, two foreign and three local, are operating in the sector.

They invested over $1bn in the sector during the past decade, 63% in extraction.

Almost the entire Kazakh nickel output is exported. Taking into account that the sector has reserves for many years and the growing world demand for nickel, intensifying extraction and enriching and processing nickel ore are topical issues for Kazakhstan.

Ferrous Metals

Iron, manganese In terms of proven iron reserves Kazakhstan occupies sixth place in the world (behind Russia, Australia, Ukraine, China and Brazil) and fourth place (behind South Africa, Ukraine and Gabon) in terms of manganese. The iron and manganese sector is a major sector in the country’s raw material industry. The state register records 47 iron deposits and 31 manganese deposits. Orken, the Sokolov-Sarbay Ore-enrichment Production Association, the Zhayrem Ore-enrichment Combine and the Kazkhrom transnational company have largest raw material bases (accounting for 98% of the entire industrial reserves). Mining iron and manganese is being carried out at 32 deposits, with prospecting at seven (22%), extraction at 10 (31%) and both activities at 15 (47%). There are 23 companies operating in the sector, of which 3 are foreign and 20 are local.

They invested $1.7bn in the sector over the past decade – almost all of it went to extraction. Kazakhstan is expected to produce 55-60 million tn of iron ore and 4-5 million tn of manganese ore in 2010 and 80 million tn and 7 million tn, respectively, in 2015. The current output levels provide the enterprises with reserves for over 80 years in terms of iron ore and over 100 years in terms of manganese ore. This is enough not only to fully satisfy the demands of domestic ferrous metallurgy, but also to allow for efficient export activities.

Chromium In terms of proven chromium reserves our country is an unconditional leader – Kazakhstan has a third of the world’s chromium reserves. The raw material base of the local chromium sector is the most qualitative and competitive sector. The state register lists 23 deposits with almost all industrial reserves owned by the transnational company, Kazkhrom. Mining is being carried out at nine deposits owned by Kazkhrom and one by Voskhod-Oriel. The sector attracted investments totalling $1,092.7m in the past decade. The Our country is currently producing about 4 million tn of chromium ore and this figure is expected to grow to 7 million tn in 2010 and 9 million tn by 2015.

The chromium reserves are enough to last for over 90 years. The raw material base covers both domestic consumption and the country’s export potential. In addition to investing in developing fuel and energy resources, precious, non-ferrous and ferrous metals, investment is being made in mining precious stones (diamonds and emeralds), rare metals (for example, tungsten and molybdenum) and other natural resources (including widespread ones), underground waters and mud used in medical treatment.

The investment activities of mining companies have had and are continuing to have a positive impact on the country’s socioeconomic development. Mining companies spent $63.4m on training and education and $195.8m on the social sphere. The share of companies with foreign involvement in the total amount of investment was 16% a decade ago, whereas this figure stood at 76% last year.

EURASIAN NATURAL RESOURCES CORPORATION (www.enrc.com)

ENRC - is a diversified natural resources group with integrated mining, processing, energy and logistical operations. It is a public company traded on London Stock Exchange and the Kazakhstan Stock Exchange, with the Kazakhstan government holding 11.65%

Strategy & Mission:

The Group's Mission is to achieve growth as a leading natural resources group and to enhance overall value for its shareholders. The key elements of this strategy are:

• Maintain low cost operations
  
• Continue expansion and development of the existing reserves and capacity
• Add value and customer diversity by expanding the production portfolio
• Expand the asset portfolio and footprint in the natural resources sector, both within the region and worldwide,
• Commitment to high standards of corporate responsibility, with particular reference to health and safety

Vision:

With our production centred in Kazakhstan, and our structure and processes amoung the most developed and efficient, we are perfectly positioned - geographically and as a business - to extend our strong regional presence as the market for natural resources shifts eastwards towards Russia, China and India.

Utilising our proven expertise and experience in exploration, our approach is to acquire further long-term, cost-competitive operations and transform them into world-class businesses through entrepreneurial management and sustained investment.

We believe that solid growth, achieved through constant acquisition and development, is the best way to create maximum value for all.

Operating efficiency - underpinned by tight financial control, judicious use of capital and strong balance sheets - remains key to the group's long-term security.

At the same time, we are a very customer-focused organisation, constantly adapting ourselves and what we produce to the changing needs of our customers.

We aim to recruit the best managers in the business and empower them to take the bold, decisive action required in such a competitive market.