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In This List

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Kazakhstan attracting miners' interest but caution persists

Ten months after Kazakhstan implemented its new mining code, interest in the Central Asian nation's mineral sector is growing, including from large international miners, SRK Consulting (Kz) Ltd. General Director Mike Beare told S&P Global Market Intelligence, highlighting the country's potential in both gold and base metals.

The Kazakh market has picked up "quite remarkably" in the first quarter of the year, according to Beare who heads SRK's office in Almaty, attracting interest from major international mining companies as well as from local majors and a state company. He is seeing interest for copper, gold and chromite assets, but manganese and vanadium are also popular. Parties are also interested in exploration assets, he added.

Kazakhstan, the world's ninth-largest country by area, has in recent years looked to attract foreign investors to help develop its mining sector, which accounted for 14% of the Eurasian republic's GDP, according to government figures from September 2018.

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Overhauling its Soviet-era mining code has not been straightforward, however, and the extent to which the new code reduces red tape around obtaining subsoil rights is not clear yet, according to Central Asia specialist Florence Cahill, a senior analyst at consulting firm GPW.

"For months the new code existed alongside the old one while corresponding regulation was developed," Cahill said. "Investors on the ground we spoke to ... complained that the 'double system' — a sort of hybrid between the old and new systems — is still in place despite the end of the scheduled transition period from the old to the new code."

The new Code on Subsoil and Subsoil Use was signed into law at the end of 2017 by former president Nursultan Nazarbayev and brings Kazakhstan's former reserves and resources evaluation and reporting standards, GKZ, in line with Committee for Mineral Reserves International Reporting Standards, known as CRIRSCO, over a five-year transition period. The comittee, which is a grouping of resource code- and guidelines-setting bodies from around the world, issued standard definitions for resource classification in 2012.

The code, based on the Australasian JORC principles, streamlines and accelerates the licensing process by introducing a first-come, first-served system, which seeks to encourage exploration, but also guarantees exclusive production licenses later on. Meanwhile, changes to the national tax code have done away with obligations at the exploration stage, and more geological information has been made available.

Having two types of license, rather than three as before, is intended to streamline the transition from exploration to production, Cahill said, but there are also rigid deadlines to meet as the new code requires companies to get a production license before an exploration license expires, or risk losing the exclusive right.

Exploration

"On paper, the new code is a really attractive prospect for foreign exploration companies," Cahill said. However, "there hasn't yet been the great influx of investment that Kazakhstan envisioned."

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While the changes have drawn some interest, particularly from investors already interested Central Asia, many companies are holding back until they have a clearer idea of how the code will work, according to Cahill.

Nevertheless, 70 exploration licences have already been granted under the new mining code, covering 100,000 blocks, Vice Minister of Industry and Infrastructural Development of the Republic of Kazakhstan Timur Toktabayev said in an emailed statement.

Furthermore, Kazakhstan's largest iron ore producer, Sokolov-Sarybai Mining Production Association, part of privately held Eurasian Resources Group SARL, has applied to switch all of its contracts to the new licensing system, Toktabayev added.

Eurasian Resources did not respond to requests for comment.

From old to new

A lot of the transition is already in hand according to Beare — "[the government] are really trying to open up and help companies take up licences," he said. "They are trying to make a system where anyone can take out a license and do exploration and then make a discovery."

The hardest part however, Beare said, is dealing with known deposits, noting that the government is obliged to put them up for auction, a step that is shortened under the new code yet still represents another layer in process.

"At the time of independence [late 1991] there were over 1,000 deposits on state ballots, and now there are less than a hundred of those that were right for sale — many have been mined, exploited, sold, developed," Beare said. "The project pipeline in Kazakhstan needs to be developed, and needs juniors to come here and find the next generation of deposits."

Under the new code, the most attractive option for investors involves discovering new deposits because that bypasses the old licensing system, Beare said. "But obviously there are lots of companies that want ready-made projects so it is not going to be for everybody."

Implementation

Cahill said more time is needed to clarify specifics about whether and how the country will be selective about implementing the various parts of the code. For example, "it is unclear in practice whether Kazakhstan might selectively seek to withhold access to certain types of geological data deemed to be strategic," she said.

"Another issue is that the new code still gives preferential treatment to Kazakhstan in certain areas," she said. "The attractive sides of the code are countered by the fact that it leaves intact many of Kazakhstan's prerogatives with regard to subsoil assets classed as strategic, for instance the major oil fields and mines that meet a certain threshold in reserves."

There are already signs that it is mainly Kazakh companies lining up to take advantage of the new first-come, first-served system, whereby rights that have not garnered investors' interest can be granted without going to auction, according to Cahill.

However, Kazakhstan, and to a lesser extent Central Asia generally, is more attractive to investors than some frontier markets in Africa in terms of risk and political stability, Beare said.

"It has taken a little while with the new code," Beare said, but "people are waking up to Kazakhstan now."