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Kazakhstan Mining Report Q1 2010
Business Monitor International, Jan 2010, Pages: 65
Kazakhstan Mining Report provides industry professionals and strategists, corporate analysts, mining associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Kazakhstan's mining industry.
Despite the impact of the global fall in metals and commodity prices, the authors expect strong growth in the Kazakh mining industry over the forecast period to 2014. In Q309 production levels in the mining industry started to recover, with some companies managing to return to 2008 output levels. Meanwhile, although Q309 prices were still down year-on-year, they were up compared to Q2. The authors demand to strengthen, fuelled by Chinese recovery and early signs of stabilization in the US, Europe and Russia. However, despite the positive outlook for 2010, we should bear in mind that industry volumes and prices are still quite volatile. The total value of the mining industry should reach US$23.78bn and is expected to hover around this value for the next couple of years. However, we estimate that the total value of the mining industry is likely to grow at a faster pace after 2011 to reach US$35.27bn in 2014.
The report expects uranium to be a major draw for foreign investors in Kazakhstan. Kazakhstan possesses the world's second-biggest uranium reserves, estimated at 1.5mn tonnes, and is currently the world’s third largest uranium miner. The substantial potential of this sector of the mining industry, however, is dependent on improving regulations as well as efforts to limit the role of the grey economy. The EU is likely to be one notable customer. In 2009, the EU operated 197 nuclear reactors but had an additional 67 under consideration for construction. Demand for uranium will also be driven by China and India, which zre both expanding nuclear power capabilities from relatively low bases. Indeed, China has recently declared its commitment to implement energy efficiency and fuel switching programmes and should switch to non-fossil fuel sources like nuclear energy and renewables.
In September 2009 Kazakhstan's largest mining company, Eurasian Natural Resources Company (ENRC), made a GBP584mn cash offer for Camec, a mining company from the Democratic Republic of Congo (DRC). Given that Camec turned into a penny stock in October 2008, as investors fled industrial metals and political risk, the authors have some reservations about the deal. However, political risk makes for a cheap price tag. Camec has the best operating production site in Congo, and its capacity could reportedly be raised to 100,000 tonnes from 30,000. Also, ENRC no doubt has a regional strategy in mind, as Camec has a platinum plant in Zimbabwe, a coal project in Mozambique and a bauxite deposit in Mali. Also in 2009, Kazakhstani copper company Kazakhmys halted production in its higher cost mines in order to make vital savings. As a result, the company’s production levels were impacted throughout most of the year. However the restructuring drive has been largely successful. Kazakhmys has announced that it managed to cut costs by 20% in 2009, while registering only a 10% drop in production. The mine closures were partially offset by stockpiled resources and increased production capacity in the remaining locations.
Production is now on the rise again as a result of increased demand from China, on the back of government stimulus spending. Revenues for H209 are expected to grow quarter by quarter, reflecting higher sales volumes, but will still be limited by the higher production costs. The threat of oversupply still remains for Kazakhmys as it does for other companies in the metals sector in 2010.
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