Clare Nuttall in Almaty -

The rally in global commodity prices that started in late 2009 and persisted throughout last year has put Kazakhstan's mining sector back on track after some severe setbacks during the international economic crisis. Now the mining sector's two giants, Eurasian Natural Resources Company (ENRC) and Kazakhmys, are reviving their investment plans, as are many smaller players.

Kazakhstan's mining sector contracted by around 12% in 2009 after a decade of sterling growth. This trend was reversed the following year as prices for some of the country's main exports including oil and copper revived. Modest growth of around 7% is forecast for this year.

To take advantage of the improving climate, Kazakhmys said it plans to spend $6bn over the next three to four years to develop new deposits, modernise and expand its existing metals business, and launch new energy projects. ENRC has $7bn of investment plans, and the country's largest steel producer ArcelorMittal Temirtau is partway through a $1.2bn programme to modernise its plants and improve its safety record.

Best China

China remains the largest consumer of Kazakhstan's metals and minerals. Oil and oil products comprised 56% of Kazakhstan's exports to China in the first 10 months of 2010, making it one of the top-10 oil exporters to China. Mining products - ore, slag and ash - accounted for 14.0%; copper and brassware for 13.7%; chemicals and isotopes for 7.3%; iron and steel for 5.8%; and zinc and aluminium for 1.5% each. "Almost all Kazakhstan's exports to China are raw materials, and China overtook Italy as the country's leading export partner in late 2010, accounting for 17.6% of all Kazakh exports," according to a recent report from Renaissance Capital.

Unsurprisingly, China is also behind some of the largest investments being made in the sector.

Kazakhmys is developing two major copper deposits, one only 225 kilometres from the Chinese border. Kazakhmys announced in April 2010 that it was setting up a joint venture with China's Jinchuan Group to develop the Aktogay project in east Kazakhstan. Kazakhmys agreed to sell a 49% stake in the project to Jinchuan for $120m, and the two companies will also share the costs of developing the deposit, which are estimated at $1.5bn-2bn. According to Kazakhmys, Aktogay is one of the largest undeveloped copper deposits in the world, and the company's output will increase by around a third once it comes online. In 2009, Kazakhmys obtained a $2.7bn loan from the Chinese Development Bank to finance its Bozshakol and Bozymchak projects. Bozshakol is due to start production by end-2015.

In February, the Chinese Development Bank announced it has also extended a $2bn loan to ENRC on the same terms as that given to Kazakhmys in 2009. Of this total, $1.6bn is expected to be used by the iron ore division and $400m for the ferroalloys division. Like Kazakhmys, ENRC has ambitious expansion plans, and at the beginning of this year the company's then CEO Felix Vulis announced the company expects to invest up to $7bn to develop its assets within Kazakhstan. Key projects at home are the construction of a ferroalloy plant in the Aktobe region and the expansion of the Sokolovsko-Sarbaiskoye Mining Association. ENRC may also invest up to $2bn in the Zhairem polymetallic project. While firmly rooted in Kazakhstan, ENRC is also expanding overseas. It has made several investments in Africa and South America.

Another company well positioned to take advantage of Chinese demand is Kazzinc, most of whose operations are in the north-eastern corner of the country. The company is active in mining zinc and lead, and in metallurgy.

Kazakhstan's largest steel producer, ArcelorMittal Temirtau announced at the end of 2009 that it was resuming all of its investment projects in Kazakhstan that had been mothballed due to the crisis. The company is spending on new steel production facilities and mines, as well as on improving its safety record (see related story).

Kazakhstan's steel production was up 4.1% year on year in 2010, to 4.3m tonnes, according to the World Steel Association. Consumption within the country was also up to around 3m tonnes as new pipeline and construction projects - many of them government funded - pushed up demand. Kazakhstan also exports steel, with its main markets being China, Russia, Iran and the EU.

There are also numerous smaller companies in various branches of the mining industry. Kazakhstan prides itself in holding all of the minerals in the periodic table, and investors are looking beyond copper and iron to the less known but valuable metals such as rare earths, which are increasingly in demand since China decided to slash its exports (see box).