Clare Nuttall in Almaty -
Central Asia's mineral resources remain under-developed given the region's potential. And outside of Kazakhstan and Mongolia, international investment into exploration is minimal.
Even in Kazakhstan, the most developed country in the region, exploration investment has been low by global standards given the size and range of its raw material base, which famously comprises all the elements of the periodic table. In 2010, Kazakhstan received just $76m of investment inexploration, of which $65m was directed at gold deposits; Chile, which has a comparable mining industry and resources, attracted $390m.
This is despite Central Asia being "probably the most prospective copper belt in the world," according to Rio Tinto's general manager exploration, Central Asia, Chris Welton. "There has been very little investment during the last 20 years, and we are convinced that there are tier 1 discoveries still to be made here," Welton told the Central Asia Mining Congress (CAMC) in Almaty on June 21.
The small amount invested in exploration in Kazakhstan, the region's largest economy, confirms the significant under-funding in Central Asia as a whole, which enhances the potential of the belt in my eyes, Welton added.
Kazakhstan's mineral base was first developed during the Soviet era, when large-scale mining and processing facilities were established, some of which later formed the basis for today's local mining giants such as ENRC and Kazakhmys. Soviet geologists searched Kazakhstan and other satellite republics for hydrocarbons and mineral deposits. However, in the 20 years since the break-up of the Soviet Union, advanced exploration techniques have been developed, while other minerals such as rare earth metals are now more highly sought after, since they are used in new devices such as hybrid cars, mobile phones and digital cameras. "Extensive work was carried out in Kazakhstan, but in Soviet times geologists were only looking for particular minerals," said Kazakh Deputy Minister of Industry and New Technologies Nurlan Sauranbayev.
Changes, initiated in Astana, are now in progress. A new exploration-dedicated company, Kazgeologia, is being set up within state holding company Samruk-Kazyna. "We are now turning over a new page, and would like to carry out more in-depth studies," Sauranbayev told the CAMC conference. "This will allow investors to see new structures and deposits that might be of interest."
Rio Tinto is already working with Ivanhoe Mining on the Oyu Tolgoi copper deposit in Mongolia and has recently moved into Kazakhstan and Uzbekistan. It is now close to signing an agreement with Samruk-Kazyna subsidiary Tau-Ken Samruk to set up a 50-50 joint venture in Kazakhstan. "We look forward to signing soon and getting started on spending exploration dollars in Kazakhstan," Welton said.
As Central Asia's largest economy, Kazakhstan has attracted billions of dollars in foreign investment to the mining sector since independence. However, investors say more could still be done to improve the business environment. According to David Neuberger, vice president international mining at Cameco, which operates the Inkai joint venture with Kazatomprom, investors would benefit from greater clarity in regulation, and clear and predictable tax legislation. "Infrastructure development is still a challenge," he added.
Despite these issues, Kazakhstan has by far the most investor friendly and highly developed mining sector in Central Asia, with a combination of local giants, major international companies and smaller frontier mining companies exploiting its resources. Mongolia is going down a similar path. In addition to the world-class Oyu Tolgoi and Tavan Tolgoi projects, numerous smaller deposits are also on investors' radar screens.
It's a different story in the other Central Asian republics, however, whose mineral wealth has not been matched by investor friendliness.
Uzbekistan has substantial reserves of gold, uranium and other minerals, and in Soviet times was the largest economy in Central Asia. Since then, it has been decisively overtaken by Kazakhstan, while the investment climate has deteriorated. Oxus Mining, which has been active in Uzbekistan since the late 1990s and is one of the few remaining investors, says it has been the victim of an attempted asset grab by its partners in the Amantaytau Goldfields joint venture (see accompanying story). Investment is also low in Kyrgyzstan and Tajikistan. "From a geological standpoint, Central Asia is a very attractive region. The problem is politics. Many of the people in government positions have a very fearful approach to foreign investors, and their aim is to take as much money and control as possible," Kenneth Arne, a consultant with Behre Dolbear, tells bne.
Arne points out that with legislation full of references to state control and management, Tajikistan has been "uniquely unsuccessful" in attracting investment. In Kyrgyzstan, there are less than 10 international investors in the mining sector, even though there are more than 29,000 gold discoveries and outcrops in the country. "Any other country with this much potential would have 50 or 100 companies exploring," says Arne. "Realistically, the only game in town in Kazakhstan. There are some issues, but they seem to be capable of making a deal and upholding it."
Kyrgyzstan's April 2010 revolution - its second in six years - was followed by nationalisations of some key assets and illegal squatting, both of which raised concerns over the protection of property rights. Although the October 2010 elections took place peacefully, an arson attack on a remote mining compound in the Talas region in March caused up to $1m worth of damager, further rattling investors.
The new Kyrgyz government introduced a moratorium on issuing new mining licences in early 2011. While the aims were sound - the government wanted to ensure licences were only issued to genuine developers - the blanket approach meant that international mining companies have been unable to progress with their operations.
But there are some signs of progress. Despite the problems faced by Oxus and other companies, Rio Tinto has opened an office in Tashkent. Meanwhile, in Tajikistan legislation is being reviewed, and a new subsoil use law and government programme for exploration are being drawn up. Tajikistan could also see the first large international company enter the mining sector to develop the Kalon Koninskai silver deposit. BHP Billiton and Kazakhstan's Kazzinc are understood to be competing in a tender process due to end in September.
Naubet Bisenov in Almaty - A free-floating exchange regime for Kazakhstan’s currency, the tenge, is taking its toll on retail trade as the cost of imports rise. While prices have not changed ... more
Henry Kirby in London - Ukraine and Russia’s latest “Despair Index” scores suggest that the two struggling economies could finally be turning the corner, following nearly two years of steady ... more
bne IntelliNews - The National Bank of Kazakhstan, the central bank, has re-adopted a free-floating exchange regime under the new governor, Daniyar Akishev, who has ... more