Kazakhstan has become a country to watch when it comes to natural resources, thanks to its vast deposits of everything from uranium to coal. But is the emerging mineral hotspot, which still faces significant issues, including political instability, regulatory barriers for foreign investment and out-of-date geological data due to an almost complete lack of exploration over the last 30 years, ready to capitalise on its substantial assets?

Government talks over a new mining code based on the system used in Australia and the growing number of foreign companies setting up shop in Kazakhstan point to the positive, but if talks don’t materialise into something more concrete, significant changes in the near future remain unlikely.

It’s indisputable that Kazakhstan’s mineral deposits are immense and of high quality; according to Austrade, the country is the world’s leading uranium producer and third largest chrome producer, and its caches of copper and lead zinc represent 10% and 13% respectively of the planet’s reserves.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData

The central Asian republic is also well endowed with bauxite, coal, manganese, iron ore, phosphate, titanium and tungsten. According to Business Monitor in 2013, its mining sector is set to grow to a value of almost $30bn by 2017.

But does Kazakhstan have the systems, processes, partners and investors in place to ensure it’s really in a place to make the most of its irrefutable potential?

Doors open to foreign investment

There are certainly positive signs, not least the increasing number of foreign entities, particularly technology, equipment and engineering companies, opening doors to new offices in the republic. "Many UK companies are already working in Kazakhstan for existing state and privately-owned mining companies," says a representative of UK Trade and Investment (UKTI).

For the first time ever a Chinese commerce institution has publicly endorsed international recommendations.

"With significant future potential, numerous UK companies have opened offices in the last two or three years, while equipment suppliers such as Weir and JCB are already in the market. As such we believe there is significant interest in Kazakhstan.

"Central Asia as a whole has significant natural resources potential and, as one of the most stable countries in the region, Kazakhstan could act as a centre for equipment and services from which to expand into neighbouring regions. Along with Mongolia it provides a potentially strong and stable base for UK companies to explore the opportunities in other Central Asian countries."

The UK’s Australian counterparts have been equally forward-thinking, with many, including WorleyParsons, Glencore Xstrata and mining and geological software company Micromine, already either working on engineering opportunities with Kazakh exploration companies or opening offices in the country.

"We’ve undertaken six trade missions to Kazakhstan, the last in September this year," says Robert Trzebski, chief operating officer at Austmine, Australia’s peak industry body for the mining equipment, technology and services sector.He explains that these missions provide Australian technology and equipment companies with opportunities to establish contacts with potential customers, raise their profile and find out what potential Kazakh clients need in terms of technology and innovation.

"Over the five or six years we’ve been going to Kazakhstan, their attitude towards innovation and advanced solutions has changed completely," Trzebski adds. "They are now interested in investing money in better services, better quality and more reliable solutions; the opportunities for us are anywhere we can improve productivity, efficiency and safety, and save costs. Central Asia is a huge opportunity."

Regulatory changes

The government in Kazakhstan has also realised that foreign investment in the form of explorers will be absolutely crucial to the future of the sector. Not only has it recently announced several draft amendments to its current mining laws, which would serve to make the sector more attractive to investors, a new statute based on the Australian mining code is also being discussed to the same end.

"There are certainly positive signs, not least the increasing number of foreign entities opening doors to new offices in the republic."

According to UKTI, these proposed changes are absolutely necessary. "There has been little exploration in the Kazakhstan mining sector for almost 30 years, so despite their mineral wealth, geo-data is not as up to date as it could be," UKTI’s representative explains.

"One of the key reasons for this is the lack of foreign investment into the exploration of potential mines. This has largely been due to clauses in the current sub-soil license which did not provide the necessary guarantees that exploration companies would get the chance to develop or sell on the proven mining reserve and also the sub-soil license had too many aspects drawn from the oil and gas sector not considered appropriate or affordable in the mining sector. The new mining code should, indeed must, remove this barrier to investment, [opening] the gateway to a potential significant increase in the sector."

Slow and steady progress

The problem, says Azamat Kuatbekov, partner at global law firm Baker & McKenzie’s Kazakhstan branch, is that there’s no guarantee this proposed new mining code will ever become law. "There are talks about the need for a separate regulation but they are just talks for the moment," he emphasises. "There isn’t even a draft; it is just ideas and discussions."

Yet for UKTI, taking time over adopting new legislation isn’t necessarily a negative thing. "We believe that Kazakhstan is looking to adopt the bulk of the Australian mining code as a replacement for their current regulations. While this might be quicker and easier, a more considered approach, that is appropriate and specific to Kazakhstan, may be a better call.

"Kazakhstan, indeed any nation looking to develop a new mining code, needs to take the time to get it right. Markets want stability, and regulations requiring early updating can create instability."

From an underground bouncy castle wonderland to a relaxing health spa, defunct mines can, and are, being transformed.

In the meantime, progress is being made on the regulatory front, albeit slowly; for example new draft amendments to the country’s current subsoil use legislation have been put forward, which would simplify the system for awarding contracts, decrease the administrative burdens for companies transferring subsoil assets and enable investors to change their bids during tender, among other things.

"The government finally realized that some major amendments are required to make investors interested in exploration activity," Kuatbekov notes, adding that the government has also established national companies for the mining sector and is in talks with some of the majors about joint exploration activity.

Yet Kuatbekov believes there’s still a way to go before we see significant progress. "There are some small positive signs," he says. "They are changing the law slowly and national exploration company KazGeology, for example, is in talks with some of the majors about launching joint seismic study activities.

These are all good and right steps of course. However, at the moment, I believe it is still a long way to go before the mining sector will become really interesting to foreign investors. I do not see any major boom yet."

Follow Elly Earls on Google+

Energy link