The UK role in the development of Kazakhstan’s mining sector
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Speech given by the British Ambassador to Kazakhstan. This is an English transcript of the speech, delivered in two languages: Kazakh and English.
Distinguished guests, ladies and gentlemen
I am delighted to be here at this year’s Mining and Exploration Forum. Thank you to the organisers for the opportunity to give a British perspective on Kazakhstan’s mining sector. This is a sector of great importance to Kazakhstan’s economic development. But it is also a sector which has great potential yet to be realised.
Ladies and Gentlemen
The challenges faced by Governments, communities and miners when accessing natural resources are many. But we all agree that the benefits, both commercially and socially, are worth it. Future development will depend on various factors, including mineral commodity prices and Government policies to encourage the growth of the industry.
Kazakhstan is known to have significant untapped resource wealth. Mining, through its contribution to regional development, can make a key contribution to economic and social development. The potential for Kazakhstan and for Central Asia countries to fund their development through well-managed investment in the extractives sector is enormous.
Over 90% of Kazakhstan’s mineral resources are under-explored. Many local companies use outdated technologies developed over 30 years ago. So - there exists a great opportunity for collaboration.
And the United Kingdom is well placed to assist in this development. During Prime Minister David Cameron’s historic visit to Kazakhstan in 2013, it was agreed to establish an inter-governmental commission in order to help promote much stronger business-to-business links in a number of sectors, including mining, science and innovation.
A Mining business-to-business Sub-Group of the IGC has now been established. Its aim is to help Kazakhstan transform its mining sector into a world class industry that can fuel economic growth.
The UK Mining Sub Group currently includes over 70 firms from both the UK and Kazakhstan, ranging right across the supply chain. It has already taken a number of important steps in order to bring UK expertise, technologies and finance to Kazakhstan’s mining projects. I was delighted that MINEX Central Asia joined the Mining Group recent meeting last month in London at the time of Prime Minister Massimov’s official visit to the UK.
The key to unlocking this potential is investment – foreign investment. Development of a world-class mining industry requires considerable levels of it. But this is a time of low commodity prices and general resource constraint. The fact is, therefore, that Kazakhstan has to compete with other countries in order to attract that limited foreign direct investment. Investors require a stable and predictable investment climate. They require open and transparent governance. And they need access to reliable geo-data. Let’s look at these three areas in turn.
Firstly, Fiscal stability. Companies need to know that investments in a country and in a specific project are safe, easy to access, and with a clear taxation and royalty regime applied equitably.
Secondly, legislative security. The fact is that security of exploration and mining license tenure is vital to encourage long term investment. It is essential to have a well managed and transparent mine cadastre system – that is, a register of the ownership and location of exploration and mining licences in a country, together with rules on ownership.
The introduction of the new mining code will help address both of these issues. I am delighted that the UK/Kazakhstan Mining sub-group had the opportunity to advise extensively on the content of this new code.
And thirdly – the availability of Geodata and technical data. This too is essential to attracting investment. The association between geological knowledge and economic growth is widely accepted. Modern, high-quality, digitally available geo-data will have a significant – even dramatic - effect on improving returns on exploration investment. The Kazakhstan Government has already acknowledged this, with Kaz Geologiya awarded $600m to map the whole of Kazakhstan over the next five years.
So – how can the UK help Kazakhstan achieve its aim of constructing a 21st century mining sector? Answer - in various ways.
- UK companies such as BGS International are world leaders in the provision of Geodata. I’m delighted that they’ve had the opportunity to discuss with Kaz Geologiya how they can assist in obtaining this data.
- The updating of management processes and the introduction of new technology will also help attract FDI. Significant potential exists for technology transfer that could help current mining operations achieve greater productivity, and improve both health and safety and also environmental impact.
- What about finance? The UK’s Export Credit Agency which is called “UK Export Finance”, helps exporters and investors by providing credit insurance, political risk insurance and guarantees on bank loans. UK Export Finance has already offered Kazakhstan significant potential lines of credit totalling $1.75 billion.
- Of course the UK is particularly well placed to help in sourcing, securing and managing these investments. London is the prime location, worldwide, for mining finance. The market capitalisation of all mining firms listed in London is $310 billion – more than in any other financial market in the world.
And those companies are supported by world-leading professional services firms – legal, financial and technical – supporting miners, owners and investors. That’s no doubt why four of the six largest mining companies in the world are headquartered in London. And that’s no doubt why London is the traditional home for the listing of Kazakhstan’s mining companies.
Furthermore, the UK exports the extensive know-how to explore; evaluate; design; construct; and operate mines around the world. UK firms can advise on how a mine project can be integrated into wider economic development planning.
And once that investment is unlocked, the next challenge is meeting the requirement for local content. This is a core element of the UK offer. The UK is internationally recognised as a centre of excellence in the provision of skills and education to the mining industry, exporting its exceptional knowledge and training capability globally. The UK has already built a close partnership with NADLOC to develop local content capacity in the oil and gas sector. So too this could be applied to the mining sector.
More widely, the UK Government welcomes the fact that Kazakhstan is already a validated member of the Extractive Industries Transparency Initiative (EITI), a global standard to promote accountable management of natural resources. We look forward to the Kazakh government’s intention to implement EITI at the oblast level, offering local communities detailed information on social projects and a larger voice. In parallel, the UK itself has committed to establish a public register of the beneficial owners of UK companies. Our first report should be published early next year.
Ladies and gentlemen, Kazakhstan and Central Asia have significant natural resources potential. And, as one of the most stable countries in the region, Kazakhstan could become a significant regional mining hub. The UK is committed to working with Kazakhstan. We look forward to continuing as a trusted and long term partner as this important sector develops.
Ladies and Gentlemen
The UK is committed to working with Kazakhstan and its neighbours in the mining sector. We look forward to continuing as a trusted and long term partner as this important sector develops.
I wish you all a productive and successful MINEX.