Investment Adventures in Emerging Markets

Descending a Mine Shaft in the Kazakhstan Steppes

Looking for Value Deep in a Kazakh mine
Looking for Value Deep in a Kazakh Mine

Happy New Year, readers! I’d like to start off this year telling you about another adventure in my quest to find investment opportunities: going down a mine shaft in the middle of the Kazakhstan steppes.

Kazakhstan is becoming increasingly important to us as an investment destination. It has vast natural resources such as oil, gas, copper, uranium and a host of other minerals. As a result of the billions of dollars pouring into the country to develop those resources, we believe Kazakhstan has become the economic engine for Central Asia. We have been investing in both the petroleum and mining sectors in Kazakhstan, and the purpose of this visit was to take a closer look at the mining sector. Prices for several commodities, including metals such as palladium, platinum, copper, gold and silver, rose dramatically in 2010, and that has significantly benefited Kazakh metals and mining companies.

Although the word “Kazakh” is derived from an ancient Turkic word meaning “independent” or “a free spirit”, the country has had a turbulent history. The Mongols invaded in the early 13th century, followed by the Russians in the 1730s, in the so-called “Great Game” with the British Empire. After the 1917 Russian Revolution, the country became the Kazakh Soviet Socialist Republic and part of the USSR. Later, under Khrushchev, the area saw significant Russian immigration during the Virgin Lands Campaign. Finally in 1991 it declared independence, the last of the Soviet republics to do so. Currently the government is led by 70-year old Nursultan Nazarbayev, who has been leader since independence and has been granted lifetime powers and privileges.

When we landed at the Almaty airport my preconceptions of Kazakhstan were quickly challenged when I saw an ad of a scantily clad waitress in an airport magazine. “But this is a Muslim country!” I thought. Not completely. Two-thirds of the population is Muslim, but there is considerable tolerance and religious freedom, evident in the numerous Russian Orthodox churches I saw as we drove into the city. After the break away from the Soviet Union in 1991, religious freedom was promoted and hundreds of mosques, churches, synagogues, and other religious structures were built in the span of a few years.

Growing consumerism and wealth was evident in Almaty, Kazakhstan’s largest city, as we watched skiers shoot down a mountainside overlooking the city, at a new stadium built for the 2011 Asian Games. At a mega-mall, we saw shops you would find in malls all over the world, while a rambunctious rap/break dance contest for Kazakh youngsters was underway at the food court. However, an improvement in general living standards still has a way to go.

The next day we took a 1½ hour flight (this is a big country!) to a mining conglomerate’s headquarters and its mine site. More than half the population in the urban area of this city are Kazakhs, but the rest of the population are about 30% ethnic Russians and a scattering of Ukrainians, Germans, Chechens and Koreans, a reflection of the population displacement that took place during Soviet times. The city looked a little forbidding at first but the warmth of our hosts quickly dispersed our trepidation.

At one of the firm’s four mines in the area, we got a comprehensive safety briefing from an enthusiastic safety engineer. This can be very dangerous work, as we had already seen from the broadcasts of the dramatic rescue of Chilean miners in late 2010. These stories bring home to us the tremendous risks involved in mining operations. Dressed in mining clothes with oxygen containers, masks and hard hats with electric torches, we descended 140 meters into the ground in a steel elevator cage. After going through a few iron doors, we boarded a diesel-powered all-terrain vehicle and drove 3 kilometers through lighted tunnels to the face of one mining site.

I was surprised to learn that although this mine had been created during the Soviet era, they were using equipment not only from Russia but from all over the world. A Finnish machine was drilling holes in the ceiling about 5 meters high and inserting concrete plugs in order to prevent falling rocks, while another machine was drilling holes in the mine face which later would be plugged with explosives to blast the ore rock away. At another site, we saw a huge loader scooping broken rock that had been blasted from the mine face and loading it in a Swedish-made dump truck.

After ascending from the mine, we traveled to the concentrating and smelting plants, where the ore was crushed and put in pools of reagents to extract the metal and other minerals. This slurry was then put in circular settling tanks where the concentrate floated to the top and was extracted, dried, smelted into cathodes and then melted into ingots. We saw piles of gleaming ingots with shipping slips addressed to China. The Chinese influence seems to be strong: the conglomerate is receiving billion of dollars in financing from a Chinese bank, and it has a joint venture with a Chinese firm to develop another mining project.

This trip served well to understand the important mining sector in Kazakhstan. Although this time I didn’t visit the country’s fabulous new capital, Astana, I hope to go there soon.

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