The juniors formed a copper profile

British Orsu Metals has announced that the Government of the Republic of Kazakhstan has approved the technical design of the Karchiga project. If the company launches it in the planned 2014, it will be at least the third copper project in Kazakhstan: before that, they were launched by Central Asia Metals and Frontier Mining. For the sake of copper assets, all three companies are ready or have already sacrificed the gold business.

Orsu Metals approved by the Ministry of Industry and New Technologies (MINT) RK technical project for the development of a mining and processing complex at the Karchiga project. According to Sergey Kurzin, the head of Orsu Metals, the document will allow the company to start construction and production at Karchiga. According to the company's estimates, the volume of capex at the pre–production stage is $115 million, the total Capex (including the construction of a copper cathode plant) is $147 million. If Orsu Metals' actions are successful, another medium-sized copper production project will be launched in Kazakhstan in 2014.

Earlier, on August 11, Frontier Mining (FML) announced that it had produced the first copper sheet at the Benkala electrolysis plant. The company is currently monitoring the technological process to bring the enterprise to full capacity. According to estimates of Halyk Finance JSC, in 2012 production at Benkala will amount to 3-5 thousand tons of cathode copper.

In April 2012, Central Asia Metals announced the launch of a copper plant at the Konyrat project. In early July, the company announced the release of 1,778 tons of cathode copper. According to the company, the $40 million plant has reached its design capacity. The company is expected to produce 5,000 tons of cathode copper in 2012, with production increasing to 10,000 tons in 2013.

Meanwhile, the peculiarity of the business strategies of all three companies is noteworthy: all of them, along with copper assets, had gold assets, but all three preferred to get rid of gold deposits.

Thus, FML sold the Maminskoye field located in the Sverdlovsk region (Russia) to Cyprus Stanhigh Limited Cyprus. Nick Clark, CEO of Central Asia Metals, told Bloomberg that he is in talks with a couple of buyers to sell gold and molybdenum projects in Mongolia. At the time of handing over the number, the company did not provide information about the future of the assets. Finally, Orsu Metals decided to sell its 40% stake in the Talas project (Taldybulak Talas deposit in Kyrgyzstan. – "K") for $10 million and 25 million units at a price of $0.4 each. The unit includes 1 ordinary share of Orsu Metals and the right to receive half of the dividend income per ordinary share. Even earlier, Orsu Metals announced its readiness to sell the Kyrgyz gold project Akzhol-Tokhtazhan.

At the same time, all three companies stated in one form or another that they needed funds from the sale of the gold business specifically for the development of the copper business. "The company intends to use a significant share of the proceeds from the sale of the Talas project for the construction and development of the mine and related processing facilities for the Karchiga project," Orsu Metals said in connection with the deal. The fact that Maminskoye was sold for the sake of money for the development of Benkala was previously admitted by a member of the Board of directors of FML, Yerbulat Tastanov. In its corporate presentations, Central Asia Metals positioned the Mongolian gold and molybdenum projects as non-core assets for sale.

"It can be assumed that each story is unique and unrelated to the others. However, there really is a trend – it is impossible to deny it. These events are too comparable both in terms of approaches and timing," said Pavel Yemelyantsev, an analyst at Investcafe.

One of the reasons for this trend is economic: it is easier for small companies with limited financial resources to extract and process copper than gold. "Gold is sold more expensive in kind, but it is also very expensive to extract it. Copper is easier to extract: for example, copper sells for $3.50 per pound, while Central Asia Metals spends only 89 cents on cost, thereby generating a large margin, so, in my opinion, companies are guided by simple rules of profitability," says Indira Yershina, analyst at IFG Continent.

"Small exploration companies are abandoning gold deposits that are under exploration in order to pay off capital expenditures faster," Alexander Ananin, Deputy Director of BGP VNIITSVETMET, is confident.

The source of economic hope and risks at the same time is the price of metals. According to some estimates, gold will be stable, according to others, a correction is possible. "Its price is greatly inflated, which does not correspond to global demand for it. For example, in the second quarter, global demand from the jewelry industry decreased by 14.3%, and from the investment community by 25.9%. Industrial demand increased by 3.2%, but its share in the total structure is only 10%. In this regard, it is likely that the price of gold will decrease in the coming years, and consequently, the profitability of the gold mining business will decrease," said Mr. Yemelyantsev. If the global economy copes with the crisis, the price of copper will go up and, accordingly, copper companies will only benefit. "We should also not forget that the profit of companies depends not only on the difference between the price of metal and the cost of its production, but also on the volume of products," Mr. Ananin emphasized.

However, it is difficult to expect a copper boom in Kazakhstan, since the volume of exploration in the republic is minimal, therefore, there are no conditions for the emergence of new projects. The current ones use geological exploration information collected back in the Soviet years. According to one industry expert, "juniors can play in the small-scale project market, and, in principle, this business model has the right to succeed. But there are no conditions for the junior mining market and its financing in Kazakhstan yet."

Source: www.kursiv.kz