19 Oct 2021

Galym Nurzhanov: junior companies need to be supported

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Over the past few years, Kazakhstan has been actively trying to develop the market of junior companies in the field of geological exploration.

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The corresponding changes in legislation, support from large mining and metallurgical enterprises and improvement of the investment climate were supposed to become an accelerator for the activity of juniors on the geological map of the country.

According to the information of the sectoral ministry, these measures allowed opening more than 500 junior companies, issuing more than 1400 licenses for geological exploration.

The leader of the team of industry managers in the direction of "geological exploration" within the framework of the industry program "El Umiti" Galym Nurzhanov gave his assessment of the development of the junior market in Kazakhstan.

Galym Zhumabayevich, what are the prospects for geological exploration in Kazakhstan today? What are the forecasts for the discovery of new deposits?

From the point of view of geology, the subsoil of Kazakhstan for solid minerals is quite well studied, but research on the territory of the country was carried out superficially, to certain depths. And despite the fact that the potential of Kazakhstan is huge and has great prospects, at present the situation in geological exploration is not the most stable – old deposits are being depleted, new ones are not being opened. The time of easy discoveries passes and there comes a period when it is necessary to make much more efforts to open a really large, mature deposit.

According to the forecast, in 10-15 years the country will face a shortage of copper, lead and rare metals. For three decades, Kazakhstan has used the achievements of Soviet geologists, used the reserves of previously discovered deposits and did not fully develop its own geological science. Now these gaps in the industry are making themselves felt, even at large mining and metallurgical enterprises.

How do you assess the development of the Junior institute? What difficulties do junior companies have to face in Kazakhstan?

The search for a solution to the problem of the shortage of mineral resources on the part of the state and the giants of the mining and metallurgical complex, as well as the introduction of a new Code on Subsoil allowed many junior companies to intensify their activities in geological exploration in Kazakhstan.

Foreign experience shows the high efficiency of the junior market and in world practice, junior companies adhere to the principle of consistency and complexity in the geological study of the subsurface.

For example, in Australia, junior companies take 2-3 sites for research, comprehensively approach the study of objects, bring them to the target resource base, rationally use funds from the exchange or investor and annually confirm this with geological exploration. For Australian junior companies, a mistake in the project is not forgiven, this is a big risk for the loss of a license and reputation.

Unfortunately, there are enterprises in Kazakhstan that prevent decent and serious junior companies from conducting their activities and create unfair competition. In the use of such speculative companies, there are 15-20 plots registered for different companies, which, if you look into it, are the same people.

At the same time, they can be divided into 2 types:

- companies that, apart from paying for a license, do not make any other investments and are only engaged in the resale of promising sites.

- companies that pour in small amounts of money and carry out certain types of work.

But in both cases, both of them begin to search for an investor and knock on the cabinets to resell this deposit ten times more from their initial investments. The latter at least invest some funds, but then later estimate these costs at 20-30 million dollars.

Fortunately, large mining and metallurgical companies do not buy out their projects based on their own analysis and understanding the risks of such dubious investments.

In recent years, there have been many such "empty" companies on the market. And their activities aimed at obtaining their own benefits create a negative attitude towards junior companies in the market both from large mining and metallurgical companies and from investors.

For your information: at least $1 million is needed to analyze the resource potential of one site. Thus, in order to carry out effective geological exploration on several sites, companies need to have a capital of several tens of millions of dollars. Practice shows that with investments of a couple of hundred thousand dollars, it is impossible to carry out even the initial stage of geological exploration.

How effective are the approaches of such companies in geological exploration?

Not all junior companies understand that obtaining brief geological information on poorly studied areas is not at all the basis for approving the presence of a deposit. Working with colleagues on 14 different exploration projects, we are once again convinced that the actual geological structure of the sites differs from the initial ideas, which is confirmed by the drilling process and analytics. Detailed studies using modern integrated geological exploration technologies allow us to identify tectonic features that have not been identified before and are not reflected in historical materials. This is called the obsolescence of geological information due to the arrival of new technologies.

Our own experience in geological exploration also shows that the study of deposits should be approached comprehensively, using technologies that correspond to today's realities. It is necessary to try all kinds of modern, innovative technologies and research methods in order to find a really suitable and working tool. Such an approach to work cannot be carried out in any way in a 3-year period. It takes at least 6-7 months only to perform scientific research. To fully select the technology, you need to go through 2-3 such stages. And it will take at least 8-10 years to study the geological structure and evaluate the deposit.

Today it is difficult to find clean, well-enriched ore deposits. Often, mineralization is low in content and quality of the useful component, complicated by impurities, and difficult-to-enrich forms of finding a mineral. This means that for efficient and complex processing of minerals, more new approaches are needed in the technology of extraction, enrichment and metallurgy.

What threatens juniors with the presence of such speculative companies in the market?

The saddest thing about all this is the loss of the main resource - time. As Elbasy said, "people who have the opportunity have been snatched up and are sitting like a dog in the manger: "I haven't mastered myself and I won't give it to others."

During the time that speculative companies owned the right to use the subsoil, one of the serious junior companies with targeted intentions and investment opportunities could have done much more: organize a full comprehensive study, provide jobs to residents of the regions, and in general, come to the discovery of the deposit much more rationally and competently.

No matter how skeptical it may sound, but we have a good pool of junior companies in Kazakhstan.

By the way, earlier the position of the sectoral ministry for unfulfilled obligations was quite tough – licenses were taken away. According to the official data of the sectoral Ministry, more than 1,400 licenses for exploration of solid minerals have been issued since 2018. To date, many companies that do not fulfill their license and contract obligations are using and hiding behind the situation associated with the COVID19 pandemic.

Do you think that there is an attractive investment climate in geological exploration today?

While promising sites are in the hands of such "tourists" of the industry, it is difficult for an investor to find a really profitable project.

And this is not the only problem faced by investors on the way to obtaining the rights to explore the subsoil. We are witnesses to the approval of the new Code on Subsoil, as stated - this is a "reform" aimed at solving many industry issues according to world experience. However, we are also witnesses of regular amendments, rules and

additions to the Code, which shows us the instability of the legislative system for subsoil management. Some barriers are being removed, others are being created.

In order for an investor to get the desired site, it is necessary to go through circles of tests, starting from paperwork with the duration of the review period, ending with the fact that data leaks leading to the creation of a competing license application by speculative companies.

And as you know, time plays a very important role in business, therefore, when trying to formalize the right of subsurface use, investors often lose a lot of time and money, which subsequently generally leads to the unattractiveness of the investment climate of our country. And after loud slogans about the reforms being implemented, which in fact do not work, a precedent of distrust of the country as a whole is being created.

What measures, in your opinion, are necessary to restart the industry?

Taking into account modern realities, the state is taking measures to improve existing processes with the participation of geological communities. So, in 2020, Elbasy initiated a program of industry managers "El umiti" in various areas, including geological exploration.

Here I would like to note that our team has proposed many improvements in the field of the geological industry within the framework of this program. These are the creation of a state Geological cluster in the synergy of the state, science and private business, the provision of tax preferences, preferential loans for exploration companies. These initiatives were supported by the Government, but today none of them has entered the implementation stage.

The inevitable consequences of the use of the subsoil of our country is the quantitative and qualitative depletion of the mineral resource base. And its replenishment becomes a priority task both for the state and for all participants in this process. And this is possible with an integrated approach to solving problems: regulating the activities of the junior market, creating a favorable environment for attracting investment, improving the regulatory framework.

We are building the principle of a "hearing" state and today not a little has been proposed for the development of the geological industry both in terms of improving legislative norms and in terms of the executive activities of the relevant bodies, but so far everything is in vain at the level of discussions of cabinet workers.

We hope that changes in the industry, both in terms of the initiative of the President of the Republic of Kazakhstan K.M. Tokayev to create a National Geological

Service, whose role is defined in the development of geology through the support of investors, comprehensive study of the subsoil, digitization of the database, as well as in terms of new personnel changes in the sectoral Ministry, will allow to generate a new impetus in solving pressing problems of the industry.

Thank you for the conversation!

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