KAZ Minerals Mine Tragedy: How Much Do Owners Earn?

Two incidents occurred at KAZ Minerals mines on August 31 and September 1, claiming five lives. Orda's financial analytics department decided to look into the situation around the largest copper producer in the country.

It is hard to believe that workers continue to die in a highly profitable company's coalfaces in Kazakhstan in the 21st century. It is too early to judge the causes; a special commission will draw conclusions. However, the employer is almost always found guilty in such industrial incidents.

At the Artemyevskaya mine, an incident occurred due to a rock fall, possibly due to a violation of safety regulations or an accident. According to preliminary data at the Irtyshskaya mine, the fatalities were caused by gas poisoning, which gas analyzers and a ventilation system should have prevented. Questions, therefore, arise for the employer and regarding the organization of work. At least regarding the technical equipment and supervision for compliance with safety regulations.

The Past

KAZ Minerals was de jure established in 2014 after the reorganization of the Kazakhmys group. The vast mining empire was divided into two: a public one, with shares traded on the London Stock Exchange and the Kazakhstan Stock Exchange, and a private one, hidden from prying eyes. Kazakhmys shares have been traded in London since 2005.

KAZ Minerals includes the group's most profitable and newer deposits — the Bozshakol open-pit mine in the Pavlodar region and Aqtogay in the East Kazakhstan region, three underground mines in East Kazakhstan, and Bozymchak, an open-pit mine in Kyrgyzstan. The company's main product is cathode copper; gold, silver, and zinc are by-products of copper ore mining. Today, KAZ Minerals employs more than 14.4 thousand people, a significant portion of whom are in Kyrgyzstan.

After the reorganization, Kazakhmys did not include the newest enterprises with low profitability. They also took on various social obligations, such as supporting regional infrastructure: schools, nurseries, cultural centers, etc. Ten years ago, metal prices were significantly lower than now. At the same time, the tenge exchange rate was much more stable.

Kazakhmys's revenue in dollars has grown considerably, as has its revenue in tenge, which is used to pay workers' salaries.

Notable Denominations

Despite their legal independence, KAZ Minerals and Kazakhmys are, in fact, one company. Their offices in Almaty are located in the same building on the site of one of the former buildings of the Republican House of Political Education on Dostyq Avenue. Their controlling shareholder is one person — Vladimir Kim, once the wealthiest man in Kazakhstan, according to Forbes.

Vladimir Kim owns 63.5% of KAZ Minerals and 70% of Kazakhmys. According to an old legend, Vladimir Kim was brought to Kazakhmys by the late Vladimir Vasilyevich Ni, an old associate of Nursultan Nazarbayev and an assistant and manager of the president's affairs.

It is unclear how Vladimir Kim became the primary Kazakhmys shareholder. However, a copy of an alleged 2006 power of attorney has been preserved online. According to it, the first president was once the sole owner of Kazakhmys. The authenticity of this power of attorney and its information are impossible to verify.

  

The remaining 36.5% of KAZ Minerals is controlled by Oleg Novachuk, who was born in Soviet Alma-Ata and now permanently resides in Monaco. It is unclear why Novachuk has been a longstanding member of Forbes' list of Kazakhstan's richest if he has not had a Kazakhstan passport for so long. 

He accepted citizenship of the Russian Federation and Great Britain. However, after Russia invaded Ukraine, the KAZ Minerals group abandoned its prominent project in Chukotka - the Baimskaya deposit. Novachuk, meanwhile, may have done the same with his Russian passport.

Didn't Pay off

In 2021, KAZ Minerals was delisted from the London Stock Exchange and Kazakhstan's KASE. Minority shareholders were unhappy with the buyout price, which is why the initial offer was raised from £6.4 per share to £7.8 and then to £8.5.

KAZ Minerals created a non-public company for the new Baimskaya deposit project. This is one of the world's largest gold and copper deposits — fourth in explored reserves and a diamond in KAZ Minerals' crown.

In 2018, Baimskaya was bought from Russian oligarchs Roman Abramovich and Alexander Abramov for $900 million. Development of the deposit required at least $8 billion, which led to fierce resistance from minority shareholders. In 2021, Kim and Novachuk bought out their shares.

Baimskaya is located above the Arctic Circle, and its development required the construction of a new port, a 400-km road, and four barges with nuclear reactors on board to supply the field with electricity.

Oleg Novachuk presented the development project to President Vladimir Putin in person, securing his support. The Russian government also supported the project, including for developing the Northern Sea Route.

The company's shareholders bet everything on the Baimskaya deposit, but the war in Ukraine began. The mining company GDK Baimskaya, operating at the deposit, fell under sanctions. It was hastily removed from the assets of KAZ Minerals and transferred to the Trianon Limited parent structure, owned by Kim and Novachuk.

The deposit was later sold to the closed mutual investment fund Severnaya Aurora, formally not associated with the above shareholders. A financial balancing act in asset withdrawal has been topical among well-informed people, but there is no corroborating evidence.

Not So Bad

The parent structure, KAZ Minerals Limited, registered in the UK, profited by more than $2.15 billion in 2023 - almost twice as much as in 2022. The profit was mainly achieved due to dividends from subsidiaries, amounting to nearly $1.6 billion. Incidentally, the higher-standing parent structure, KAZ Minerals Limited, was paid $1.4 billion for 2023 - the money came closer to the shareholders.

The Aqtogay and Bozshakol deposits have been separated into separate legal entities in Kazakhstan. At the end of 2023, the Bozshakol deposit earned 38.4 billion tenge in net profit and 767 billion tenge in retained earnings. 

The profit of the Aqtogay deposit was much higher, amounting to 329 billion tenge at the end of 2023, while at the end of last year, the company had more than 1 trillion tenge in retained earnings. Based on the results of operations for 2022 and 2023, both Bozshakol and Aqtogay did not pay dividends to KAZ Minerals. The profit of the parent structure registered in London could have been even higher.

KAZ Minerals is a highly profitable company with ample money to provide safe working conditions for workers at all levels at its mines and plants in Kazakhstan and Kyrgyzstan.

Considering the current budget deficit, the Government also stands to pay mind to the company's excess profits accumulating in its accounts over the past few years. The country's mineral wealth belongs not only to Kim and Novachuk or whoever backs them but to all the people of Kazakhstan.

Original Author: Editorial

DISCLAIMER: This is a translated piece, the text has been modified, the content is the same. For accuracy, please refer to the original article published on 06/09/24.