Rio Tinto signs agreement on mining in Kazakhstan

Tau-Ken Samruk is the metals and mining arm of Kazakh state investment company Samruk-Kazyna. The chairman of Tau-Ken Samruk, Bolat Svyatov, said the project would produce copper, gold, bauxites, iron ore and other metals.

The Kazakh side would supply rights and permissions, while Rio Tinto will contribute technology to the joint venture created on a parity basis, Tau-Ken Samruk said.”

Source: Reuters, June 30 2010

Observations:

• The new joint venture is not working on any specific projects yet, but the deal does open doors for Rio to increase activities in Central Asia.
• Kazakhstan has many good mineral deposits and a rather stable government. However, transportation costs are high, as all transport to the demand regions (Russia & China) has to be done by train.

Implications:

• Rio will have to strongly manage any production activities that will be undertaken by the JV. Managing operating costs has certainly not been the strength of the Kazakh companies so far. As Rio wants to improve operating margin, they will have to do more than just provide technology to ensure low cost production.
• The Kazakh deal can be seen as part of Rio’s attempts to increase exploration efforts targeting copper and iron ore.

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