Press about us

25.04.2012

EXPORT ALLOY

Taraz Metallurgical Plant JSC (TMZ JSC) placed a stake on ferrosilicon manganese and four years later became one of the most active exporters of Kazakhstan with a title “perfect borrower” given by investment institutions.

To-date, Taraz Metallurgical Plant JSC and its product - ferrosilicon manganese – conquers the neighboring countries’ markets. This became possible after fixed assets modernization supported by the state. Modernization phase started in 2007 is going to be completed soon with further activities devoted to production capabilities expansion. Nowadays the JSC is considering listing as another investments generation instrument.


1

In-demand FeSiMn

DPO Khimprom (Dzmabul Production Association Chemical Industry) Metallurgical Enterprise established in 1969 was an ancestor to TMZ JSC. The plant produced phosphorous fertilizers, however a competitor - Novodhambulski Fosfornyi Zavod (Novodhambyl Phosphorous Plant) appeared later in the region with advanced equipment and became a strong competitor at the decline of Soviet era.
An idea to switch production to metallurgical from phosphorous had been kept in the minds of the management. “The endeavors had been undertaking for fifteen years and consistently collapsed due to ineffectual technological solutions, stated Mr. Rakhimov, Director General.  The challenge was a difference between the technological lines for phosphorous and ferroalloys industry”. Significant difference in specifications of phosphorous and ferroalloys furnaces was a key factor too, primarily ratio of furnace capacity to furnace pool dimensions.
In November 2006 CAICC LLP acquired 100% of equity of suspended enterprise (the name was TOO Khinmprom-2030). New shareholders, metaphorically speaking, changed the angle of attack (instead of ferromanganese produced before they decided to manufacture ferrosilicon manganese- FeSiMn; an alloy applied in steel smelting and casting industries and manganese alloys production) and started investing to the plant. The decision to choose FeSiMn was substantiated by the fact that this alloy did not require high-grade ore (nowadays TMZ JSC is using the ore with 30-34% of manganese) and the market of FeSiMn is more tight than market of FeMn. FeSiMn world market price varies from USD 1.2 to USD 1.5 thousands per ton (w/o VAT) pending on delivery terms. New technology for manganese pellets extraction from off-spec manganese and ferromanganese sieve residue was introduced at TMZ LLP and significantly expanded range of feedstock application and capabilities of the plant for technogenic deposits processing. Current nomenclature of ferroalloy products is represented by three most high-demanded types – MnC-17, FeMnSi 18 and FeMnSi 12.
The second step was to convert existing furnaces for ferroalloys smelting and to expand production capabilities. In July 2007, an enterprise was renamed to Taraz Metallurgy Plant and construction of two new ferroalloy furnaces RKO-25 (each of 25 Mwatt) was initiated. The order for both ore-smelting furnaces manufacture was given to designing bureaus of Russia. “While selecting a manufacturer we immediately agreed to attract Russian manufacturers and gas cleaning unit was taken from Ukraine. The choice was substantiated by long-term partnership and lack of discrepancies on requirements and standards in the aspect of industrial designing and construction, explained Mr. Rakhimov. Responsibility for construction, Master Plan development and transportation was assumed by KazNIIKhimproekt LLP (Kazakhstan Research Institute Chemical Project) and transformers and longitudinal compensators were brought from China.
Within 2007-2008 the furnaces ## 5 and 6 were repaired and started. Modernization (renovation) project was included to the Program “30 Corporate Leaders” (consequently became GPFIIR – SPAIID – State Program of Accelerated Industrial and Innovative Development) and Premier Masimov visited grand opening of one of those furnaces.
Once reanimated, the plant became second largest enterprise of Taraz: considering that Khimprom 2030 employed only 600 people, nowadays employment level is 1400 people. “Jambyl Region is a depressive one. Moreover this is a region with the lowest investment per head of population and non-developed industry – explained Aibek Rakhimov. Most of the population is self-employed – selling at the market. Currently our plant provides a significant share to gross domestic product of the region.
Every year, the team of the company becomes younger being added with highly-qualified specialists from Kazakhstan and CIS.

2

Changing the Banks
First phase of conversion of the plant – KzT 7.3 billion – was financed by CAICC. By virtue of participation in state programs, the project had drawn the attention of State Institute of Development – Bank Razvitiya Kazakhstana (Kazakhstan Development Bank - KDB). The role of the state in this project is quite significant. It is really good that we have such projects as Accelerated Industrial and Innovative Development, as we are being industrial enterprise are able to pretend for state funds. Kazakhstan Development Bank helped us with financing in such complicated time of crisis – said TMZ Director.
The period from negotiations with KDB to first tranche took almost one year (year 2008 to year 2009). Commercial banks of TMZ had been not considered at that time – financial world was under first wave of global crisis. KDB noticed that several favorable factors were the advantage for cooperation with TMZ, namely: plant manufactured higher-value-added product of a high demand at neighboring markets; a condition to apply ecologically safe advanced equipment able to lower energy consumption was agreed in advance. Existence of the companies possessing the rights for manganese ore deposits development with extraction facility in organization structure of CAICC was a redeeming fact for KDB. The experience accumulated by the management in metallurgy and infrastructure projects development inspired the confidence of KDB.
KDB decided to start financing in 2008. As mentioned by Dauletkhan Kilybaev, Managing Director, the bank was not afraid to join the project as it expected rapid markets rehabilitation. The specialists of KDB performed due diligence of project development strategy having assessed everything to ensure rate of return even under hawkish scenario.
Total project cost was USD 79.2 million (approx. KZT 11.5 billion). Last year TMZ LLP applied to KDB to assign a loan to second tier bank - Sberbank Daughter Bank JSC which proposed more attractive financing terms. Taraz folks tried to reduce the cost of the loan and KDB, having realized that this decision played into the hands of Kazakhstan export, manumitted TMZ.

Changing the Banks
First phase of conversion of the plant – KzT 7.3 billion – was financed by CAICC. By virtue of participation in state programs, the project had drawn the attention of State Institute of Development – Bank Razvitiya Kazakhstana (Kazakhstan Development Bank - KDB). The role of the state in this project is quite significant. It is really good that we have such projects as Accelerated Industrial and Innovative Development, as we are being industrial enterprise are able to pretend for state funds. Kazakhstan Development Bank helped us with financing in such complicated time of crisis – said TMZ Director.
The period from negotiations with KDB to first tranche took almost one year (year 2008 to year 2009). Commercial banks of TMZ had been not considered at that time – financial world was under first wave of global crisis. KDB noticed that several favorable factors were the advantage for cooperation with TMZ, namely: plant manufactured higher-value-added product of a high demand at neighboring markets; a condition to apply ecologically safe advanced equipment able to lower energy consumption was agreed in advance. Existence of the companies possessing the rights for manganese ore deposits development with extraction facility in organization structure of CAICC was a redeeming fact for KDB. The experience accumulated by the management in metallurgy and infrastructure projects development inspired the confidence of KDB.
KDB decided to start financing in 2008. As mentioned by Dauletkhan Kilybaev, Managing Director, the bank was not afraid to join the project as it expected rapid markets rehabilitation. The specialists of KDB performed due diligence of project development strategy having assessed everything to ensure rate of return even under hawkish scenario.
Total project cost was USD 79.2 million (approx. KZT 11.5 billion). Last year TMZ LLP applied to KDB to assign a loan to second tier bank - Sberbank Daughter Bank JSC which proposed more attractive financing terms. Taraz folks tried to reduce the cost of the loan and KDB, having realized that this decision played into the hands of Kazakhstan export, manumitted TMZ.

3

LINKS OF METTALLURGY CHAIN
TMZ is a cherry on the cake of CAICC – main Kazakh asset of SAT & Co, which incorporates, besides metallurgy plant, three mineral companies comprising mining block of vertically integrated holding. Available 100 million tons of reserves will be enough for 40 (forty) years of manufacture of FeSiMn. First mineral company – Arman-100 (CAICC owns 100%) deals with exploration and mining of manganese ore at Western Kamys deposit, Karaganda Region. Saryarka Mining LLP (CAICC - 80% and Saryarka Mining LLP – 20%) also operates in this region and deals with exploration and mining of ferromanganese ore at Tuebai-Syurtysuyskaya Area. Third company – KARUAN LLP (CAICC – 100%) deals with exploration and mining of manganese ore at Aitkoshe deposit, Mangistau Region. In 2009, ferroalloys segment of SAT&Co was added with Chinese assets – Jinsheng SAT (Tianjin) Commercial and Trading Co., Ltd possessing plants in Taonian, Baichen, Ulan Hot: SAT&Co owns 51% in three plants and 51% in trading company selling the feedstock from the plants. Should be noted that SAT&Co owns the companies dealing with extraction of nickel, chromium and coal, as long as the companies of steel-casting and petrochemical industry. 

Moreover, all conditions needed to ensure entering of commercial bank into the project were met: key risks were removed and performance parameters and niche occupied by TMZ LLP made the plant a “perfect borrower”, stated Mr. Kilybaev. At the same time Sberbank started refinancing of the loan of both TMZ and affiliated entities and therefore become creditor for group of companies, provided that KDB could not accomplish this even with lower interest rates.
As stated by Director General of TMZ, current year and year 2012 will be devoted for project development and complete reconstruction of furnace # 1 and # 2 with introduction of the-state-of-the-art gas cleaning system ensuring filtration of emission of hard particles up to 97% as long as overhaul of furnace # 5 and # 6 and production capabilities expansion. Sberbank demonstrated readiness and intent to finance implementation of TMZ development project, however there was a concern in capability for one bank to manage whole project. Most probably we have to consider syndicated loan from group of the banks or IPO, stated Mr. Rakhimov.
Moreover, all conditions needed to ensure entering of commercial bank into the project were met: key risks were removed and performance parameters and niche occupied by TMZ LLP made the plant a “perfect borrower”, stated Mr. Kilybaev. At the same time Sberbank started refinancing of the loan of both TMZ and affiliated entities and therefore become creditor for group of companies, provided that KDB could not accomplish this even with lower interest rates.
As stated by Director General of TMZ, current year and year 2012 will be devoted for project development and complete reconstruction of furnace # 1 and # 2 with introduction of the-state-of-the-art gas cleaning system ensuring filtration of emission of hard particles up to 97% as long as overhaul of furnace # 5 and # 6 and production capabilities expansion. Sberbank demonstrated readiness and intent to finance implementation of TMZ development project, however there was a concern in capability for one bank to manage whole project. Most probably we have to consider syndicated loan from group of the banks or IPO, stated Mr. Rakhimov.

4

Not everything is so smooth
The result of modernization project was transformation of an enterprise to powerful export-oriented production; pursuant to performance parameters of first 10 month of this year, 90% had been exported (or 19 thousand tons) regardless start-up phase of new furnaces.
Really, within several years TMZ had been able to set up counteragent’s network involving CIS and domestic markets. In order to increase efficiency of marketing policy and improve relationship with the customers of Russian Federation, Torgovy Dom SAT LLC (Trade House SAT LLC) and Torgovy Dom Kazferrosplav LLC (Trade House KazFerroAlloy LLC) were opened in Moscow and Chelyabinsk correspondingly.
There are four world leaders in ferrosilicon manganese production: China, Ukraine, Republic of South Africa and Norway. Two years ago Russia had suspended import of manganese ore and Ukraine share also reduced by one third (1st place in import volume in Russian Federation). Now, Russia covers existing demand using FeSiMn from Kazakhstan and India.
There are two more concerns – high tariffs for electric power and railway transportation. The requirement to separate electric power allocation quota during cold season onto northern and southern sources, reduces the competitiveness and increases the cost, pointed out Director General of TMZ. At the same time, lack of qualified specialists – steelworkers, electronic engineers – for efficient plant performance was also underlined by Director General of TMZ. The problem is really keen as we are forced to drain away specialists from Ukraine competitors.
Experience of working with low grade ore is both impelled and unique feature of TMZ LLP. Depletion of feedstock forces the management to search for new technological solutions. Current need in feedstock for ferrosilicon manganese smelting is 17 thousand tons per month and this will double considering future production output increase. Own fields cover only 30-35% of overall plant’s need and the balance is sourced from Kazakhstan deposits. The company is planning to expand own resource potential up to 70%. Carbonic reducing agents and flux metal necessary for production process are sourced in Kazakhstan, but this is not enough as many local manufacturers export large quantities of abovementioned components.

Other News