In early October 2022, Ross Bhappu, Resource Capital Funds (RCF) Partner responsible for Private Equity Mature Funds, represented RCF at the grand opening of the new gold processing facility at the RG Gold mining site in Kazakhstan. In this post, he shares some of his thoughts and observations about the event.
Early on Friday, October 7th, I arrived at Astana, the capital of Kazakhstan, excited to attend a grand opening ceremony at the RG Gold mine and looking forward to connecting with various people responsible for the operation’s success.
RG Gold, a portfolio company in RCF Fund VII, is a Kazakh mining and production company operating one of the largest gold operations in the country. The deposit is in the Burabay district of Akmola Oblast (region), covering an area of 67.7 sq. km that consists of two pits: North and South Raygorodok. I was in Kazakhstan to celebrate the launch of a new carbon-in-pulp (“CIP”) gold processing facility, with a capital cost of approximately $420 million that will enable the company to quadruple its output of gold in the form of doré, an alloy of gold and silver. Partially refined doré bars are shipped from the mine site to refiners who separate the metals to produce 99.999% pure gold.
My first stop was the offices of Verny Capital, one of the largest private equity groups in Kazakhstan and RCF’s partner in RG Gold, where I had been asked to speak to a Reuters journalist for background on the grand opening.
Originally the sole owner of RG Gold, Verny was attracted to RCF’s technical mining expertise, and brought us on board. RCF is a very active partner: we have two appointees on the Board, we chair the Technical Services Committee, and we have our people on site on a regular basis. We also now have a significant stake, along with our co-investors owning approximately 35% of the company.
At Verny, I was able to meet with Yerlan Ospanov, CEO of Verny Capital, Olga Abdrakhmanova, Chief Communications Officer, and Daniyar Zhusupov, Executive Director and my primary contact during the visit. I also spoke to the journalist, of course, and discussed our technical contributions, our experience investing in Kazakhstan, and our appreciation for our partners there.
The Grand Opening
The next day was the Grand Opening. The trip from Astana to the mining site isn’t particularly long, and I was invited to fly by helicopter with the Vice Minister of Infrastructure along with his assistant and two members of Verny Capital/RG Gold. The Kazakhstan Government has taken a deep interest in RG Gold as a successful domestic mining project, doubly notable for attracting investment from a Western financial company in a financing partnership with Verny.
A number of high profile government officials participated, including the Provincial Governor, various vice ministers, and several local politicians.
The helicopter flight allowed for a great view of the extensive work that had been conducted on-site. The facilities were completed on time and on budget, a particularly impressive feat considering that it was all done during first Covid and, more recently, the war in Ukraine, which has impacted logistics and equipment procured through Russia. Most of the issues have been worked out; the few that have not have resulted in higher but still manageable costs.
On arrival we entered the mill building where we met up with the rest of the guests and RG staff. All told, there were about 120 attendees, made up of local, state, and federal government guests, Verny staff, representatives from the Development Bank of Kazakhstan which provided about US$300 million of debt to the project, engineering and construction contractors, and of course the RG Gold operating and construction team. In addition to various VIPs, the press was well represented, with several journalists present.
We had an informative tour of the plant, which is impressive, still very new, and exceptionally clean. In fact, good housekeeping across the entire site was notable. This clearly was not simply for the benefit of the guests, but part of the culture instilled by RG Gold CEO Lawrence Rossouw and his management team.
After the tour, it was time for the ceremony itself. Speeches were given, first by Yerlan Ospenov, Verny CEO, who complimented the RG team, the government officials, and the banks. Yerlan was very complimentary of RCF and went out of his way to highlight our relationship.
Lawrence Rossouw then spoke, expressing his gratitude for the team and their hard work in building the facility on time and on budget. He got quite emotional as he explained that it was not easy and there were many people who did not think it could be done.
I was then asked to speak on behalf of RCF. I too expressed our gratitude for the hard work in building and commissioning the plant and our appreciation to the Kazakhstan government for the relative ease of doing business here and the transparency during the permitting and construction phases. I also expressed appreciation for Verny Capital as our partner, to the engineering and construction contractor, and to the management team.
The celebration lasted a few hours, and it was a very positive experience. I was proud to be there representing Resource Capital Funds. My overall impression is that this is a high-quality management team with a no-nonsense approach. The senior team has essentially lived on site continuously for an extended period to make sure construction progressed as scheduled and can be justifiably proud of their company’s accomplishments.
This was an important event for Kazakhstan to demonstrate their strong existing and growing mining industry and that they continue to be a good mining jurisdiction with domestic and international companies increasing their in-country investments. The country recognizes the demand trends for key minerals and metals driven by decarbonization, and they are looking to shift away from oil & gas. In fact, during a tennis match I attended as part of the celebration, the big screens consistently showed videos of mining operations across the country.
Impressions of Kazakhstan
I spent the remainder of my brief trip in Astana, which I found modern and sophisticated. My hotel was next door to a luxury mall with Gucci, Louis Vuitton, Tiffany, and similar stores. I was very comfortable walking freely around the city and had no safety concerns about traveling there.
Russia and Kazakhstan share a 7500-km border, so what happens in Russia always has an impact, but despite the war in Ukraine, Kazakhstan seems to be operating very well with only limited disruptions. It was explained to me that there has been a recent influx of about 200,000 Russians into the country, most of whom are fleeing the draft, and housing in Astana is in shorter supply, but for the most part, the Kazaks I spoke to seemed to feel that things are “business as usual.”
The most noticeable impact was on flights to and from Kazakhstan. Normally, these would be fairly direct from either Germany or England. However, as shown in the picture below, my flight path from Astana to Frankfurt shows us completely avoiding the Ukrainian air space and adding substantial time and distance to the flight.
I came away feeling extremely positive about the future of RG Gold and about investing in Kazakhstan. We have been very pleased with the transparency and the quality of local engineering and workforce and the value of the relationship we have built with Verny. We look forward to a long relationship with Verny and a profitable investment in RG Gold. We also look forward to exploring other opportunities in the region.
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