Don’t Zinc Twice It’s Alright

How have Atlas Copco’s operations progressed in 2016?

The mining sector is growing compared to the energy sector; however, unlike in 2010/2011, the current period is not a boom. Some believe it will take a number of years for it to be a boom again, though the sector is steadily picking up. This is good news but it has to be sustainable. I personally believe we will continue to grow at this steady pace, though not at “crazy” growth rates, and we may end this year with around 4-5% growth, compared to last year. We have taken market share and expect to continue doing so next year as well. The two other business areas, construction and compressors, are stable but not picking up at the desired rate; mining in this part of the world is definitely Atlas Copco’s key growth area.

Mining exploration is on the rise in Kazakhstan. What opportunities does this offer Atlas Copco?

Exploration is a part of what we do and it comes before mining. We have seen in 2016 exploration—on the underground side in particular—is picking up, though not much yet on the surface side. Next year surface exploration is expected to grow again. In South Kazakhstan there is a great deal of uranium and this is where Katco operates. We do not really have equipment for what Katco does; however, we sell portable compressors to it and we are developing a drill that will hopefully be useful for it that will be ready next June, possibly earlier. It uses old Russian equipment, which is cheap.

Is transportation a potential segment for your portfolio?

We do have equipment for the construction sector, so yes it is. There are remote areas in this huge country, so there are logistics issues, mainly deriving from the weather. In the north, roads are sometimes closed for days or weeks in the winter. There is a great need for new roads. It is mainly local contractors that build roads, but there is nothing truly big happening at the moment.

Is there a trend in the mining industry to turn to high-quality Western products?

Yes, the industry likes to use Western equipment but with Eastern pricing, which is unfortunate. There is constant pressure and all mines would certainly prefer to have European or American drill rigs but at Chinese prices. To overcome this, manufacturers have to try to educate their customers. It is not only about getting companies to understand that they have to pay for a great product; manufacturers have to make money too in order to support their customers adequately. If manufacturers are squeezed to the point where there are no margins, then they cannot employ people to support and service their customers; this must be clear. The difference between Western and Eastern quality used to be great but that is no longer the case. Eastern manufacturers have improved their quality, so the gap is smaller. Western manufacturers, meanwhile, focus more on aftersales. It is a big challenge to compete, and we are continually adapting our cost structure, because we have to make sure we deliver value to all our stakeholders.

How attractive is Kazakhstan’s mining sector to international investors?

Many international players left the market because they expected the mining code to become law last year; so long as it is not enforced, very few will come, except for Russian players, which understand the mentality and culture. Australian and American miners need to have a concession for a good number of years to operate to justify investments of billions of dollars. Companies do not want to put their money somewhere where there are uncertainties. However, there is great potential in mining; it could be as big as Russia, as Kazakhstan is endowed with metals and minerals all over the country. Kazakhstan needs to create a stable and safe investment environment or no one will invest. The new mining law will be based on the Australian code but it has not been implemented yet. Mining has huge potential and could be bigger than oil and gas; there is copper, gold, zinc, chrome, iron ore, gold, and uranium as well as strategic minerals.

What are your expectations for 2017?

I would like to see 10% growth. This is ambitious but mining is a cyclical business; if it bounces back it really will bounce back. It does not need to experience a boom. For example, we recently received an order worth EUR1 million, which two weeks later increased to EUR6 million; this demonstrates that things can change quickly. If we can get three or four such capital equipment orders a year then it is a different ball game. September was the best month in this region in the last two and a half years in terms of the orders received.