Broad overview of the company and its place in the industry

Auditing

Student’s name: Kalbayeva Liliya

ID: 20081656

Section 1

Re: Outside project: JSC “Altyntau Resources”

Date: November 28, 2011

Broad overview of the company and its place in the industry

For the last decades the intensive growth of the world prices on the gold makes the gold mining industry very attractive market, therefore increasing amount of investments make the gold one of the most stable tools for contributing your money (Smirnov S., “Kazakhstan”, 2011). Taking into the account this fact we can argue that Kazakhstani market of nonferrous metallurgy is a favorable spectrum for development and investments as it possesses with a great potential in the sphere of gold production. Thus the elaboration of the projects dealing with mining and production of the gold become more and more profitable, that at the same time creates favorable conditions for the organization of the gold-mining enterprises. Currently different large and small Kazakhstani companies concluded agreements on the field development of more than hundred of the gold ore deposits. Among the owners of the biggest ore reserves across the Kazakhstan are the “Altyntau Resources”, “Bakyrchikskoe”, “Kazakhmys”, “Kazcink”, “KazakhAltyn”, “Alel” (Smirnov S., “Kazakhstan”, 2011).

JSC Altyntau Resources, young company established in 2011 for the purpose of the development of the gold-mining industry in the Republic of Kazakhstan (Committee of the Industry Development of RK). It represents two subsidiaries: Altyntau Kokshetau and Altyntau Vostok which are located in the North and East of the Kazakhstan respectively. The company holds big gold-mining assets which are mainly located on the territory of the Republic of Kazakhstan. The history of Altyntau begins from 1963 year, when the Vasilkovsky gold ore deposit was discovered. This fact might be confusing, but before 2011 the company held the name of Vasilkovsky ore dressing and processing enterprise, then its rights were transferred to the Kazzink (currently the parent company) and, eventually, the company was renamed Altyntau Resources by the President of Kazakhstan. Thus, despite that the company was actually created this year; historically it possesses huge experience in the sphere of gold mining and holds forth a hope in developing of our country’s economy. The Altyntau has managed to cope with problems met by previous owners of the mining enterprise. It made big efforts to attract new investors and thus to construct a plant based on the new technologies which would enable the company to recover the gold according to the last modernizations. In addition to the Vasilkovsky deposit, other assets from Eastern Kazakhstan were attached to the company (such as Ridder-Sokolnoye, Dolinno-Obruchevskoye, Staroye Tailings, Chashinskoye Tailing, etc.). Altyntau Resources rapidly moves to achieve the mission of becoming the outstanding and prosperous company through the introduction of modern innovations to the gold-mining business. Committee of the Industry Development in RK reports that in near future Altyntau will become the biggest gold ore producer in Kazakhstan. The new gold-mining factory will be able to release fifteen tones of gold each year, thus the overall production of the gold in our country will reach the level of thirty-five tones of gold per year. Moreover, it is highly concerned about the environmental protection and strictly follows the requirements of our legislation in controlling the level of safety of each activity and healthcare of employees.

2. Top 4 risks the company faces

The business activity of the JSC “Altyntau Resources” can be affected mainly by four major risks including technical, production, financial and operational risks. The technical risk can be determined as a risk related to the expected/unexpected situations connected to the damage of the equipment, machinery and other technologies used in the work of the company; or the failures of application and introduction of the new technologies into the production environment. The JSC “Altyntau Resources” operates in gold-mining industry which can be characterized as a one that is specifically sensitive and dependent on the quality of the machinery and equipment used in the production; as well the skills and knowledge of the employees can greatly affect the technical performance of the company. Therefore deviations in the work of the mining equipment as well as unqualified personnel can lead to the technical risks. Moreover the remote areas of the main production work leads to difficulties in the transport of equipment, production materials and spare parts, which could affect the increase in the cost of the final product. This fact requires the resolution of different technical problems during the gold-mining operations. Among the technological risk factors include: flooding, collapse of quarry; accident related to the operation of mining equipment, preparation and conduct of large-scale blasting in the quarry, the reduction of production due to weather conditions, etc. Implementation of these risks may result in suspension of mining and ore processing, increase its cost, harm to human health and the environment, adversely affect the Company's production activities.

The production risks are related to the implementation of any type of production activity that is affected by the inefficient use of available resources, and raw materials; increase in the prime cost of the product and the inefficient allocation and application of the working hours by employees, introduction of the new technologies. In our case we can see that the core subject of the company profitability is the presence of the gold ore deposits, therefore such factors as the fluctuations in the cost of gold on the market, inefficient use of mined resources can result in a so-called production risks.

The third type of risks relates to the financial risks. According to the definition financial risks refer to the losses related to the financial resources generated by the company during its business activity. The main risks associated with the financial instruments of the company are market risks related to the changes in exchange rates of the operating currency and the changes in the interest rates; credit risk and the liquidity risk. The JSC “Altyntau Resources” consider the risk of changes in the interest rates as negligible one. The credit risk refers to the nonfulfillment of contractual commitments between the contractors and results in consequent losses in the company. The liquidity risk refers to the failure of the repayment of the company’s obligations as a result of the payment deadline occurrence.

The operational risks include a tax risks due to relatively new tax system in Kazakhstan which can be characterized by the numerous taxes and often changes in the legislation. Other risks can be associated with the changes in the legislation related to the protection of the environment.

3. Major elements of the company’s control environment

The following items can be referred to the elements of control environment to which the auditor should pay attention during the evaluation of the internal controls.

• Integrity and ethical values

• Board of directors and audit committee

• Management's philosophy and operating style

• Organizational structure, including assignment of authority and responsibility

• Commitment to financial reporting competence

• Authority and Responsibility

• Human resource policies and practices

Talking about the control environment of the company I can conclude that despite the fact that the company officially operates under the name JSC “Altyntau Resources” only from 2011 the management team of the company is strived for the creation and development of the strong control environment. At this moment the company has determined main priorities of its business activity and strictly follows them to accomplish the goal of becoming the biggest gold-ore producer in the Kazakhstan and further to take the leading position in the gold-mining industry in the world. The JSC “Altyntau Resources” has elaborated the code of conduct which is the base of the high standards of the corporate management of the company. The company pays special attention to its sustainable development adhering to the principles of increasing production through the introduction of innovative technologies to provide the safety and environmental protection.

One of the key issues in each enterprise is its management structure, which enable the company to run business smoothly through the delegation of activities to the specific departments and boards. The good-structured and efficiently organized management is important for JSC “Altyntau Resources” as well. The organizational chart demonstrates a big number of different departments of the company which share different responsibilities. The top of the chart is represented by the board of directors, where the chairperson and at the same moment the president of the company is Alidar Utemuratov. The activity of department of internal audit and financial control is regulated by the board of directors in order to ensure the company that all management activities are implemented carefully and in accordance with specified standards. As I mentioned before, safety and healthcare of employees is a very important aspect in the business of JSC “Altyntau Resources”. Every year the company spends a huge amount of money to provide workers, who is engaged in hazardous activity, with all needed equipment and annual medical examinations. The department responsible for the organization of employees’ protection named the Department of Safety and is located right at the top of the chart and is related directly to the president of the company. Then organizational structure is followed by the production, commerce, finance, development and administrative questions directors who are responsible for management of the different departments.

Talking about the commitment to the financial reporting competence I can conclude that the management team of the company is responsible for the preparation and the reliable representation of the financial information in the consolidated financial statements in accordance with the international financial reporting standards. Moreover, managers are responsible for the development of the system of internal control which is required for the preparation of the financial statements free of distortions and misstatements.

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