Engineering & Mining Journal

SEP 2017

Engineering and Mining Journal - Whether the market is copper, gold, nickel, iron ore, lead/zinc, PGM, diamonds or other commodities, E&MJ takes the lead in projecting trends, following development and reporting on the most efficient operating pr

Issue link: https://emj.epubxp.com/i/872627

Contents of this Issue

Navigation

Page 45 of 99

RUSSIAN PROJECTS 44 E&MJ; • SEPTEMBER 2017 www.e-mj.com The economic crisis in the Russian Fed- eration, created by Western sanctions and falling global oil prices, at first glance seemed to be manna from heaven for the country's mining industry. The foreign exchange rate for the Russian Ruble col- lapsed three times recently and each time export revenues surged, benefiting domes- tic miners. Even today, with the Ruble not as weak as it once was, export supplies are determining the direction of the country's mining sector for the coming decade. For some segments, such as gold and aluminum, the weak Ruble offset the neg- ative effect of relatively low metal prices. The miners were profitable and encour- aged to invest more. Weak domestic cur- rencies, however, have an important side effect. It drives up inflation, making the federal government less popular, which on the edge of the 2016 Parliament election and 2018 presidential election, the au- thorities simply could not afford. For this reason and with the help of foreign currency inflows into Russian as- sets under so-called carry-trade operations -- when an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate -- the Ru- ble in 2016-2017 rolled back most of its losses. While the Russian Economy Min- istry forecasts the Ruble will weaken by 15%-20% in one to two years, prospects for export-oriented miners have dimmed, especially as new challenges take their toll. The Time for Giant Golden Mines Nowadays, the Russian gold sector is waiting for the two major events: the commissioning of the Natalka Mining and Processing Works, known as Natalka GOK, in Magadan Oblast by Polyus Gold, and the start of the construction at the Sukhoi Log deposit in Irkutsk Oblast by a joint venture of Polyus Gold and state- owned corporation Rosteh. Polyus Gold, the country's largest gold mining company, felt the pain of the col- lapsing gold price after 2012. However, in 2015 and 2016, the company enjoyed some relief, as the Ruble devaluation al- lowed it to earn $1.19 billion and $1.44 billion, respectively, and gave a second wind to the company's investment program, and the construction of Natalka GOK. Acknowledging the positive effect of the devaluating currency, executives at Polyus, however, indicated that there were several other factors supporting the improvement of financial performance. Pavel Grachev, general director of Polyus, in particular said that in 2015 improvement in profit- ability was also related to a 4% increase in total production and a 28% reduction in production costs. He said the compa- ny's recovery rate has improved to 85%. In total, he estimated, the large-scale opti- mization program secured savings of some $100 million for the company in 2015. Nonetheless, in 2015, Polyus decided once again to postpone Natalka GOK. The company started the project in 2011 and originally planned to commission it in late 2013. Construction should be completed later this year and it should reach its de- signed production capacity of 500,000 oz per year (oz/y) of gold in 2018. The proven and probable ore reserves at the Natalka deposit are estimated at 319 million met- ric tons (mt) with a grade of 1.6 grams per mt (g/mt) gold, which corresponds to gold reserves at 16.2 million oz. Measured, in- dicated and inferred mineral resources of the deposit are estimated at 777 million mt with the content of 1.5 g/mt with re- sources at 36.8 million oz. Polyus estimated that the Natalka GOK price tag is at $1.1 billion. The math is a bit fuzzy as the Russian government in- vested $150 million into infrastructure in 2015. For the time being, Natalka GOK will become one of the company's most valuable assets and one of the largest as far as processing capacity. In early 2017, Polyus together with Rosteh through a competitive bidding procedure won the right to open a mine at the Sukhoi Log deposit, which is be- lieved to be Russia's largest gold deposit, containing 50 million oz of gold or 28% of country's total reserves. Sergey Kashuba, the chairman of the Russian Union of Gold Miners, estimated the cost for the Sukhoi Log development at $5 billion to $6 billion. However, shortly af- ter the end of competitive bidding procedure Polyus sent a circular to investors claiming the company could lose this asset, attrib- Russian Miners Invest in Additional Capacity Despite currency fluctuations and sanctions, Russian miners plan to supply more diamonds and minerals to export markets By Vladislav Vorotnikov Polyus Gold plans new giant mines in Russia, similar to the Vostochny pit seen here. (Photo credit: Polyus Gold)

Articles in this issue

Links on this page

Archives of this issue

view archives of Engineering & Mining Journal - SEP 2017