Many of Russia’s new gold projects are concentrated in Siberia and the Far East, areas characterized by extremely harsh winter conditions.

Many of Russia’s new gold projects are concentrated in Siberia and the Far East, areas characterized by extremely harsh winter conditions.

THE ONGOING DISCOVERIES OF NEW GOLD DEPOSITS IN SIBERIA AND THE FAR EAST COULD PROPEL IT TO FIRST PLACE AMONG THE WORLD'S GOLD-PRODUCING COUNTRIES IN THE COMING DECADE—BUT THE NEEDED LEVEL OF INVESTMENT IS NOT ASSURED

By Vladislav Vorotnikov

In 2013, Russia was the third largest gold producer in the world, following China and Australia and ahead of the United States, according to Russia's Minister of Natural Resources and Environment Sergei Donskoi.

And, according to official data ofthe Russian Union of Gold Producers (RUGP), Russian gold production increased by 12.6% year-on-year in 2013 to 254 metric tons (mt). Exports of gold concentrates increased by 63.2% year-on-year to 6.5 mt. In comparison, China last year increased gold production by 6.2% to 428 mt.

RUGP had previously predicted a decline in gold production in Russia in 2014, year-on-year, to 241 mt. However, with the startup of mining at several deposits in Siberia and favorable figures from the first quarter, the RUGP may reconsider its forecast.

The Russian government, which is actively investing in mineral exploration in Siberia and the Far East, often changes its forecasts for the development of mining in this region, because it doesn't really know how large the region's resources are. An optimistic forecast predicts that after 2017 the volume of gold mining there will exceed 250–270 mt, about 60–80 mt more than current production.

Earlier this year, the Federal Department for the Surface Resource Management at the Far East (Dalnedra) released a report that claimed exploration and reassessment of the Yana-Kolyma gold province in the Magadan Oblast and the Republic of Sakha (Yakutia) showed that this province is one of the world's largest, similar in many ways to Nevada in the U.S. The resource base for this province is believed to be about 5,000 mt of gold, and potential annual production could reach 200 mt within six or seven years.

Recent Gold Production from Russia's Top 10 Producers (metric tons)

Company Production Regions 2013 2012 % Change
Polyus Gold Krasnoyarsk Krai, Irkutsk Oblast, Republic of Sakha (Yakutia) 51.29 48.801 5.1
GC Petropavlovsk Amur Oblast 23.054 22.096 4.34
Polymetal* Magadan Oblast, Khabarovsk Krai, Sverdlovsk Oblast, Chukotka Autonomous Region 21.71 15.179 43.03
Chukotskaya GGK (Kinross) Chukotka Autonomous Region 17.113 17.986 -4.85
Nordgold NV** Trans-Baikal Krai, Republic of Buryatia, Republc if Yakutia 10.223 10.526 -2.88
Russdragmet
(Highland Gold)
Khabarovsk Krai, Transbaikalia Krai 7.269 6.746 7.75
GC Uzhuralzoloto Chelyabinsk Oblast, Krasnoyarsk Krai, Transbaikalia Krai, Republic of Khakassia 7 6.4 9.37
Visochaishee Irkutsk Oblast, Republic of Sakha (Yakutia) 5.458 5.23 4.36
Sovrudnik Krasnoyarsk Territory 4.186 3.903 7.25
Susumanzoloto Magadan region 3.918 3.7 5.89
Top 10 Total 151.22 140.566 7.56

Source: Company reports. *Excludes assets in Kazakhstan. **Excludes assets in Africa and Kazakhstan.

Earlier this year, the Federal Department for the Surface Resource Management at the Far East (Dalnedra) released a report that claimed exploration and reassessment of the Yana-Kolyma gold province in the Magadan Oblast and the Republic of Sakha (Yakutia) showed that this province is one of the world's largest, similar in many ways to Nevada in the U.S. The resource base for this province is believed to be about 5,000 mt of gold, and potential annual production could reach 200 mt within six or seven years.

According to Dalnedra, the most promising part of the Yana-Kolyma province is the western area, located in the Republic of Sakha (Yakutia). The government is currently proposing a scheme of cooperation to potential investors for project development and, according to preliminary plans, mining there could start in 2017 with annual initial production amounting to 110–120 mt. The total amount of investment in this project may reach$3 billion, but much of this moneywill go toward the construction ofinfrastructure.

If these plans are carried out, Russian gold production could rise to 400 mt per year by 2020. However, a more moderate scenario of industry development predicts that Russia will not be able to find investors for large gold projects, and as a result, production by 2020 would be about 295 mt.

Image title Both existing operations and new projects will require a considerable investment.

According to a representative of the Dalnedra, Timur Dolgov, the future of the gold industry in Russia will depend on the global market and the actions of the Russian government. Experts have raised concerns that growing political tension between Russia and Western countries over the situation in Ukraine may affect foreign investments in the Russian industry. The actions of the Russian government in Crimea and the armed conflict that followed in the southeast Ukraine regions have resulted in record capital outflows from Russia, and companies have put investment plans for Russia on hold.

However, a source within Polyusthe largest Russian gold-producer-who wished to remain anonymous, said that his company has forecast the price of gold in 2015–2016 to be between $1,500–1,700/oz. Given that scenario, far from today's $1,250/oz, investors could more easily justify gold mining projects.

A spokesperson for the Regional Administration of the Republic of Sakha (Yakutia) also added that the predicted profit margins for mining newly developed deposits is adequate even at current prices, and several potential investors have already entered into negotiations with the regional authorities for mine development in the region.


COMPANIES EYE EXPANSION

Image title
Sergei Kashuba, chairman,
Russian Union of Gold Producers.

The favorable prospects for the industry in general are evidenced by the large investment plans announced by most of the larger Russian gold producers.

Since 2009, Polyus Gold, the largest Russian gold producer, has increased gold production from its Russian mines by 34%. Polyus' current exploration program is aimed at developing a number of primarily indigenous and some alluvial deposits. The company also has initiated a research program for the Krasnoyarsk Territory, all though only 4% of the territory's mineral-resource base there has been documented. The study should be completed within two years.

The Olimpiada operation remains Polyus Gold's main asset. Despite having been in operation for 20 years, proven and probable reserves there still amount to about 933 mt. The company's Verninskoye mining and processing facility located in Irkutsk Oblast, which started up in late 2011, has rapidly increased production, having already reached its designed capacity of 2.77 mt/y of gold. At the Titimukhta deposit, production in 2013 amounted to 4.07 mt, an increase of about 12% year-on-year. The most promising project isthe development of the company's Natalkinskoe deposit, located in the northeast. The deposit will be one of the largest in the country, according to Polyus. Mining there will start up in mid-2015, with a projected output of 16–20 mt/y of gold.

Polymetal, another large Russian producer, continues to eye further expansion. In recent years, its enterprises in the Urals, in the Khabarovsk Krai, Magadan Oblast and Chukotka Autonomous District increased gold production by 37% to 25 mt. The rich ore body at the Mayskoye deposit in Chukotka Autonomous District made this possible. Several hydro-metallurgical complexes in Khabarovsk Krai and Amur Oblast reached their design capacity in late 2013 and early 2014. The company is also preparing to begin mining at Omolon in the Magadan Oblast. It's difficult to say what the capacity will be for those minesPolymetal doesn't know exactly how much gold is there yet.

Expansion plans in the Russian gold industry have been announced not only by Russian, but also by foreign companies. In fact, the level of foreign capital in the gold sector is the highest among all mining industry sectors in Russia. There are currently seven foreign gold companies operating in Siberia and the Russian Far East. Some of them are producers, while others are exploration companies.

Top Gold Mining Regions of Russia in 2011-2013 (mt)

  Production (mt)
Region 2011 2012 2013
Krasnoyarsk Krai 39.57 43.93 47.6
Amur Oblast 29.11 29.05 30.98
The Republic of Sakha (Yakutia) 19.36 20.89 21.6
Chukotka Autonomous Region 20.15 17.98 21.36
Irkutsk Oblast 16.97 18.93 20.6
Khabarovsk Krai 12.48 14.9 20.53
Magadan Oblast 15.25 19.61 20.47
Trans-Baikal Territory 6.29 8.67 10.05
Sverdlovsk Oblast 8.15 7.64 6.65
Republic of Buryatia 6.5 6.01 5.93
Chelyabinsk Oblast 3.76 5.03 5.3
Kamchatka Krai 2.49 2.49 2.21
Republic of Tyva 1.37 1.71 2.16
Republic of Khakassia 1.16 1.39 1.6
Altay Krai 0.8 1.09 1.13

Source: Russian Union of Gold Producers

 

In 2013, foreign companies accounted for 22% of Russian gold production, or about 50 mt. Most of this production came from the two largest companies: Chukotskaya GGK (owned by Kinross Gold) launched the second mine in the Chukotka Autonomous District at the Doinoe Deposit in October 2013. The company produces about 17 mt/y of gold in Russia; last year its production dropped slightly by about 0.6–0.7 mt. With the launching of the second mine, production in the future may grow to as much as 20–22 mt/y and the company is considering further investments there.

The outlook is not so bright for the largest foreign producer in the country's market, GC Petropavlovsk. In 2013, it produced 23.05 mt of gold, which is 4% higher year-on-year, but lower than the company expected. Gold production from Petropavlovsk was negatively affected by floods in the Amur Oblast, which damaged infrastructure and hampered production for several weeks.

Similar to most gold producers, the company is unhappy with current prices and has had to revise its plans for its processing plant with regard to flotation, the autoclaves and leaching of refractory ores. The project has been delayed by at least five years, according to the company, and gold production there will probably not grow significantly in the short term.

In 2013, the top 10 gold producers in Russia increased production from 141 mt to 151 mt, with only two producers experiencing a drop in production: Petropavlovsk and Norgold. Norgold's production fell by 0.2 mt year-on-year, tied to planned renewal of equipment and the beginning of a new investment period. The company plans to launch several new mines in the Trans-Baikal Krai, and as a result will increase production in 2014.

Image title While the volume continues to decrease, Russia will probably produce gold from placer mining for another 10 years.

COULD BE HIGHER…

The potential for future Russian gold production could be much much higher than expected, as much of the regions where new discoveries are being made remain unexplored. The country's gold resources may significantly exceed its current forecasts. For instance, more than 270 mineral deposits have been discovered during the last five years, about two times more than initial forecasts.

According to preliminary information, during the first half of 2014, the country's top 10 producers mined 79 mt of gold, which is about 9% higher year-on-year. Total production this year by these companies is projected to be 165 mt. Placer gold production throughout the country continues to decrease, but should carry on for another 10 years.

It's interesting to note that Russian companies in coming years may explore prospects for gold mining in North Korea's territory. North Korean authorities have offered to provide access for Russian companies in exchange for military aircraft. Early in 2014, the Korean agency Chhondin and Russian Northern Mines Co. reached a preliminary agreement on joint participation for the study of gold deposits located in the province of North Pyongan Pekdon and other properties owned by the Korean company.

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