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The weakening of the national currency gives Russia a chance to become one of the world's gold mining leaders - EastRussia | Analytics of the East of Russia

Irkutsk
Ulan-Ude

Blagoveshchensk
Chita
Yakutsk

Birobidzhan
Vladivostok
Khabarovsk

Magadan
Yuzhno-Sakhalinsk

Anadyr
Petropavlovsk-
Kamchatsky
Moscow

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Patience is gold

The weakening of the national currency gives Russia a chance to become one of the world's gold mining leaders

Patience is gold

Against the background of low prices for precious metals, ruble incomes of miners increased significantly. The Ministry of Natural Resources is confident that the future growth will be provided by the East of Russia. If this happens, it is only thanks to the margin of strength of Russian subsoil users and the reduction of production in other countries, industry representatives and experts say.

Reach for the Middle Kingdom

As a result of 2014, Russia increased gold production by 9%, to 272 tons and became the second producer after China with its production of 465,7 tons. We have bypassed Australia and the USA. Such, while preliminary, estimates are given in the analytical report Thomson Reuters GFMS. According to the Union of Gold Miners of Russia, in 2013, 254,2 tonnes of gold were produced in Russia, taking into account exported concentrate (6,495 tonnes). Last year, for example, the country produced 254,5 tons. According to the Ministry of Finance, published in early February, gold production amounted to 287,98 tons, including: gold mining - 232,185 tons, passing - 16,88 tons, secondary - 38,9 tons. In the Far Eastern Federal District, production of mining gold was 127,3 tonnes, followed by the Siberian Federal District with 90,2 tonnes. According to the head of the Ministry of Natural Resources Sergei Donskoy, this year can be passed 300-tonne boundary.

“In general, both the increment in reserves and the levels of gold production in Russia are breaking records. I think in 2015, we will overcome the 300 mark in tons of annual production. This will happen, first of all, due to involvement in the development of gold deposits in the Far East and southern Siberia, ”the minister writes on his Facebook page. The fact that gold miners are increasing volumes to compensate for the fall in prices for precious metals, industry representatives and experts spoke all of the past and before last. After the collapse at the turn of 2012-2013, when for several months the price went from historic highs of $ 1800 to $ 1200 (where it is still marking time) large companies had only one way out. Reduce costs and extract as much gold as possible, as well as sell off some of the reserves of past years. Forecasts for the future of the entire industry were different. Thus, Sergey Kashuba, chairman of the Union of Gold Producers, noted that at the turn of $ 1100 per ounce, up to a third of Russian enterprises would simply cease to exist. Very few people believed that the yellow metal would quickly rise in price: at the beginning of last year, Vitaly Nesis, CEO of Polymetal, for example, announced a year and a half of hard work at not too comfortable prices.

World production of gold by the end of 2014 year (according to GFMS)

number

Country

Gold extraction, tons

Change, %

2013

2014 (tentative)

1

China

438,2

465,7

6

2

Russia

248,8

272

9

3

Australia

268,1

269,7

1

4

USA

228,2

200,4

-12

5

Peru

187,7

169,3

-10

6

South Africa

177

164,5

-7

7

Canada

133,3

153,1

15

8

Mexico

119,8

115,7

-3

9

Indonesia

109,2

109,9

1

10

Ghana

107,4

106,1

-1

11

Brazil

80,1

80,5

1

12

Uzbekistan

77,4

80,4

4

13

Papua New Guinea

60,5

59,2

-2

14

Argentina

50,1

57,6

15

15

Mali

48,2

48,3

0

16

Kazakhstan

42,4

47,8

13

17

Tanzania

46,6

44,3

-5

18

Chile

48,6

43,9

-10

19

Colombia

41,2

43,1

5

20

Philippines

38,7

39,4

2

Other countries

498

538

8

Total

3 049,5

3 109

2

Gold mountains in ruble equivalent

Saving the industry came from where not expected. Instead of measures of integrated support of miners, an impressive list of which the representatives of the Union of Gold Producers offered to the government, instead of reducing production in other gold-mining countries, the ruble collapsed.

"The selling price of gold has almost doubled in rubles. I'll tell on the example of one of the medium-sized companies of the Far East with revenues of 3-4 billion rubles. They have a production cost 2013 year-1430 rubles, the average selling price - 1415 rubles, that is, they were at a loss. In 2014, the cost price is exactly the same, and the selling price is 1500 rubles. And this year, what they have already sold is the average price of 3600 rubles with the previous prime cost, "comments VTB Chaba Zentai, a member of the board of VTB. According to him, the gold mining sector of the Far East after the devaluation of the ruble "feels good, this industry is even winning at the moment," says Chaba Zentai, a member of the board of VTB Bank.

The debt burden of companies also does not seem so heavy. “If the loan portfolio in rubles is a company in chocolate. With a loan portfolio in dollars, the answer to the question depends on the level of debt of the company. If this is a two-month turnover, this is acceptable, if a five-six-month turnover is a significant burden, and even a sharp increase in the price in rubles may not compensate for dollar expenses, ”explains the manager. Evgeny Orlov, head of the VTB branch in Khabarovsk, adds that for all-merchants, who are usually credited in rubles, even the current increase in loan rates is not disastrous, since the price of gold has won back the costs. “Therefore, for the segment of medium-sized regional business, the current situation will be a plus,” he concludes. However, Sergei Kashuba, chairman of the Union of Gold Producers, argued the opposite: in November-December 2014, “everyone was shocked by the interest rates on loans,” so that further growth in production is held back.

In December last year, analysts of the investment holding FINAM noted that the year has developed quite well for the industry. It started at 1290 rub. For one gram, and ends at a level higher than 2200 rubles., That is, in ruble terms, gold has grown by 75%. The weakening of the ruble by 60% spurred demand for metal as an insurance asset. In addition, the Russian Central Bank set a record for gold purchases, increasing them by half compared to the 2013 year. The stocks of monetary gold in the international reserves of the RF as of 1 January 2015 year have grown since the beginning of 2014 year by 16,5% or 171 ton - up to 1206,8 tons, according to the Bank of Russia. The value of gold in reserves increased by 15,3%, from $ 39,99 billion to $ 46,089 billion, and the share of gold in international reserves from 7,8% to 11,96%. Thus, the Central Bank bought gold for $ 6 billion.

As forecast in FINAM, the monetary authorities will continue the policy of diversifying international reserves and this year, therefore, the purchase and extraction of gold will grow. Last year, new assets in the East of Russia were provided with progress: the Omolon hub deposits in the Magadan region, as well as the Mayskoye in Chukotka and Albazino in the Khabarovsk Territory (Polymetal); Verninskoye deposit in the Irkutsk region (Polyus Gold), Albin and Malomyr in the Amur region (Petropavlovsk Plc); Double and Dome (Kinross Gold); Tabor and Berezitovoye deposits (Nordgold); White Mountain (Highland Gold Mining). Are the leaders of the industry ready to increase production in the future, will the Far East become a locomotive for the development of the industry, as the head of the Ministry of Natural Resources Sergei Donskoi predicted?

Desired booty

First, let's look at regional statistics. It will still be specified, however, from the messages of the relevant departments and companies, there is a general picture. The rating of the gold mining regions of the Far Eastern Federal District was headed by Chukotka, the Amur Region lost its position, followed by Kolyma, Yakutia and the Khabarovsk Territory.

Subsurface users of the Chukotka Autonomous Okrug in 2014 increased gold production by 30% compared to the previous year to 32 tons. "The increase in indicators was achieved thanks to the launch of the concentrator at the Mayskoye deposit (Polymetal) and the Kinross Gold mine in 2013," the district department said. So, on the Double produced 10 tons of ore gold, at May 5,8 tons.

31,6 tons of precious metal were mined in the Amur Region. The leader is traditionally Petropavlovsk Plc. At the same time, the company itself met a collapse in gold prices with a net debt of about $ 950 million and is now waiting for a decision of shareholders about the restructuring of a bond loan of $ 310 million. The fact is that the company initially built a business model based on $ 1500 per ounce and was not ready for the raw "pit". Now, as Pavel Maslovsky, the company's co-founder, recently stated, all management decisions are undergoing a stress test at the $ 1000 level per ounce. At the same time, the company is not planning any sudden movements in the near future and will develop on the basis of the existing raw material base.

The second large enterprise, owned by Nordgold Berezitovy Mine, increased its performance in 2014 by almost 0,3 tonnes. The result is 4,3 tons of precious metal. Leaders, as usual, are OAO "Privysk" Solovyevsky "and ZAO" Hergu ". At the same time, "Solovyevsky" intends to produce 2016 tons of ore gold by the year of 1,5.

In the Magadan region, 24,14 tons of gold were mined, which is 2,8 tons more than in 2013 year. The increase in gold production from ore deposits amounted to 2,26 tons, of placers - 547,8 tons. Polymetal, which is the largest subsoil user in the Magadan Region, produced 2014 tons of gold in 6,8. OJSC "Sumsumanzoloto" produced more than 3,9 tons. A little more than a ton was produced by GK Maiskaya LLC.

In 2015, the enterprises of the region expect to reach 24,5 tons of gold. As the Ministry of Natural Resources and Ecology of the region notes, this is the minimum planned level of production, which does not take into account the Pavlik field's performance (the investment company Arlan owns the development license). The mining and processing plant in Pavlik is now operating in commissioning mode, and this year it is expected to produce no less than a ton of gold. When reaching the designed capacity, production will be up to 6 tons per year.

Yakutia following the results of 2014 year increased gold production by 5,5%, to 23,53 tons. However, the extraction of ore gold remained approximately at the level of 2013 year - 11,52 tons. But the placers increased the indices by 11,6% to 12 tons. As Minister of Industry of the Republic of Andrey Andrey Panov noted, progress was achieved thanks to the commissioning of the new ore mine Gross in the Olekminsky region (Nordgold), placer gold deposits in the Verkhnekolymsky and Ust-Yansky uluses. Also, the growth of indicators is associated with an increase in the gold recovery ratio in some fields. The production among the main leaders of the industry was distributed as follows: Aldanzoloto LLC extracted 4,28 tons, Tal LLC - 2,3 tons, OJSC Zoloto Seligdara - 2,28 tons, ZAO "Zoloto Search" - 2,28 tons. Let's note that Nordgold intends to produce at Gross alone about 220 thousand ounces of gold, which corresponds to 6,84 tonnes. So far, according to the results of 2014, the company produced 65,9 million ounces at the Tabor and experimental-industrial section of Gross - it is just over 2 tons.

Khabarovsk Krai enterprises in 2014 showed a record level of production over the past ten years - 20,7 tons. According to the ministry of natural resources of the region, in 2013, large projects of Albazino (Polymetal) and White Mountain (Highland Gold Mining) were put into operation, which ensured growth during the last year. The volume of ore gold mining in the region amounted to 16,5 tons and exceeded last year's figure by more than 2,5 tons.

Placers also slightly exceeded their annual plans, by washing 4,2 tons. For comparison, in 2012, 4,117 tons of gold were washed. The Amur miners' artel at the Konder deposit in the Ayano-Maysky district kept the level of platinum production at the level of 2012 year - more than 3,5 tons. The volume of silver mining in the 2013 year was slightly lower and amounted to 89,3 tonnes.

The indicators of the Kamchatka Territory are 4,37 tonnes (+ 72%) of gold. The main share of production falls on the indigenous deposits - 4,29 tonnes (an increase of 73,8%). The leader was Renova Group of Companies - over 2 tons. Trans-Siberian Gold produced 1,32 tons of gold.

Gold production in the main gold-mining regions of Russia (generalized data).

Place

Regions

Gold production by years, t

Change
(2013 – 2012)

2012

2013

2009

2010

2011

2012



2013

т

%

1

1

Krasnoyarsk Territory, SFO

33,8

36,1

39,6

44,0

47,6

3,6

8,2

2

2

Amur Region, DFO

21,9

19,8

29,1

28,7

30,6

1,9

6,7

6

3

Chukotka Autonomous Okrug, DFO

31,2

24,9

20,1

18,2

24,6

6,4

35,1

3

4

Sakha (Yakutia, Rep.), DFO

18,6

18,6

19,4

21,3

22,3

1,0

4,6

4

5

Magadan Region, DFO

13,7

15,5

15,3

19,7

21,4

1,7

8,6

5

6

Irkutsk region, Siberian Federal District

15,0

16,0

17,0

18,3

20,7

2,4

12,9

7

7

Khabarovsk Territory, DFO

14,7

15,2

12,5

18,1

20,7

2,6

14,4

8

8

Trans-Baikal Territory, Siberian Federal District

5,5

5,5

6,3

8,3

9,5

1,2

14,1

9

9

Sverdlovsk Region, UFO

7,3

8,3

8,1

7,7

6,6

-1,1

-14,3

10

10

Buryatia (rep.), SFO

6,6

6,0

6,5

5,9

5,9

0,0

0,4

11

11

Chelyabinsk Region, UFO

3,9

3,6

3,8

5,0

5,3

0,3

6,0

12

12

Kamchatka Krai, DFO

2,3

2,2

2,5

2,1

2,5

0,4

19,4

13

13

Tyva (Rep.), SFO

1,2

1,4

1,4

1,7

2,2

0,5

27,1

15

14

Khakassia (rep.), SFO

0,7

1,2

1,2

1,3

1,6

0,3

23,2

14

15

Altai Territory, Siberian Federal District

nd

nd

1,3

1,5

1,5

0,0

0,0

It remains to see out to the end

What does the reporting of leading companies say? Polyus Gold for 2014 year produced 1,67 million ounces or 52 tons of gold (+ 3%), the plan for 2015 year is 1,63-1,71 million ounces (51-53 tons). "Despite the continuing decline in gold prices, -8% compared to 2013 year, resulting in an 7% decline in expected revenue, the financial position of the group remains strong," the press service of Polyus Gold General Director Pavel Grachev said. However, for the industry it became very unpleasant (although, proceeding from behind-the-scenes conversations - quite expected), the company's decision to delay the development of the Natalka deposit from the summer of 2015 for an indefinite period. With such a statement, Polyus spoke in November.

The company was led by incorrect data from the Soviet period, on which the block model of the deposit, prepared in 2011, was based. They accounted for up to 60% of all exploration information. After a second audit, which was released in February, gold reserves fell by 49%, to 16,2 million ounces of gold (with a metal content of 1,6 g / t). The resources are estimated at 36,8 million ounces (with 1,5 g / t content), the decline to 2011 data was 38%. "The revision of the field development project is planned to be completed in the middle of 2015, negotiations with potential partners are continuing. The ongoing design work is aimed at minimizing current capital costs and optimizing the infrastructure already built, "the company said.

According to Polyus' plans, after the launch of the third stage of GOK, gold production at Natalka should be 1,6 million ounces, which is comparable to the current performance of the whole company. According to Sergei Kashuba, the shift in the timing of Natalka's launch will not have a significant impact on the industry, but for the Magadan region this will be sensitive: huge expectations were associated with the project. Representatives of the industry say privately that the example of Poluys Gold is indicative in terms of where ambitious megaprojects can lead, not based on thorough geological survey and thorough financial planning.

Do not expect explosive growth from other Russian leaders. "Polymetal" exceeded the plan for 2014 year, instead of 1,3 million ounces, mining 1,43 million ounces (44,5 tons). This year the company has laid in the plan 1,35 million ounces or 42 tons. In the Far East, the company concentrates on low-cost projects with good logistics. Polymetal is keeping its strength for its largest project to develop the Kyzyl deposit in Kazakhstan. After its release at full capacity, production will grow 1.5 times to the current level.

Petropavlovsk Plc cut production by 15,7% compared to 2013 year - to 624,4 thousand ounces (19,42 tons). However, the decline in performance is due to the sale of remote and high-cost assets. At 2015, the plan is 680-700 thousand ounces (21,15-21,77 tons). As already mentioned, Pavel Maslovski announced the maintenance of current production volumes with systematic reduction of the company's debt. The growth of indicators to 258,9 thousand ounces, which is 8 tons (+ 10,8%), reported Highland Gold Mining (HGM). The company forecasts in 2015 year the increase in production by 4-10% to 270-285 thousand ounces (8,4 - 8,9 tons).

Thus, the earlier taken course towards systematic growth of production continues, but it does not promise breakthroughs. At the same time, the depreciation of the ruble against the dollar continues to have a favorable effect on gold mining, the leading companies confirm. Polymetal estimates the cash costs for 2014 in the amount of $ 625-675 / oz of gold equivalent and total cash costs of $ 900-950 / oz of gold equivalent, which is lower than expected at the beginning of 2014 (cash costs at $ 700 -750 and total costs - $ 975-1025). The ruble share in the cost of Polymetal production is about 60-70%.

The press service of Highland Gold Mining reported that the share of ruble costs in the cost of gold for the company is about 60%. "In December, we published a forecast that according to the TCC for 2014, we generally expect around $ 650 per ounce. Since the share of ruble costs prevails in the formation of cost, we, like our colleagues, can count on the favorable effect of devaluation on our costs. Despite this, we continue to work actively on a program to optimize and reduce costs, "- say in the HGM.

According to the monitoring of the London Bullion Market Association (LBMA), at the end of the first half of the year 2014, with an average gold price of $ 1,29 thousand per ounce, Polimetall's total cash costs (TCC) were $ 627 / ounce , At Polyus Gold - $ 662 / ounce, at Nordgold $ 708 / ounce, at Kinross $ 734 / ounce. The indicator of all-in sustaining costs (AISC, total costs) in the first half of the year at Kinross was $ 988 / oz, Polymetal was $ 938 / ounce, Polyus Gold $ 905 / ounce and Nordgold $ 899 / ounce.

At the same time, the average price for gold in 2014 year, according to the Union of Gold Miners, was $ 1267 per ounce. By the end of this year, the organization expects a price in the range of $ 1300-1350 per ounce, with the growth of 3-7% - to support prices may be the investment demand for metal. At the same time, Thomson Reuters GFMS predicts a decline of 8%, to $ 1170 per ounce. The consensus forecast of analysts polled by LBMA is $ 1211 per ounce (decrease by 4,4%).

"We are witnessing a classic crisis of overproduction, both in oil and in iron ore, copper - and partly in gold. Therefore, there will be no significant price shifts on these goods until production cuts occur. The question is where exactly this reduction will occur. Paradoxically, Russia is in a privileged position due to a significant weakening of the ruble. The cost price in dollar terms fell, and for most commodity companies suddenly appeared a huge margin of safety. Personally, I expect that gold production will decline not in Russia, but in other countries - Australia, the US, to a lesser extent Africa, "believes the head of Polymetal, Vitaly Nesis.