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Russian Metal Miners Breathe Sighs of Relief: Now that they are free from sanctions, Russian miners are eyeing an increase in metal ore production to expand export operations.

In the coming few years, Russian mining giants are likely to increase the production of nonferrous metals, including aluminum, zinc, copper and possibly nickel. They will take advantage of the bright export opportunities, national state aid programs and absence of biting sanctions.

Including all investment projects currently implemented, Russian miners could increase aluminum production from 3.72 million metric tons (mt) in 2017 to 4.13 million mt in 2021, copper production from 856,000 mt in 2017 to 864,000 mt in 2021, zinc production from 258,000 mt in 2017 to 301,000 mt in 2021, as forecast by Russian consulting agency AKRA. In the nickel industry, a slight fall in production will be expected from 227,000 mt in 2017 to 217,000 mt in 2021, AKRA said.

Aside from zinc, Russian miners produce almost all nonferrous metals for the overseas markets, according to AKRA. For this reason, the recent tensions around the Russian aluminum giant UC Rusal, with the back-and-forth from the U.S. Treasury on the introduction of financial sanctions against the company, made the investment climate in the Russian mining industry in 2018 very unhealthy.

For example, Vladimir Potanin, owner of Norilsk Nickel, speaking to a state-owned media channel Russia24 admitted that although his company had not been directly subjected to the U.S. sanctions, it still felt them like "a headwind" for business development. So far, other Russian mining tycoons remained silent about the possible threat of sanctions or how they could impact their companies.

During 2018, U.S. President Donald Trump's administration sanctioned several Russia oligarchs with close ties to Russian President Vladimir Putin, who were described as being in Putin's "inner circle." So far, only Oleg Deripaska, owner of UC Rusal, and Viktor Vekselberg, owner of Renova Group, were among businessmen in the mining industry affected by these sanctions. It is clear though, very few tycoons in Russia could be really insured from being included in the sanctions list, given the rising tensions between Russia and the U.S.

Prior to 2018, the U.S. government introduced sanctions primarily against Russian government officials and top managers in the Russian state-owned corporation. The attack on UC Rusal and Renova Group resulted in investment activity in the Russian mining industry in 2018 that was unprecedentedly weak, as compared to the previous years. Everybody looked forward to the end of this story.

UC Rusal's Thriller

In April 2018, the U.S. Treasury imposed sanctions on Deripaska and all companies in which he owned a stake, including UC Rusal and En+, prompting turmoil in the global nonferrous metals markets. It also raised concerns among investors that similar restrictions could be introduced later against other Russian companies.

A few days after the U.S. Treasury announced plans to subject UC Rusal to the financial restrictions, the global prices for aluminum jumped nearly 25% to a seven-year high, and the global prices for nickel added several percentage points, reaching the highest level since February 2015. UC Rusal accounts for 6% of the global aluminum output, while Norilsk Nickel, in which UC Rusal holds a stake, is a major supplier of nickel on the global market. The price hike was prompted by fears of an acute shortage of these metals in the supply chain.

Rusal said it had to postpone the construction of the Taishet aluminum plant with the designed production capacity of 430,000 mt per year because of the sanctions. There was also no clarity on whether the company would expand its Boguchansky aluminum plant after 2019, given the turbulent situation. No details were given about how this could impact plans to expand bauxite mining capacities both in Russia and abroad, but statements made to the Russian news media outlets during 2018 were rather pessimistic. Some sources in the company warned that UC Rusal may cut production by 70% to 80% as a result of sanctions.

In response to the threat of sanctions, the Russian government prepared a bailout package for UC Rusal, Denis Manturov, Russian industry and trade minister, said during a press conference in Moscow in August 2018. The federal government had already adopted a roadmap on the development of the Russian aluminum industry from 2019 to 2023 in which some state subsidies were promised to UC Rusal and some other measures were aimed to increase the demand for aluminum in the domestic market, Manturov added.

In 2017, UC Rusal produced 3.6 million mt of aluminium, of which only 1 million mt was sold on the domestic market. By 2024, the domestic demand is expected to rise to 2.5 million mt, the government forecast. To achieve that target, the federal government promised to allocate Rub140 billion ($2.2 billion) on various programs. This is a never-before-seen state support of the Russian nonferrous metals industry.

The roadmap was announced to help UC Rusal in case the sanctions are actually introduced and there would be some real impact on the company's export operations. In late December 2018, the U.S. Treasury announced it would lift sanctions against UC Rusal as the company "committed to significantly diminish Deripaska's ownership and sever his control" in the company.

This decision, however, would not prompt the Russian government to revise the roadmap on the Russian aluminium industry development. This means UC Rusal eventually could take advantage from both rising demand for aluminium on the domestic market and good export opportunities.

The decision to lift sanctions against UC Rusal raised optimism in the Russian nonferrous metals industry where sanctions were a hot topic in 2018, just as in all other segments of the Russian economy. Basically, up to 60% of top managers in the Russian companies believed international sanctions brought some negative impact to the market conjuncture, with 40% of top managers claimed the restrictions negatively affected their business, according to an opinion poll conducted by PricewaterhouseCoopers in November.

On this background, UC Rusal recently confirmed its plans to expand production of its biggest asset in Russia, the Timan bauxite mine. The company nearly completed the second stage of the Middle-Timan bauxite mining and processing complex. When launched, this project would increase the overall production at the mine by 25% to 5.1 million mt/y, the regional government of Komi Republic said in a statement in December. In 2020, Timan could achieve production of 5.7 million mt/y.

With no significant impact from the U.S. sanctions, the Russian aluminium company could increase production from 3.9 million mt in 2018 to 4.1 million mt in 2021, Russian consulting agency AKRA forecast. There will be some increase in exports, from 2.9 million mt in 2018 to 3.2 million mt in 2021. Some slight increase in domestic sales is also anticipated.

Copper, Nickel on the Rise

The absence of real sanctions is a good sign for all Russian mining companies and this encourages them to move on with their expansions projects.

For example, Norilsk Nickel has recently unveiled plans to boost the output over the next five years to catch up with the expected boom in demand from electric vehicle makers, Norilsk Nickel CEO and top shareholder Potanin said in late 2018. For this purpose, the company recently approved a new comprehensive investment strategy up to 2025, with the investment of as much as $11.5 billion.

The company wants to spend this money on the Talnakh and South Cluster growth projects, both located in the Russian part of the Arctic. The investments would increase nickel production from 210,000 mt in 2017 to 240,000 mt in 2025 and copper production from 398,000 mt in 2017 to more than 460,000 mt in 2025, the company said in a statement in November.

"We expect that the metal ores production should grow by nearly 50% by 2023 to 2024," Potanin said, speaking at a meeting with President Putin in Kremlin on December 20. "This would secure the growth in metals production by 20% to 25% as compared to the current level. In 2018, we also nearly achieved a record-breaking palladium and platinum production, which are in high demand on the market, since everybody adopts stricter ecological requirements and, respectively, more and more global electric finished vehicle manufacturers require more palladium and platinum to produce air-cleaning catalyst elements," Potanin added.

Norilsk Nickel is not the only one that plans to take advantage from the rising demand for nonferrous metals from the electric cars industry. In 2018, the Russian Copper Co. (RCC) also announced plans to invest Rub45 billion ($750 million) into the further expansion of the Mikheevsky Mining and Processing Works, including in boosting metal ore production at the Kulikovsky field in Chelyabinsk Oblast, Russia. Within the recent expansion program, RCC increased production at the mine from 18 million mt of ore in 2014, to 27 million mt in 2017.

The new expansion project would let the company increase the cathode copper production by 100,000 mt, as compared to the current level, plus start manufacturing 25,000 mt of nickel sulphate and 350 mt of cobalt per year. The expansion is slated to be completed in 2021, and almost the entire additional production quantities should be exported, the company told Russian analytical agency Russian Business Consulting.

Earlier, RCC said it planned to start mining metal ores not only on the Kulikovsky field in Cheliabynsk Oblast, but also in the Belininsky field in the Altai Krai. So far, no additional details have been revealed on that project. The overall nickel resources of Belininsky field are estimated at 498,000 mt, while at Kulikovsky field at 441,400 mt, according to the data from the Joint Ore Reserves Committee.

For several years, RCC was also negotiating the development of the Udokan copper deposit jointly with Russian company USM Holdings. With 26 million mt of copper, this is the biggest copper deposit in Russia and the third biggest in the world. The investment cost of the project remains unknown, but speaking in late 2018, Ivan Streshinsky, general director of USM Management, said the project would be developed without the participation of RCC. The first copper should be mined at the deposit in 2021.

The construction is slated to begin in 2019, Streshinsky said. Earlier, Russian state-owned bank VTB agreed to invest Rub10 billion ($130 million) into the project in exchange for a 10% stake. To develop the Udokan copper deposit, USM Holdings has established a new subsidiary Baikal Mining Co. LLC. This company runs a 4-mt/h pilot project in the field. When the full-designed production performance is reached, the company would mine 48 million mt/y of copper ore, according to the official information.

"If compared to any developed copper deposit in the world, Udokan is unique because it contains sulphide, oxidized and mixed ores," said Igor Temnikov, general director of Baikal Mining Co. "The mining process is unusually complicated, since the ores can be neither extracted separately, nor mechanically separated after mining, so the Baikal Mining Co., in collaboration with Russian and international research centers, had to create and patent a unique technology for extracting and processing ores of the Udokan deposit."

The pilot operation on the field was necessary in order to try this technology and confirm its sufficient effectiveness, according to Temnikov.

Similar expansion plans are also harbored by the Bashkir Copper Co. The company mined 879,000 mt of copper ores in 2018, but this figure is set to gradually increase with the launching of the new underground mines at the Jubileynoe deposit. Earlier, the company said the upcoming expansion should significantly increase production, but refused to provide any additional details. The overall reserves of the deposit are estimated at 1.3 million mt.

Zinc, Tin, Lead Lag Behind

With other nonferrous metals, the situation is not that good. In particular, there is no clarity when the project of the First Mining Co. (FMC) for mining of zinc, copper and silver at the Novaya Zemlya would be implemented. The Pavlovsk deposit is fifth in the world in terms of zinc reserves with 1.97 million mt of this metal, containing also 549,000 mt of lead, according to FMC.

FMC originally scheduled to start mining at the project in 2019, but there are no signs those plans could be turned into reality. FMC wants to produce 2.5 million mt of ore at the Novaya Zemlya, process concentrates on site, and export them to the European Union. The problem, however, is that Pavlovsk deposit, which is commonly described as "the most northern open-pit mine in the world," has no infrastructure on the island.

FMC estimated that to implement the project, the company would need $215 million, according to Alexander Lukin, general director of FMC. The cost is rather low because the valuable ores are located close to the surface. The average grades are rather high, 5.8% for zinc and 1.3% for lead. On the other hand, the top official of the regional government has recently admitted that there are certain complications with this project.

To make the project possible, it is necessary to build a sea port and supportive objects at the Novaya Zemlya with the overall cost of infrastructure close to Rub100 billion ($1.6 billion), Igor Orlov, the governor of the Arkhangelsk Oblast, said on January 14. This is a big project, so there could not be any "fast developments," but the project is going to be implemented eventually, Orlov claimed. Orlov also said Pavlovsk is the fifth biggest metal ores deposit in Russia with the overall reserves of 37 million zinc- and lead-containing ores.

As for tin mining, the situation is also not that bright. There are several deposits in the Russian Far North, but due to the lack of infrastructure, harsh weather conditions and some other factors, both regional and federal authorities fail to encourage investors developing them. Russian Ministry of Industry and Trade estimated that with the overall demand of 7,500 mt, the country still imports 90% of its tin, and this situation is not likely to change in the coming years.

In 2018, Russian company Yanolovo planned to commission the biggest tin mine in the country at the Ruchei Tirekhtyakh placer tin deposit in the Republic of Sakha, with the designed capacity of 5,500 mt production per year and the investment value of $70 million. Those plans were not destined to come true, and there is no clarity on whether the project would be implemented. The construction has been delayed several times, and even the government decision to provide some tax breaks under the project has not drove the project from the deadlock.

Future Belongs to Rare Earth Metals

In the meantime, the Russian Parliament recently adopted a bill reducing taxation for rare earth metals mining. The decision has been taken by several projects, including the development of the Tomtor rare earth deposit in the Republic of Yakutia, Russia, by the state-owned corporation Rosteh for $560 million.

This is one of the biggest rare earth metals in the world, Denis Manturov, Russian industry and trade minister, estimated. The overall resources are 154 million mt, containing oxides of 10 rare earth metals, including niobium, terbium, yttrium and scandium. What is very important is that the share of rare earth metals in the ore is close to 10%, which is one of the highest rates in the world.

Russian government officials already said that given the skyrocketing demand for the rare earth metals on the global market, this could be one of the "most important projects in the Russian mining industry ever." If everything goes well, the construction of the mine is slated to begin in 2019, while the first ores could be produced already in 2020.

Caption: Russian miners start developing new deposits. Above, miners load explosives into blastholes at Bashkir Copper Co.

Caption: Norilsk Nickel launches new assets to maintain production.

Caption: A haul truck dumps its load at the Bashkir Copper Co. On the right, Russian mining industry will invest in equipment now that sanctions were lifted.

Caption: Russian aluminum and bauxite production are no longer in jeopardy.

Caption: A hydraulic excavator loads ore into a haul truck at the Verhne Mencheke mine (zinc, copper and silver) in the Republic of Sakha.

Caption: Rusal increases production at Timan Bauxite as U.S. government steps down with sanctions.

Caption: Precious metals production, such as gold, in Russia is also expected to increase. (Photo: RG Gold)
Table 1--Production, consumption and export of
Nonferrous Metals from Russia for 2015-2021.
(Source: AKRA consulting agency)

                    2015      2016      2017      2018

Production         3,500     3,613     3,729     3,849
Consumption          815       838       862      ,887
Export             2,685     2,775     2,867     2,962

Production           860       858       856       854
Consumption          272       282       293       304
Exports              588       576       563       550

Production           250       252       258       264
Consumption          245       247       249       250
Exports                5         5         9        14

Production           240       234       227       221
Consumption           27      27,2      27,4      27,6
Exports              213     206,8     199,6     193,4

                    2019      2020      2021

Production         3,972     4,100     4,139
Consumption          912       938       961
Export             3,060     3,162     3,178

Production           852       850       864
Consumption          316       328       337
Exports              536       522       527

Production           279       295       301
Consumption          252       254       262
Exports               27        41        39

Production           216       210       217
Consumption         27,8        28        28
Exports            188,2       182       189
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Title Annotation:MINING IN RUSSIA
Author:Vorotnikov, Vladislav
Publication:E&MJ - Engineering & Mining Journal
Geographic Code:4EXRU
Date:Mar 1, 2019
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