The Russian Bear.
Russia, the largest country in the Former Soviet Union (FSU), is one of the world's largest suppliers of raw commodities. According to the Russian Ministry of Natural Resources, the potential value of the confirmed, explored and estimated mineral reserves exceeds $28,000 billion, of which gas accounts for 32.2%, coal and shale for 23.3%, oil for 15.7%, non-ore commodities for 14.7%, iron for 6.8%, nonferrous metals and rare earths for 6.3%, and gold, platinum, silver and diamonds for 1%.
Some 70% of all Russia's export revenues are m one way or another connected with the exploitation of the country's mineral wealth. These exports are worth about $50 billion and provide up to 70% of foreign exchange earnings.
However, many of the known or currently worked Russian deposits are low grade, and the ores have (on average) only 35-50% of the average content of Pb, Zn, Sn, W, Mo and Ti found in similar foreign deposits, and just over one half of the Fe content. Furthermore, many Russian orefields are found in more complicated geological and geographical conditions, many of them in the Far North. All in all, the quality and location of Russia's mineral deposits, and mine infrastructure and other circumstances are such that only about 20% of the known reserves, according to Russian Mining Industry Union estimates, can be profitably mined given today's price levels and taxation.
Russia's mining industry, like the economy as a whole, is going through a restructuring that is affecting exploration, with current activity replacing only about half of the oil, gold, platinum and lead, and a third of the gas, copper and tin that is being produced. However, diamond and coal discoveries are keeping up with production. The Ministry of Natural Resources forecasts that Russia will not be able to start replenishing its mineral resources (at a rate that keeps up with extraction) until 2003-05 at the earliest.
Nevertheless, growth in GDP in 1999 was a record for the past ten years, and exceeded even the most optimistic forecasts. According to the State Statistics Committee it reached Rb4,476 billion, 11.6% more than forecast and up 3.2% year-on-year. Industrial output was up by 8.1%, investments were slightly higher, and the inflation rate was 36.4%. However, the economic upturn in 1999 was primarily a post-crisis effect after August 1998.
In 1999, the ferrous and nonferrous sectors increased output by 14.4% and 8.5%, respectively, compared with 1998. The Economics Ministry, considering iron and steel and nonferrous metallurgy, forecasts that domestic demand will increase by 2005 as a result of growth in the construction and engineering industries, and increased production of high-tech products. However, the ministry says the metallurgical industry needs to change its sales policy from one of mass deliveries to the market to one of supplying individual customers while at the same time increasing quality, lowering costs and broadening sales markets.
Most metal production, notably steel, aluminium, copper, nickel and zinc, is still exported. In 1999, many producers boosted sales abroad, driven by the desire to reap the benefits from the rouble devaluation. In December 1999, the government raised duties on almost all metals that are exported outside the customs union with Belarus, Kazakhstan, Kyrgyzstan and Tajikistan. The duties were increased to 10% for copper and nickel, and to 6.5% for other rare, nonferrous and precious metals, except aluminium, gold and cut diamonds. Unsurprisingly, perhaps, producers complained that the duties reduced their export profits. For example, Norilsk Nickel said that the government's decision to raise export duties would cost the company $120-150 million annually.
In late December 1999, Russia adopted a Bill on Amendments to the Law on Subsurface Resources (the law was adopted in 1992). Russian Natural Resource Ministry experts say that the amended law should encourage new exploration and development. In September 1999, Natural Resources Minister Boris Yatskevich said that he was confident the Law on Production-Sharing Agreements (PSA) would be amended and simplified. According to the Economics Ministry, foreign investments into projects under PSAs considered in Russia at the end of 1999 were estimated at $65 billion.
Iron and steel
Russia is the largest iron ore producer in the FSU, the biggest iron ore basin being the Kursk Magnetic Anomaly (KMA) in central Russia, which is unique worldwide. It contains an estimated 82,000 Mt resource of rich iron ore to a depth of 1,200 m, of which more than 25,000 Mt are proven reserves and over 30,000 Mt are indicated reserves. These ores average 32-37% Fe, and the high-grade ores contain 52-66% Fe. Major mining companies in the KMA account for half Russia's iron ore output -- there is the Mikhailovsky mining and beneficiation plant at Zheleznogorsk in Kursk region, the Lebedinsky plant at Gubkin in Belgorod region, and the Stoilensky plant at Stary Oskol. All comprise open pits and beneficiation complexes at eponymous orefields.
Iron ore production in 1999 grew by 13.7% against the 1998 level with output of 82.2 Mt of iron ore (72.3 Mt in 1998), 29.4 Mt of iron ore pellets (up 9.8% on 1998), 51.5 Mt of crude steel (up 17.9% on 1998) and 40.9 Mt of rolled steel (16.2% more than 1998). The key for the sector's growth was a national industrial and construction upturn.
The Lebedinsky plant in 1999 accounted for 21% of the national output of iron ore and 26.5% of pellets. Its output was 16.96 Mt of commodity-grade iron ore (a 5.9% increase on 1998) and 7.8 Mt of pellets (a 19% increase). Stoilensky (which does not make pellets) produced 10.2 Mt of iron ore in 1999, a 10.1% increase, while Mikhailovsky yielded 14.9 Mt of ore (a 15.1% growth) and 6.9 Mt of pellets (a 3.2% increase).
Russia is among the world's leading producers of primary aluminium, and the largest producer in the CIS. Since 1995, the industry has been steadily growing. In 1999, it produced 3.15 Mt of primary aluminium, 4.6% up on the 1998 level, 4.51 Mt of bauxite (10.3% up on 1998), and 2.69 Mt of alumina (a 9% increase). The aluminium plants of Siberian Bratsk, Krasnoyarsk, Sayansk and Novokuznetsk, and the SUAL company (which operates the Irkutsk and Uralsky aluminium plants), account for over 85% of production.
In the 1990s, most aluminium was exported under tolling arrangements. Tolling, which enjoyed favourable regulations, was a major reason for the steady growth of the aluminium industry and the relatively high cost effectiveness of the production. Using tolling operations ensured stable supply of imported raw materials. In the 1990s, Russia had to import some 60% of its alumina, about 3.5-3.7 Mt/y, from within and outside the CIS. Russia's known bauxite reserves are insufficient for aluminium demand. Furthermore, the bauxite mines in the Urals (from where around 80% of national production derives) suffer from poor quality reserves and high production costs.
The cessation of tolling transactions in the aluminium industry came on January 1, 2000. The so-called internal tolling, which involved bauxite and alumina produced domestically, was abolished. The resolution also curtailed concessions on external tolling which made the scheme less attractive than before. Now, companies that toll-smelt alumina have to pay customs duty and VAT (amounting to 20%).
Boksit Timana, a joint-stock company set up to opencast mine the Sredne-Timanskoye bauxite deposit, one of Russia's biggest, in the internal republic of Komi, continues development. Sredne-Timanskoye contains 280 Mt of proven reserves, around 30% of Russia's total. Its main consumers are SUAL and OAO Bogoslovsky, an aluminium and alumina producer from Krasnoturinsk in Sverdlovsk region. In 1998, the mine shipped to SUAL just 20,000 t of bauxite, but this had risen to around 350,000 t by 1999. Stage One of the project involves mine construction with a design capacity of 2.55 Mt/y of bauxite, while full projected capacity will be 4.25 Mt/y. This also envisages building a 160 km rail link to the main line at a cost of $160 million, replacing truck haulage to the main line. SUAL started rail construction in 1998, but this is now hampered by a serious lack of investment.
Elsewhere, Sevuralboksitruda plans to raise output by developing additional reserves at the main Kalinskaya deep mine. Sevuralboksitruda and its main consumer, the Bogoslovsk aluminium plant, spent more than Rbl9 million in 1999 on construction of the new Novo-Kalinskaya mine, the first stage of which should go on stream in 2003. Then, production at existing deep mines can be scaled down as planned. In 1999, Sevuralboksitruda started the Olkhovskoye opencast mine, when it provided 3.5% of the company's bauxite. This year, the company plans to start mining the Toshemskoye group of deposits in the north Sverdlovsk region. However, Sevural-boksitruda does not plan to shut any of its operating mines (Kalinskaya, Cheremu-kovskaya, and the Nos. 14, 15 and 16 mines) before 2003.
Nickel and capper
Output in 1999 was 245,800 t of cathode nickel, 5.1% up on 1998, and 736,600 t of refined copper, 12.3% more than in 1998. Copper exports rose by 15% to 635,400 (worth $907.3 million) over 1998. Cathode nickel exports fell 13% to 211,400 t ($1.1 billion). According to the Russian Natural Resources Ministry, nickel reserves increased by 106,000 t over the first six months of 2000, while copper reserves rose by 157,000 t. These increases, much higher than anything achieved in 1999, were primarily due to further discoveries of nickel/copper/PGM reserves in the Norilsk region.
Norilsk Nickel reported a net profit of $531 million for 1999, compared with $283 million a year earlier, on the back of a 1.8% increase in nickel production to 221,600 t, with copper output rising 2.5% to 402,600 t. Cobalt output in 1999 is estimated at 4,500 t, with 0.84 Moz of platinum and 2.63 Moz of palladium. The value of Norilsk Nickel's total output in 1999 was up 12.6% at Rb75 billion, with nickel and PGM accounting for 40% each of the total, copper 16% and cobalt 2%. Production costs were down 39% compared with 1998, and productivity in terms of nonferrous output rose by over 9%.
The company unveiled its development programme to 2010, costing $3-5 billion. The bulk of the expenditure will be on exploration and mining (42%), followed by processing (16%), metallurgy (17%) and industrial infrastructure (25%). The programme does not provide for the closure of any existing Norilsk Nickel subsidiaries.
Under this plan, mine output at Norilsk is expected to increase, with all three of the Norilsk district's known deposits (Oktyabrskoye, Talnakhskoye and Norilsk-1) under development. Oktyabrskoye, Russia's biggest mining complex, produces rich cuprous ores to a depth of about 1,000 m. Norilsk Nickel extracts about 25% of its ore from the Taimyrsky mine and 20% from the Komsomolsky mine. A new mine, Skalisty, is being brought on stream to compensate partially for lost capacity through depletion in the Talnakh deposit.
According to the strategy, all rich ores and some of the cuprous ores at Taimyr will be processed at the Talnakh plant, which will eventually become fully utilised (40% in 1999) and process some 9 Mt/y of ore. Plans for the Nadezhda metallurgical plant, Norilsk Nickel's most modern production facility (commissioned in 1979), include processing all nickel concentrate and rich copper by-products by 2002, and bringing smelting capacity up to date.
The development strategy provides for existing mines on the Kola peninsula, Murmansk region, to be worked out with minimal capital investment by the year 2007. However exploration will continue to seek profitable ways to mine ore reserves at the Zhdanovskoye field between 2007 and 2012. The ore base of the Kola peninsula consists of four deposits -- Kotselvaara, Semiletka, Zapolyarnoye and Zhdanovskoye. The latter is worked by the Tsentralny opencast mine, which produces 85% of all ore on the peninsula at present. However, its reserves will be exhausted by 2005 if current extraction rates are sustained.
In September last year, Norilsk Nickel announced a restructuring, in the form of a series of share swaps, which will consolidate its two main subsidiary companies. The group, which was privatised in 1995, last year produced 90% of Russia's nickel and around 55% of its copper, with a significant output of palladium and cobalt. The two companies being consolidated are Norimet, the UK-based sales and marketing subsidiary, and wholly-owned Norilsk Mining Co. The various exchanges will leave existing Norilsk Nickel shareholders with 88.5% of Norilsk Mining, and the sellers of Norimet with 11.5% of Norilsk Mining. The deal values Norimet at $234 million.
Russia's second largest refined copper producer is Uralelektromed from Sverdlovsk region, in the Urals, which produced 271,000 t of the metal in 1999, 73,200 t more than in 1998. In 1999, Uralelektromed announced that it intended to raise refined copper output to 300,000 t/y this year. Moreover, the company reportedly intends to develop a new 300,000-350,000 t/y division at a cost of up to $200 million. It is thought the new division, which will reportedly use technology from Outokumpu, will be built in two stages. The first, to be commissioned in 2001-2003, will produce up to 150,000 t/y of cathode copper. Work would begin on the second stage between 2003 and 2005.
A new holding company, Urals Copper Holding, now controls Uralelektromed, the Kirovograd copper smelter, the Gaisky copper mines, Sibkabel of Tomsk region in western Siberia, Svyatogor and the Sredneuralsk copper smelters. Andrei Kozytsyn, the general director of Uralelektromed, was elected head of the holding company, which aims to reduce costs and generate about $1 billion in pre-tax profits in its first year.
Uralelektromed is also taking part in the development of the Safyanovskoye copper field in Sverdlovsk region some 100 km from the enterprise, and holds about 40% in the Safyanovskaya company set up in 1993 to implement the project.
The third largest refined copper producer is Kyshtym Copper Electrolyte Plant (KCEP), Chelyabinsk region in the Urals, which produced 63,000 t of refined copper in 1999, up 174% from 1998. In recent years, KCEP has developed the Aleksandrinskoye copper/zinc deposit in Chelyabinsk, one of the FSU's largest deposits of its kind, containing more than 200,000 t of zinc and 160,000 t of copper. Alexandrinskaya Mining, established in 1995, holds the right to mine the deposit. Work on the concentrator began in May 1999 and is due to be completed in 2001. The Chelyabinsk regional administration undertook to finance the $20 million project The mill's capacity will be 400,000 t/y of copper-zinc ore, and a $14.5 million contract was signed with Outokumpu to supply and install the equipment at the mill. The Aleksandrinskoye mine produced 400,000 t of ore in 1999.
Uchaly GOK, a copper producer from Bashkortostan, in October 1999 commissioned a 640 m deep mine which will produce 1.2 Mt/y of copper-zinc ore. Uchaly GOK's main consumers are the Krasnouralsk copper smelter, a blister copper producer from the Urals, and the Chelyabinsk electrolyte zinc works.
Lead and zinc
In 1999, Russia produced 231,310 t of zinc, 17.8% more than in 1998, and 55,260 t of lead, including secondary lead, 66.9% above the 1998 level.
The foreign-owned Chelyabinsk electrolytic zinc works, located in the Urals, is the biggest producer of zinc, indium and cadmium. In the first half of 1999 it produced 67,900 t of zinc and 122,720 t of sulphuric acid, up 7.1% and 11.8%, respectively, from the same period of 1998. Most of the raw material comes to the works from the Uchaly GOK, the Gaisky GOK of Orenburg region, the Sibaisky GOK of Bashkortostan and the Alexandrinskaya mining company. The company's investment programme for 1999 envisaged commissioning a new filtration plant and a new electrolysis plant. What will be the biggest zinc electrolysis plant in the FSU with an annual capacity of 200,000 t of Special High Grade zinc should run at full capacity by the end of 2002.
In 1999, the authorities of Far Eastern Primorye territory allowed the Dalpolimetall company from the town of Dalnegorsk, Russia's biggest producer of lead and zinc concentrate, to pay taxes and other dues totalling Rb3.5 million in instalments between January 1, 1999 and January 1, 2003. Dalpolimetall reportedly ships around 70% of its output (lead-zinc concentrates) to the Asia-Pacific region and the rest (refined lead, bismuth and silver alloys) inside Russia. In 1998, the company fulfilled only 54% of its mining targets, and 45% of milling targets, to process 500,000 t of ore, and finished 1998 with losses from its core business having risen 52% to more than Rb9l million, while sales revenue fell 3% to Rbll8.2 million. In November 1998, companies associated with Switzerland's Glencore International sold their controlling interest in Dalpolimetall to the Dalnegorsk Municipal Property Committee. The deal gave Glencore the exclusive right to control sales by Dalpolimetall for a five-year period.
The authorities of Chelyabinsk region unveiled plans to develop additional zinc deposits in 2000-01. They include, above all, Uzelginskoye, with probable reserves of 1.5-2 Mt of zinc. The South Urals Mining, set up by the Chelyabinsk regional administration in July 1997 to develop the region's nonferrous industry to 2005, said that the Chelyabinsk region had probable zinc reserves of 10 Mt, although none of this was under production.
Sibirpolimetall won a tender to develop the Korbalikhinskoye, Zarechenskoye and Rubtsovskoye polymetallic ore deposits in Altai territory, Western Siberia. Korbalikhinskoye, 4 km from the city of Zmeinogorsk, holds 28 Mt of ore in three ore-bodies which are 100-1,200 m deep. The Zarechenskoye deposit, also in the Zmeinogorsk district, contains gold and silver besides polymetallic ores. The ores are 43% barite and polymetallic, 34% streaky-polymetallic and 12% gold-silver barite. A deep mine went on stream here in 1991, but is mothballed at present. Ores have been mined to a depth of 180 m, and the remaining reserves total 1.8 Mt. Rubtsovskoye, in the Rubtsovsk district, holds 2.2 Mt of ore in one orebody 80-215 m below ground. An underground mine is 80-85% complete. The ores have an average lead and zinc content of respectively 6.52% and 11.9%.
Gold output up
Russia produced 125.87 t of gold in 1999, 10.4% more than in 1998, according to the Russian Union of Gold Producers. Mine output was 111.4 t, 8.2% more than in 1998, due mainly to the rouble's devaluation which generated extra profits for companies selling gold at world prices and enabled them to finance production in the 1999 mining season without having to borrow money at high interest charges. Also, Russian commercial banks stepped up financing for the industry in 1999. Russia was expected to increase gold output by at least 10% in 2000 -- earlier figures from the Gold Producers Unions showed that Russia produced about 100 t of gold in the first nine months of 2000.
Production in 1999 soared in some regions: by 4 t to 18.2 t in Krasnoyarsk territory, by 1.8 t to 13 tin Yakutia, by more than 1 t to 12.3 t in Irkutsk, by 900 kg to 5.5 tin Buryatia and by 1.3 t to 9.3 t in Amur region. However, there were also notable falls in production in some areas. For example, in Russia's gold-rich Magadan region, production fell by 1 t to 29.3 t. This was because Omolon Gold, Magadan's biggest producer, reduced output (although the region's other major producers raised output). Omolon, half-owned by Canada's Kinross Gold, produced 15.4 t, making it Russia's second biggest gold producing company in 1999 behind the Polyus cartel, from the Krasnoyarsk territory, which reported 15.7 t of gold.
Omolon is developing two zones of the Kubaka lode. In January 2000, the company said output at the Kubaka gold mine, however, would fall by about two-thirds after 2001. As of January 2000, the Tsentralnaya (or Central zone) had 39 t of gold left in it. Most of this will be mined in 2000 and 2001, and then production will plummet because no new lodes comparable to Kubaka have been discovered within a 50 km radius.
This situation at Sukhoi Log in eastern Siberia, the largest known undeveloped gold deposit on the Eurasian land mass, remained unclear. In late 1999, the Natural Resources Ministry announced that Russia had yet to decide whether or not to allow foreign companies to bid for the right to develop the field. The ministry, though, had managed to reached a compromise on the issue with the authorities of Irkutsk region, where Sukhoi Log is located. As of the end of 1999, potential bidders included Placer Dome, Barrick Gold, and JCI. Sukhoi Log will be very difficult to mine, and the tender winner will have to follow stringent deadlines for completing the feasibility study and commencing mining.
Initially, the winner will be asked to produce about 13 t/y of gold, rising to 25-30 t/y eventually. Given the complexity of the site and the fairly low ore grades, the government is unlikely to net more than $15-20 million at the tender. Overall project costs, though, would be $1.5-2.0 billion. Sukhoi Log's reserves were listed back in 1975 as 1,100 t of gold with an average grade of 3 g/t, and the ores are also known to contain platinum.
In June 1999, the government listed three major gold deposits eligible for production-sharing agreements. These were Taseyevskoye in Chita region, Nezhdaninskoye in Yakutia and Maiskoye in Chukotka. Later, the State Duma decided to include Nezhdaninskoye on the list and started to debate the other two deposits. Production-sharing agreements could help Russia to double gold production by the year 2006, according to some legislators from the State Duma.
Nezhdaninskoye was explored in 1974 and is part of the Tompon mining industrial district. Yakut geologists have estimated proven reserves of 480 t of gold, although western geologists say it contains 10.8 Moz, or 335.9 t of gold. Until November 1999, South Verkhoyansk Gold held the Nezhdaninskoye license. But a Yakut Government commission revoked this license and also a license held by the Zoloto Kyuchus joint venture to mine the Kyuchus gold lode, another major Yakut gold field. Neither joint venture had been able to organise the exploration and development of the deposits in their two years of existence.
Maiskoye, in Chukotka Autonomous District, is 200-220 km from the district centre of Pevek. It contains 163.6 t of gold and 37.4 t of silver. Taseyevskoye contains about 150 t of gold, according to a re-appraisal by Australia's Snowden Associates. Baley-zoloto mined the deposit from the late 1980s to 1994, but the work then stopped because of financial constraints, and a western partner was invited. At the end of 1997, Kvaerner Metals completed a study into the possibility of extending the open pit and building a large milling complex at the site.
Canada's Bema Gold Corp., which owns 79% of Omsukchansk Mining Geological Co. (OMGC), holder of the license to mine the Julietta deposit, secured $35 million of Project Loans for the construction of the mine. The Julietta reserves total 8.5 t of C1 and 10.8 t of C2 gold, and 126.3 t of C1 and 102.4 t of C2 silver. Mine construction and development work is well underway, with production to start in the fourth quarter.
Bema reports that: "Since acquiring a majority interest in Julietta in April 1998, Bema has enjoyed an excellent working relationship with our local Russian joint venture partners, who own 21% of the Julietta Project, and the strong support of both the Magadan government and the Russian Federal Government."
Russia produced about 400 t of silver in 1999, of which more than 90% was a by product of nonferrous metals production -- one of the biggest producers of silver is Norilsk Nickel. Almost no silver deposits are being developed. Russia's biggest silver producing regions are the Krasnoyarsk territory, Bashkortostan, Chelyabinsk region, Orenburg region and Primorye territory, which are home to major nonferrous metals producers.
Russia has so far only one major, prospected silver deposit -- Dukat in Magadan region, which has proven reserves of 9,400 t of silver and 20 t of gold. The license to develop Dukat is held by Serebro-Dukat, a company 70%-owned by Canada's Pan American Silver and 30%-owned by the local Geometall-Plus (owned 70% by Canada's Western Pinnacle). Dukat was sold at a public tender to Serebro-Dukat in 1997. In mid-1999, Pan American Silver announced it had started to renovate the Dukat silver mine and pit-head facilities, which operated between 1980 and 1996.
The project's feasibility study envisaged output from the existing mine and milling facilities at Dukat at an initial rate of 380,000 t in 2000, rising to a sustained 750,000 t/y of ore by the end of 2001. Metal production in the form of silver concentrate would average 15.8 Moz of silver and 30,500 oz of gold per year. Project costs have been estimated at $86.8 million and the IFC was to provide a $63.4 million financing package to Serebro-Dukat.
However, the ground was cut from beneath Pan American's plans last year when it failed to win an auction for mill assets vital to the success of the project, and it has spent considerable management time and company money in trying to resolve the dispute. Pan American has accepted that its best option is now to form a joint venture with Polymetal, the Russian company that now owns the mill assets. The new company will combine the mining licence, owned by Pan American, and the assets, owned by Polymetal. Pan American will hold a 20% carried interest in the new company, and Polymetal will hold 80%, funding all ongoing expenditure, and will operate the project. Pan American will not exercise control over the mine development. Polymetal is expected to develop Dukat in tandem with another silver deposit in the region, and is targeting production of 16 Moz/y from Dukat, in silver dore, to be refined within Russia.
Pan American did pursue the matter though the Russian courts but reports that Russian courts are a very difficult place for foreign companies to win against Russian companies. Pan American has written off the whole of its investment in Dukat, amounting to $38 million.
World PGM leader
Russia is the world's biggest producer of platinum-group metals (PGM). It supplies about 70% of world palladium and about 20% of its platinum. Norilsk Nickel produces most of the platinum and all of the country's other PGMs. Norilsk Combine, produces platinum and PGM concentrates which are refined into bullion at the Krasnoyarsk nonferrrous metals plant. The Krasnoyarsk plant used to be a subsidiary of Norilsk Nickel, but in 1998 the company handed it over to the Krasnoyarsk territorial administration to offset debts. In 1999, Norilsk Nickel decided to start sending some of its precious metals to the Prioksky refinery in Ryazan region, just south of Moscow. The company said it was producing more precious metal concentrates these days and all of this surplus would be refined at the Prioksky plant. The refinery, which possesses state-of-the-art technology and on-site storage facilities for refined metal, is expected to receive 5-7% of all precious metal concentrates produced at Norilsk Nickel's Norilsk enterpri ses.
The second biggest platinum producer is the Chaibukha producers cartel, which develops alluvial platinum deposits in the Koryak Autonomous District, Russia's Far East, where geologists estimate placers contain more than 30 t of platinum.
Precious Metals Research, a British consultancy, estimates Russia has stocks of between 8 Moz and 20 Moz of palladium, and exports about 5 Moz/y, twice as much as the country produces.
Early last year, the then acting President Putin approved a revision of the Russian law governing the transfer of an exploration licence to a development licence. The revision allows a company which has made a discovery to go automatically to a development licence upon application, rather than having to tender for a development licence against other interested parties, as before. For foreign investors the new situation reduces the risk of loss of tenure. Andrew Counsell, managing director of Eurasia Mining, told Mining Journal that the decision demonstrates President Putin's positive attitude towards foreign investment into Russia's mining industry. Eurasia is engaged in platinum group metals (PGM) exploration near Yekaterinburg, in Sverdlovsk Region. Eurasia is pressing ahead with exploration of the Soloviev Hill/Vissim and Baronskoye hard rock PGM properties, and investigation of the potential for placer PGM deposits in the Central Urals.
Eurasia holds a 59% interest in a 2 [km.sup.2] mining licence at Soloviev Hill/Vissim, and has a 100% interest in a 159 [km.sup.2] exploration licence surrounding the mining licence. The company classifies the geological environment at the property as similar to the Bushveld complex in South Africa. At Baronskoye, the Urals Geological Mapping Expedition (UGME) has drawn parallels with large palladium deposits elsewhere, particularly Stillwater in Nevada. Eurasia is also in a joint venture with Anglo American Platinum in the Urals to investigate the whole region for potential alluvial PGM deposits, and to evaluate PGM tailings left by previous operations. The company regards potential as high, as previous methods of alluvial mining by hand-washing and dredging not only failed to recover all of the metal present, but also failed to reach the base of the gravels -- these can extend to a depth of 42 m whilst the dredges operate to a maximum depth of 15 m. In addition, little large-scale mining has been done sinc e the discovery of Norilsk in Siberia. At that time under the central planning system, platinum production was abandoned in the Sverdlovsk Region, as was exploration for PGM. Consequently, historical records indicate that alluvial platinum mineralisation exists at a number of locations which have never been commercially worked.
Almazy Rossii-Sakha (ALROSA) accounts for nearly all the uncut diamond production. Production in 1999 was worth $1.52 billion, and sales $1.42 billion. According to a sales agreement with De Beers signed in October 1998, and in force until December 31, 2001, De Beers is obliged to buy at least $550 million/y worth of rough diamonds from Russia, but not more than 26% of the world diamond giant's total sales. Last year ALROSA celebrated the 80th anniversary of Arcos, its official representative in the UK. One of the principal functions of Arcos today is to play a key role in the relationship between ALROSA and De Beers.
New capacity introduced by ALROSA in 1999 include the Internatsionalny deep mine in Yakutia (capacity $200 million in diamonds per year) and a pilot ore mill at the Botuobinskaya pipe, also in Yakutia. The first gem diamond was produced at Botuobinskaya in mid-1999 and the $8.5 million pilot mill run by ALROSA-Nyurba, a fully-owned subsidiary of ALROSA, can process 200,000 t/y of ore. ALROSA-Nyurba will produce $400 million worth of diamonds a year by 2004 at two new kimberlite pipes at Botuobinskaya and Nyurbinskaya.
Commissioning the Internatsionalny deep mine in 1999 is in line with ALROSA's programme to step up underground mining at a number of fields in Yakutia (where open pits are close to depletion). The Internatsionalny is scheduled to achieve projected capacity of 500,000 t/y of ore in 2003. ALROSA also plans to start building a deep mine at the Udachnaya pipe, which currently yields more than 80% of its diamonds, in 2002. The company is also building the Aikhal deep mine, achieving full capacity of 500,000 t of ore there by 2007, and it will build a deep mine at the Mir pipe, bringing this into operation by 2010.
In September 1999, ALROSA drafted a programme to study potential new diamond fields in the Arkhangelsk region of northwest Russia. The company said it would look into the possibility of obtaining prospecting and exploration licences and of organising its own geological subsidiary in the Arkhangelsk region. The board also confirmed plans for ALROSA to acquire the majority interest in Terra Northern Mining and Geology, which holds the licences to explore and mine deposits within the Tovskaya and UstFinezhskaya tenements in the region.
ALROSA owns 12% of Severalmaz, the company that holds the license to develop the big Lomonosov field in the Arkhangelsk region which contains an estimated $12 billion worth of diamonds, more than half of which are of gem or near-gem quality. The project's strategic investor, though, is Soglasiye-De Beers Mining Investments. According to preliminary estimates, it will cost $400-500 million to start mining the field, which contains five diamond pipes. In late 1999, Severalmaz started a prefeasibility study.
Ashton Mining has agreed on the formation of an incorporated joint venture with ALROSA. The joint venture is to explore for, and develop, diamond deposits in the Russian Republic of Karelia. Ashton began diamond exploration in Karelia in 1992, and last year the Russian Federal authorities extended Ashton's exploration and exploitation licence over an area of 57,000 [km.sup.2] until December 2004. Over the past eight years, the company has outlined 14 areas anomalous in kimberlite indicator minerals. Karelia hosts basement rocks which are part of the Archaean-Proterozoic Baltic Shield which includes parts of Finland and Russia, and within which diamondiferous kimberlite provinces are known to exist. Under the terms of the joint venture, the partners will register a Russian joint stock company, in which Ashton will have a 49% interest. Alrosa will acquire a 51% interest by contributing the first $3 million in joint-venture expenditure. The Karelian Government has the right to acquire up to 21% of Ashton's inte rest at Ashton's historical cost. Ashton will be the operator of all operational and exploration activities.
In 1999, Russia produced 3,830 t of tin, 6.9% less than in 1998. Located in the city of Novosibirsk in western Siberia, Novosibirsk Tin Combine (NOK) is the only tin metal producer. All of NOK's output in 1999 was sold on the domestic market, which has started to grow steadily thanks to increasing demand among Russian metallurgical and automotive plants. NOK planned to increase output to 6,000 t of tin in 2000 to cope with increased domestic demand.
In 1999, NOK acquired blocking or controlling stakes in most Russian tin mining companies, its concentrate suppliers. In November 1999, NOK acquired 35% of Khinganskoye Olovo from the Jewish Autonomous Region in Russia's Far East. Khinganskoye has nearly exhausted its old deep mines and plans to build a new shaft (80 m deep) to access an ore-body containing about 5,000 t of tin. Khinganolovo started to recover tin from tailings in October 1998 after a lengthy interval caused by the depletion of ore reserves and bankruptcy proceedings.
In the summer of 1999, NOK bought the majority stake (51%) in Dalolovo, a tin miner from Primorye territory, and a 15% stake in Deputatskolovo from the Russian internal republic of Yakutia in eastern Siberia. The Government of Yakutia also made NOK trustee of the state's 11% of Deputatskolovo, so NOK now controls 26% of the company. In return for trusteeship of the 11%, the tin combine undertook to contribute to a long-term investment programme with total costs of $5-6 million. The three-year programme involves new mining equipment, and improving ore milling processes with the ultimate aim of raising mine output by 30%-40%.
Dalolovo was established in 1999 to develop the Solnechnoye tin deposit, which had already been mined in the past by Solnechny GOK (owner of a large stake in Dalolovo). In late 1999, Dalolovo started to recycle tailings at the mothballed Solnechny mines, and started to supply NOK with concentrate in December. The 7 Mt tailings dump contains a large amount of tin, copper and other minerals. The tailings reportedly yield 35-40 t/month of tin in concentrate at the current (initial) phase. By early 2000, NOK had invested about $1 million in Dalolovo.
NOK in 1999 also acquired 50% of the shares in Tienshanolovo (Tien Shan Tin), located in Kyrgyzstan. Tienshanolovo operates the Sary Dzhas mining complex, which has been under construction for more than 15 years. NOK intends to finance the completion of the ore mill and related infrastructure. The first consignments of concentrate from Tianshanolovo were expected at the end of 2000.
NOK has announced reduced targets for 2000 and 2001. The company had intended to produce 6,000 t of tin in 2000, but will achieve only 5,500 t. Output for 2001 is likely to be limited to 7,000 t. These cutbacks have been attributed to increasing production costs, including transport and power costs. By the end of 2000, NOK had intended to increase production of tin concentrate at all mining complexes that it controls or part-owns. The mines were due to achieve a production level which would cover at least 80% of NOK's needs.
In January 1999, Nevada Manhattan of the US acquired 80% of the assets of Khrustalnaya Tin Mining, another tin concentrate supplier for NOK from Russia's Far East, through an equity swap. Khrustalnaya has proven reserves of 16,700 t of tin, 9,970 t of lead, 50,970 of zinc, 426 t of silver and 878 t of gold over an area of 9 Mha.
Tungsten and molybdenum
In 1999, Russia produced 270% more metallic molybdenum, 93.4% more metallic tungsten and 6% more molybdenum concentrate than in 1998. In particular, production reportedly rose at Lermontovskaya Mining and the Primorsky mining plant, both of which are major Russian tungsten concentrate producers located in Primorye territory of Russia's Far East. Despite this growth, the sector's production performance indicators remained rather poor compared with 1991. Russian tungsten and molybdenum concentrate producers are suffering from low domestic demand and from weak competitive positions on the world market. However, the Ministry of Economics said that over the next few years Russia would boost output of tungsten and molybdenum with a view to meeting domestic demand for the metals. Output in 2000 was scheduled to rise at Lermontovskaya Mining and at the Tyrnyauz tungsten and molybdenum combine in the internal republic of Kabardino-Balkaria, North Caucasus.
In October 1999, the government ordered the rehabilitation and development of the Tyrnyauz combine, a major tungsten producer. The plant had been suffering severe financial constraints since 1997 and has reduced output considerably. The Ministry of Economics some time ago drafted a plan to enable the enterprise to export up to 70% of its tungsten concentrate. However, management was unable to raise the $50 million needed to deliver the project.
Chrome ore is mined by the Saranovskaya mine in Perm region (the Urals) which supplies product for the production of refractory materials, not ferroalloys. Russia's ferroalloy industry is mostly concentrated in the Urals. Russia's biggest ferrochrome producers are the Serov ferroalloy works and the Chelyabinsk electrometallurgical combine.
Russia traditionally imported chromium concentrate from Kazakhstan's Donskoy GOK mining complex. However, since 1995, Kazakhstan, which has two major ferroalloys plants, opted for an independent ferroalloy industry and gradually curtailed chromium supplies to Russia. Donskoy GOK instead started to offer chromium concentrate to Russian alloy makers at market prices under commercial contracts. As a result of a price rises, Russian producers of ferroalloys sharply reduced Kazakh imports and diversified suppliers, switching over particularly to Turkey, and to small deposits in the Urals.
Among those Russian producers was the Chelyabinsk electrometallurgical plant, a major producer of ferrochrome and ferrosilicon. Some 30% of the plant's chrome ore requirement is now sourced locally. The aggregate proven reserves of chromium ore in Chelyabinsk region exceed 200,000 t, the chromium oxide content ranging from 26% to 37% and an above average iron content. Local ores are poorer than those mined in Kazakhstan but processing is less expensive than the processing of chromium ores imported from Kazakhstan. In 1999, Chelyabinsk smelted 529,000 t of ferroalloys, up 45% from 1998.
Promising sources of chromium are not limited to the Chelyabinsk deposits. Severonikel, a subsidiary of Norilsk Nickel, continued prospecting and appraisals at the Sopcheozyerskoye chromite field, 5 km from the town of Monchegorsk in Murmansk region (northwest Russia). The ores lie at depths between 30 m and 300 m, and it is thought that a sustained annual production rate of 254,000 t of ore could provide a mine-life of approximately 15 years. Stripping began at Sopcheozyerskoye in September 1998, and mining started in May 1999. Severonikel's geological programme at the deposit is to be fully completed by 2002. Ores mined at Sopcheozyerskoye will be used to make refractories for Norilsk Nickel's enterprises.
In recent years, Russia (which has never mined nor processed manganese ore before) has stepped up efforts to explore for and develop manganese deposits. Russia's manganese demand for the production of ferroalloys had been traditionally met by imports, mainly from the Ukraine and Kazakhstan. In 1999, a number of enterprises in Sverdlovsk region set up Uralsky Marganets, to mine manganese ore and produce and sell manganese ferroalloys. It has the right to develop a group of manganese deposits with proven reserves of 41 Mt and probable reserves of 100 Mt of ore in the north of Sverdlovsk region.
In mid-1999, Uralsky Marganets commissioned Russia's first manganese ore milling facility. This was the first stage of the Polunochnaya ore mill in the Ivdel district. An open pit with a capacity of 200,000 t/y of manganese ore was established. Work on the mill, which uses dry processing, began in 1996. The Polunochnaya mill will have a total capacity to process 400,000 t/y of ore. The first stage of the mill can produce 70,000 t of dry ore and 40,000 of manganese concentrate annually. Most of the mill's output goes to Vysokogorsky Mining and Beneficiation Combine and Alapayevsky Metallurgical Combine. In 1999, Uralsky Marganets' ferromanganese production was targeted at 20,000-25,000 t.
In 1999, West Siberian Metallurgical Combine (ZSMK), a major Russian steel maker, reportedly started preparations for the development of Durnovskoye manganese deposit in Kemerovo region, western Siberia. In December 1998, Nedra Sibiri Mining, which holds a 15-year license to the deposit, signed an agreement on the development with ZSMK. It agreed to undertake all work related to licensing, tax payments and further exploration at the site. The mining company owns a 15% interest, and ZSMK holds the remainder in the project. The deposit is known to contain 420,000 t of ore, with a manganese content of 23%. It is thought that the development will cover ZSMK's entire needs for manganese at an extraction rate of 70,000-80,000 t/y. The steel plant currently imports manganese concentrate with a metal content of just 16% from Kazakhstan. Durnovskoye, with a manganese content of 40%, should save it about $80/t of concentrate.
Russia imports ilmenite from the Ukraine, which is the largest developer of titanium deposits in the FSU. Russia, however, has several titanium deposits, both alluvial and lode. Some of them are being prepared for commercial production, but development is hampered, above all, by severe lack of finance. Among them are such placers as Tuganskoye (Tomsk region) and Tarskoye (Omsk region) in Western Siberia, as well as the Eastern sector of the Tsentralnoye deposit (Tambov region, central Russia) and the Itmanovsky sector of the Lukoyanovskoye deposit (Nizhny Novgorod region in the Volga region). At least three of these four deposits (Tuganskoye, Tarskoye and Lukoyanovskoye) are referred to as 'large' deposits.
In 1999, the authorities of Chelyabinsk region in the Urals were looking to finance development of Medvedyevskoye titanium, which contains 15 Mt of titanium and titanium-magnetite ores.
Russian titanium production comes from AVISMA, one of the world's biggest titanium sponge producers, located in the Perm region of the Urals, and Verkhnaya Salda Metallurgical Production Association (VSMPO), one of the world's biggest titanium-products makers from Sverdlovsk region. In 1998, VSMPO swapped all of its shares from an additional issue for stock in AVISMA to create a conglomerate which controls over 40% of the world titanium market. VSMPO now owns 71.2% of AVISMA.
Magnesium is produced by AVISMA and the Solikamsk magnesium plant in the Perm region. In 1999, AVISMA reported a 13% increase in production of magnesium and its alloys to about 17,000 t. Alloys alone amounted to around 7,200 t, up 20% on 1998. This growth was mainly due to growing demand on the world market for magnesium and alloys. The main markets for AVISMA magnesium products include North America and Europe.
In late 1999, AVISMA said it intended to raise production of magnesium by approximately 170% from 1998 levels to 40,000 t in 2003, producing 23,500 t of magnesium and its alloys in 2000, 29,000 tin 2001 and 35,000 tin 2002. The plant was to switch to another type of raw material, solid dehydrated carnallite, which would reduce energy consumption during smelting and would enable the plant to skip the de-watering phase and go straight to electrolysis. AVISMA is also testing an alternative raw material, brucite, which is mined in Russia's Khabarovsk territory to make refractories. Brucite is inexpensive and has a high magnesium yield. Production was to start in 2000.
Solikamsk Magnesium (SMZ) in 1999 reportedly produced around 20,000 t of magnesium and its alloys, compared with 19,300 t in 1998. Most of the company's output used to go to foreign markets, including Europe and North and South America. Russian Growth Fund of the US owns 35.6% of the plant's shares, while Metallurgy International Resources, also of the US, owns 13.9% and Minmet Financing of Switzerland owns 28.9%. In early 2000, SMZ decided to go ahead with the construction, over about three years, of a new $95 million facility to produce magnesium. This will increase existing capacity by about 50% or 15,000 t/y of magnesium. It will employ a new process to obtain magnesium from brucite. The Solikamsk plant so far obtains magnesium from carnallite supplied by the Urals-based Silvinit company.
Besides magnesium, SMZ produces niobium, tantalum, lithium and zirconium. The plant, however, suspended its rare metals production in the second half of 1998 owing to problems with supplies of loparite concentrate from the Sevredmet mine (Murmansk region). In early 1999, SMZ restarted producing rare metals. At the end of 1998, Sevredmet, SMZ and Silmet of Estonia, another rare metals producer, formed a chain that does everything from mining ores to producing rare metals and rare-earth products. Then, in mid-1999, SMZ and Silmet set up a new company in Murmansk to produce loparite concentrate.
Around 75% of the FSU's uranium reserves are outside Russia, mainly in Kazakhstan and Uzbekistan. Russia's only real source at present is Streltsovskoye in the Trans-Baikal area of Eastern Siberia, where deposits contain overall reserves of about 100,000 t of uranium. Priargunsky Mining, from Chita region, which develops these deposits, has enough reserves to last it another 25 years at its current rate of output. National uranium production is only enough to cover 30% of demand and relies mainly on old stockpiles.
The Ministry of Atomic Energy, meanwhile, believes the future lies in the development of uranium deposits in the Zauralsky (Trans-Ural), Zapadnosibirsky (West Siberian) and Vitinsky areas. These deposits can be developed by the in situ leach method.
Coal industry turn round
Current commercial coal reserves exceed 200,000 Mt, about half of which are bituminous and 38,000 Mt coking coal. Deposits are characterised by complex mining and geological conditions, such as faulted and water-bearing seams, steep seams, high gas contents and risks of explosion and spontaneous combustion. The country produced 249.6 Mt of coal in 1999, including 59.6 Mt of coking coal, a 14.4% increase, and 190 Mt of steaming coal, up 5.1% on 1998.
In July 1999, the government adopted a new programme for closing uneconomic mines. It stated that 60 of the existing 212 operations would be shut, compared with a previously planned 46. The decision was for the World Bank, which was making the first tranche of a second Russian coal industry restructuring credit of $400 million conditional on increasing the number of closures. Another World Bank requirement for the release of the credit in 1999 was the privatisation of 35% of Russian coal mining enterprises, including, above all, the sale of the government's 75.6% stake in Krasnoyarsk Coal, eastern Siberia, one of the country's biggest coal producers.
The programme for restructuring implies, besides the closure of unprofitable mines, the construction of new mines. In mid-1999, construction of two mines at Kuznetsky (the Kostromovsky and Ulyanovsky operations) began. Kostromovsky, with explored reserves of 20 Mt of coal, will supply coal at the rate of 1-1.5 Mt/y. The cost of building the mine is estimated at $20 million. The other mine, Ulyanovsky, has coking coal reserves estimated at 200 Mt and planned production is 1.5 Mt/y.
Interfax recently reported that coal production rose by 7% last year to 256 Mt, with more than half the country's mines increasing their output as labour productivity improved by 9%. The government also believes that there has been progress in sorting out the payment system for coal deliveries, noting that cash returns to producers were 40% greater last year than in 1999.
The reported improvement in industrial relations in the coal industry, which resulted in virtually no large-scale production stoppages last year, was threatened by the prospect of a country-wide strike called by the coal miners' union, Rosugolprof, for January 9. However, Interfax notes that the union has deferred its action in favour of further negotiations with the Ministry of Energy over wages and other social benefits for its members.
Russia hosts around 12% of the world's oil reserves -- extractable oil reserves of around 138,100 Mbbl are spread over 1,900 oil fields, of which only 170 can be classified as major fields. Russia produced 305 Mt of crude oil and gas condensate in 1999, 1.6 Mt more than in 1998. Oil refining in 1999 totalled 170.6 Mt.
(*.)This article is condensed from that appearing on the MINING Annual Review CD, that also covers all the other important mining of the CIS and the rest of the world. The fill text on the CD contains a great deal more ownership information on Russian resource companies.
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|Title Annotation:||Russia has extensive mineral deposits, however much is low grade and difficult to mine|
|Date:||Feb 1, 2001|
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