Former USSR Ranks Second in Gold ExtractionFormer USSR Ranks Second in Gold Extraction
By Rusmininfo
05 May 2006 at 04:15 PM EDT
MOSCOW (Rusmininfo.com) -- Together, the former USSR is second in the world of gold mining, extracting almost 300 tonnes of gold per year.
Nowadays the leaders of gold extraction in CIS are Russia (up to 200 tonnes) and Uzbekistan (approximately 60 tonnes). Kyrgyzstan's annual extraction has reached about 20 tonnes. Kazakhstan extracts 10 tonnes of gold annually.
Thus, the CIS countries have gradually come back to the USSR parameters to extract around 10% of the world's gold.
RUSSIA
Russia is a large participant of the world's gold market. Last year extraction in the country grew on average by 1%-2%. Estimates are that the average production cost of Russian gold is $200/oz, which is more than 2.5 times below the world price for gold. As expected, the cost price of the metal will grow, as 85% of its stocks are concentrated in ore deposits.
According to the Russian Environmental Agency, all the Russian investigated stocks will last half a century, and the present stocks will be exhausted in 20 years. Today, gold in Russia is extracted by almost 650 enterprises in 28 regions.
According to RAZP, about 100-500 kilograms of gold is being extracted by 141 enterprises (25% of total extraction), about 500-1,000 kilograms from 29 enterprises (17%) and about 1,000 kilograms and above from 26 enterprises (50% of total extraction). The volume of investments into the development of the production is $50-$100 million annually.
Today, the country has nearly 6,000 of explored gold deposits. The biggest extraction is achieved by the Krasnoyarsk region - over 30 tonnes (84% by Polus). It is followed by the Magadan region (the Omolon, Kubaka and Natalka deposits) with the extraction volume of 23 tonnes. About 60% of silver and a quarter of the Russian gold are traditionally extracted here.
In third place was the Khabarovskiy region, with the extraction volume of 21 tonnes. Significant amounts are also extracted in the Irkutsk region (the Sukhoi Log deposit). Their stocks are estimated in 2,000-3,000 tonnes.
Major Players
The largest operators in the market are Norilsk Nickel [OTCPK:NILSY] and the diamond company ALROSA.
Norilsk supervises over a third of the Russian extraction. The world's largest producer of polymetals has already become interested in the Natalkinskoe deposit, the company Lenzoloto (up to 100 alluvial deposits) and Mayskoe, the largest gold-mining company in the Chukotka (with stocks of gold up to 300 tonnes).
Among the most important achievements of 2005 were the protection in GKZ of the 222-tonnes deposit Blagodatnoe in the Krasnoyarsk region, the purchase of gold mining actives in the Yakutia and the acquisition of licenses for the right to explore minerals in the Krasnoyarsk region, Irkutsk, Magadan and Amur regions.
On the whole, Norilsk Nickel has spent more than $1 billion on the acquisition of old mining assets in Russia and now the company plans to strengthen its influence in the world market. There were some negotiations regarding the possible merger with the Canadian Kinross Gold [NYSE:KGC; TSX:K] and other companies.
Also the company bought 20.3% shareholding in South African Gold Fields [NYSE:GFI], one of the five largest producers of gold. That also cost nearly $1 billion.
Since September 30, 2005, Norilsk Nickel began the allocation of its gold mining assets. As a result, the Olimpiadskoe deposit (Krasnoyarsk region), Matrosova mine (the Magadan area) and Lenzoloto (the Irkutsk region) have been transferred to Polus-Gold as of January 1, 2006.
The incorporated company is the largest gold mining company in Russia, and extracts about 20% of all the gold in the country.
In 2005, the companies of the Polus Corporation produced 33.5 tonnes (1.076 million ounces) of gold, against 33.8 tonnes (1.085 million ounces) in 2004. The annual sales of the Yakutiya's diamond monopoly ALROSA are estimated in 1.6 billion.
The extraction of gold is a new sphere for the company. ALROSA supervises half of the Negdaninskoe, the largest gold deposit in Yakutia. If to name the old leaders of the Russian gold extraction - Petersburg Inter-regional NPO Polymetal - that includes up to 10 mining companies in the Khabarovsk, Sverdlovsk regions
and the Kareliya republic, as well as the project institute in St. Petersburg.
The annual extraction rate reaches 7 tonnes. This is a unique holding, with closed production beginning from geological prospecting and completed with the release of finished goods. The holding extracts 2%-3% and the resource base is estimated in 600 tonnes.
Polymetal has 14 prospecting, extracting and processing enterprises. The holding owns licenses for the development of 11 deposits in seven regions. The group of the main producers is not limited by the three leaders.
Russdragmet has gold-mining deposits in the Khabarovsk region, the Chita region and in the Chukchi autonomous region. The extraction volumes are up to 10 tonnes of gold per year.
Zoloto Severnogo Urala developed the Vorontsovskiy deposit, the largest in the Sverdlovsk region. The company extracts about 2 tonnes of gold per year. Sibneft with the 5 tonnes of extraction is one more participant on the gold market. The Ural metallurgical company lets out about 2 tonnes of metal per year.
In Buryatiya, the company Zun-Hada has commissioned a factory at the Vostochniy Sayan deposit in the Sayan mountains (stocks are estimated in 9 tonnes). The active extraction of gold is conducted in the Far East, in the Khabarovsk and the Magadan regions. Total stocks of gold at these deposits are estimated in 10s of tonnes.
Susumanzoloto extracts 5-6 tonnes annually, Gold Neryungri extracts 4-5 tonnes. The extraction volumes of several other hundred companies are even less; such companies work on the verge of profitability because of low investments.
Foreign Investors
It is known that many Russian companies are ready for integration along with the universal tendency.
From the beginning of the liberalization of the domestic gold market in 1998, some banks control gold extraction. For example, Lanta-bank created several gold mining companies in the Khabarovsk region, Yakutia, Irkutsk and Chita regions.
The activity of foreign companies is limited however; all of them extract over one sixth of all Russian gold. The fifth part of the extraction in the Magadan region is conducted by the gold-mining company Omolonskaya controlled by the Canadian Kinross Gold.
Almost one third of the Khabarovsk region's extraction is carried out by Mnogovershinnoe owned by the British company Highland Gold Mining [AIM:HGM].
Highland Gold also operates in the Chita region. Together with the participation of the Canadian Barrick Gold [NYSE:ABX: TSX:ABX], the company develops the Darasunskoe, Novoshirokinskoe and Taseevskoe deposits.
At the end of November 2005, Highland Gold acquired licenses for a 25-year period for geological prospecting and exploiting of the Malofedorovskiy deposit. Barrick Gold got a similar license for the Lyubavinskoe deposit.
According to the agreement on the strategic partnership, Highland Gold offered Barrick up to 50% of the participation in the project Malofedorovskoe and received from Barrick the similar offer to participate in the Lyubavinskoe project.
The Canadian High River Gold Mines [TSX:HRG] (has shareholder control of Buryatzoloto) received the license for the geological prospecting of the Novofirsovskiy deposit in the Altay region in 2004.
British Trans-Siberian Gold [AIM:TSG] carries out prospecting works in the Krasnoyarsk region at the Veduga deposit.
Irish Celtic [AIM:CCP] had a share in the project of the development of the Nezhdaninskiy deposit in Yakutia. In addition, the company owns 100% of the project of development of the Suzdal deposit and several deposits in Kazakhstan.
Supply/Demand
The USSR used up to 60% of gold in the jewellery production; about 37% was consumed by the industry and 3% in the medicine. In Russia, about 85%-90% of metal goes to the jewel production, and 5%-6% goes to stomatology.
During the time of the USSR, the jewellery industry consumed 40 tonnes of gold each year. Now that number is only 10 tonnes, particularly because 60% of the gold turn-over in the jewellery industry is shadowed.
The reason is in the shortcomings of the tax system. The share of Russian jewellers in the domestic market is only 15%, conceding the most part to the cheap and bad quality Turkish ornaments.
Up till the end of the last century, only State structures (the Central Bank, Gokhran) could operate with precious metals. In 1997, the governmental allowed commercial banks to do transactions with precious metals. In 1998, the commercial banks bought 87 tonnes of gold from producers.
Today the gold market is completely liberalized and commercial banks buy over 80% of the produced gold. However the gold turn-over in Russia is rigidly supervised and the activity of foreign structures is limited.
The main purchasers today are not only the State Savings Bank and VneshTorgBank, but also private Rosbank, the Alpha-bank and Lanta-bank. But about 80% of the country's gold is exported.
THE STANS
Uzbekistan enters the first 10 biggest producers of gold. It concedes to South Africa (up to 15% of world extraction), the U.S. and Australia (11%), China and Russia (7%-8%), Peru, Canada and Indonesia (6%-7%).
According to Infogeo, the cost price of ounce of gold in Uzbekistan is approximately $120-$140/oz. Annually Uzbekistan extracts around 80 tonnes of gold.
Major Players
The main manufacturers remain the Navoiyskiy and Almalyksky metallurgical combination and the Uzbekistan-American joint venture Zerafshan Nyumont. The main producer of gold and uranium is the state concern Kyzylkumredmetzoloto - its main asset is Navoiysky GMK.
GMK generates 3/4 of the country's gold. In 2007, it plans to begin the extraction at the Kyzylkumskie deposits Kokpatas and Daugyztau. They are supposed to bring 20 tonnes of gold annually. The project will be financed by the Israeli, German and American structures (Berliner Bank, etc.).
According to news agencies, British Oxus Gold [AIM:OXS] (joint venture Amantaitau Goldfildz) will increase its gold mining in Uzbekistan and Kyrgyzstan up to 31 tonnes in 2008. Oxus Gold finances the $50 million project at the Dzherroy deposit in the West of Kyrgyzstan, which stocks of gold are estimated in 110 tonnes.
In 2006, Kyrgyzstan plans to start active extraction at the Central Kyzylkumah, that should bring over 6 tonnes of gold per year ($40 million of investments). Kyrgyzstan occupies the third place in the CIS by the gold production after Russia and Uzbekistan. The main operator here is Kyrgyzaltyn.
The local deposits - Makmal, Tereksay, Solton-Sary - produce more than 2 tonnes of metal per year. The management of Kyrgyzaltyn will decide whether to create one more gold mining JV with the participation of investors from Finland or China, which will allow production of over 1 tonne per year.
Kazakhstan mostly has small stocks of ore deposits. And gold is extracted not so much from gold-bearing ores as from polymetallic ones. Since the disintegration of the USSR the gold mining of Kazakhstan has decayed.
Foreign Investors
In Kazakhstan, unlike Russia, activity of the western companies is encouraged.
British Hambledon Mining [AIM:HMB] owns four mines close to the Sekisovskiy deposits and expands its extraction area.
Deutsche Bank AG [NYSE:DB] has increased its share in Celtic Resources, which has a number of gold extracting projects in Russia and Kazakhstan.
British Frontier Mining [AIM:FML] planned to begin extraction of gold in Kazakhstan by 2005. The beginning of extraction at the gold-bearing deposit Naymandzhal located in the territory of former Semipalatinsk nuclear range in the East Kazakhstan region is expected to commence soon. By September, 2006 the production volumes might reach about 3 tonnes of gold per year.
Some Chinese companies have shown their activity here as well. According to the Interfax, China National Gold Group and the Kazahaltyn concern have signed a JV contract.
Supply/Demand
For more than 12 years, there were no geological-prospecting works, no state financing at all. It is thought that less than 1% of the industrial potential is being used here.
Almost all jewellery enterprises have gone bankrupt: the Souvenir factory, the Alma-Ati jewellery factory, the Taldy-Kurgan factory of semi-precious stones. The domestic production provides less than 0.9% of the country's needs.
The 21st century marked some positive tendencies in the industry. Two refining factories have started work and the government has given out about 700 licenses to the domestic and foreign companies.
In 2000, 16.4 tonnes of gold were extracted, which is 50% more than in 1999. During the past few years, volumes of extraction reached 16.5 tonnes in 2001, 9.9 tonnes in 2003 and 9.5 tonnes in 2004. From January to July of 2005, the production of gold was estimated at 5.1 tonnes (silver at 462 tonnes), according to KazKommerzBank.
The largest producers were Kaztsink, Kazahmys and Altynalmaz. Kazahmys plans to increase the production of gold from 2.6 up to 5.9 tonnes in the near future.
UKRAINE
Since the disintegration of the USSR, the Ukraine has been trying to adjust its gold extraction.
The overall predicted stocks of this metal at the Ukrainian deposits are 3,200 tonnes. In total, the country has more than 230 ore sites, 10 of which are the deposits with 80-135 tonnes of gold stocks. Currently 12 new deposits are being investigated.
Last year revealed new ore stocks with the low maintenance of gold (5-7g/t). By these estimations, the cost of building of a gold mining complex would be $800 million.
After the disintegration of the USSR, the Ukrainian authorities planned to bring the annual extraction of gold to the 15-25 tonnes level. They chose the Muzhievskoe deposit in Zakarpate; hundreds of hectares of very expensive vineyards were destroyed and big sums were invested. But as the analysis showed, the stocks of gold were very low and lie too deeply.
As a result, in 1999, there was cast the first ingot from this deposit, but there weren't any further developments. The region's management recognised the project as inefficient. The attempt of its development incurred huge losses and brought enormous ecological losses upon the area. By 2003, the Ukraine has stopped gold extraction.
Major Players
Currently only Ukrpolimetally at the Muzhievskom deposit and Donetsk range at the Bobrikovskiy deposit are engaged in gold production. But profitable extraction is also considered to be possible at the Sergeevskoe and Mayskoe deposits.
There is no information on the participation of foreign companies in Ukrainian gold mining, including Russian companies.
Recently the Ukrainian Ministry of Economics cancelled the licence given out in 1997 to Russian company Tukuringra for operating the Saulyak deposit.
Ukr-Polymetals, created seven years ago for this kind of project, started the operation. The company is looking for foreign partners to invest into a refinery.
By the geologists’ estimations, the confirmed gold stocks of the Saulyak deposit are 11.3 tonnes. It also has stocks of silver.
Supply/Demand
Gold shares approximately equate 85%-90% of the Ukrainian market of precious metals, 10 % silver, the rest in platinum and palladium.
It is thought that Ukraine, as well as Russia has jewellery-industrial demand for precious metals. But western-type speculative demand is poorly developed.
In the end of 2003, Ukraine (much later, than the Russian Federation) allowed commercial banks to do operations with precious metals. Now 25 banks are licensed for these operations, and among them are Praveks, Borbusinessbank, Aval, VABank and Nadra.
Each of them is a leading bank in their particular segment. Ingots are being delivered to Germany, Switzerland and the Netherlands, in particular through the company Heraeus.
Copyright © www.rusmininfo.com 2006. Translated by Roman Karimov. Russian language source www.metaltorg.ru.
Rusmininfo is a news gathering company based in Siberia, Russia which gathers, translates and distributes news on the minerals, mining and metals industry in Russian and the Former Soviet Republics.