Modern Russian mining

Materials World magazine
3 Oct 2016

In the second instalment of a two-part piece, Michael Schwartz looks at how Russia is modernising its massive mining industry, from east to west. 

Sometimes, a divide between eastern and western Russia is the focus of an assessment of the country’s mining – because of their natural geological formation, most significant Russian gold mines are
located east of the Urals, while western Russia is well known for bulk commodity mining, such as iron ore. East or west, however, there are factors that apply throughout Russia's exceptionally widespread mining sector – transportation of the finished mineral, support at several levels, taxation and royalties and corporate social responsibility. 

There are no distinct geographical differences in mining techniques between eastern and western Russia – variations in mining and processing techniques depend on the commodity, the peculiarities of a specific deposit, and mineralisation type, as well as local climate and terrain conditions.

One difference that affects mining company Petropavlovsk, featured in the first installment of this piece, is between underground and open-pit grades. Resource grades for potential open pit mining are in line with the average reserve grade of around 1.0g/t. The average high grades under active development for underground mining are stipulated at between seven and nine g/t. Consequently, the cut-off point for Petropavlovsk’s open pits is 0.3–0.4g/t for open pit, but higher for underground.

Doré gold bars are the end product. They are sent to one of two refineries – one in the Krasnoyarsk region and the other in the town of Kasimov (Ryazan region). At the refinery, the doré gold is smelted/processed into bars that meet the Good Delivery specifications set by the London Bullion Market Association (LBMA). The bars are then sold to Russian banks.

Infrastructural support

The CEO of Amur Minerals Corporation (AMC), Robin Young, was asked how complicated it is to transport the finished nickel from its Kun-Manie sulphide-nickel-copper project. He replied, ‘Transportation requirements are no more complicated than for a remote project in Australia – namely truck transport to rail, rail to production plants, metal to market. The difference is the type of terrain. We will have a road crossing mountain passes approaching 2,000m in height through rolling hills and flat lands to the rail station located on the Baikal Amur rail line.'   

And AMC’s power supply? ‘Diesel fuelled generators, typical of remote Russian operations. The capital cost for site-generated power is substantially less than that required to construct a 360km-long power line.'

Petropavlovsk spokesperson, James Isola, responded to questions as to how sympathetic the Russian authorities are, stating ‘As the region’s largest employer and taxpayer, the Group enjoys good relations with
governmental organisations at both federal and local levels […] Russia’s Ministry of Far East Development is providing around US$75m for the construction of the electricity power line in the north-east of the Amur Oblast (region). Upon completion, we will gain access to the enhanced capacity of the power supply infrastructure.'

Young also commented on his company’s relationship with the Government, ‘We are located in the far east, which has specifically been targeted for rapid development – including financial incentives to develop projects. We are earmarked as one of these projects and have a strong support base locally, on a state basis and on the federal basis. We have a great deal of support and cooperation.’ 

AMC was also able to comment on its royalty liabilities, stating ‘Royalties are set by the Government. They are applied in the same manner to all companies with the exception of new projects located, or under development, in the far east. The royalties for our project are set at 8% but we have the opportunity to use a reduced payment structure related to the fast track development wanted in the far east, namely zero for two years and then 2% increases in two year increments until the rate is 8%.’

Corporate social responsibility

Both companies are committed to corporate social responsibility (CSR). Young comments, ‘I can only speak for ourselves – we implement policies associated with our being a western publicly traded company. So such programmes are taken into consideration. Russian companies do state that they have CSR policies’ – in particular, those listed on western exchanges.

Isola explains Petropavlovsk’s commitments. ‘The company understands the importance of interaction with, and investment within, the local communities, demonstrated via continued financial support and commitment. We are environmentally responsible, with mining operations subject to rigorous ongoing environmental monitoring.

‘Some examples of our commitments to the local community include contributing to the restoration and construction of local Russian orthodox churches, sponsoring and organising various cultural events and providing financial support to local hospitals and clinics through the charitable foundation, The Petropavlovsk Foundation for Social Investment.’

Kinross Gold is also strongly committed to CSR. Its spokesperson, Louie Diaz, said, ‘In our approach to generating sustainable long-term benefits for host communities in Russia, we have established the Kupol Foundation. Since 2009, this foundation has financed more than 80 projects for a value of more than 70 million roubles (US$1.05 milllion), with more than 70% focused on projects for the indigenous people of Chukotka.

‘We have excellent relationships with local communities, indigenous groups and local governments and believe this is key to our success. At our Kupol and Dvoinoye mines,
we also run regular environment monitoring and training for the local communities.’

KGC is also active in reducing energy consumption. Climate change impacts and strategies to address them are a key component of the Environmental Impact Assessment process for permitting new mine projects. As a result, KGC states on its website that it uses less energy and has lower greenhouse gas emissions than most of its peers in the mining industry. The result is the implementation of more than 100 energy efficiency initiatives since 2012. They in turn have reduced KGC’s energy intensity by 3.5% and its greenhouse gas emissions by 44,000t/y of CO2 equivalent, compared with what would have been emitted without these initiatives.

Materials World asked how mining has changed since the Soviet era. Isola said, ’Wide-scale alluvial mining was commonplace in the Soviet era because of an abundance of alluvial deposits that did not require vast amounts of capex spend to get them producing. This, in combination with an effective and well-educated labour force, resulted in Russia’s focus on alluvial mining. While hard rock deposits were extensively explored, they were not as readily developed. However, over time alluvial deposits have been exhausted and now there is the issue of developing hard rock deposits, the remainder of which are refractory in nature and require special technology to process the ore effectively […] As such, the industry is shifting towards new technology.’

You can read the first instalment of Michael Schwartz’ Russian mining coverage in Materials World, September issue