Russia’s massive mining industry

Materials World magazine
,
1 Sep 2016

In the first instalment of a two-part piece, Michael Schwartz takes a look at Russia, a country with one of the largest mining industries in the world.

Changes in a country’s mining fortunes – whether favourable or otherwise – can often be attributed to conventional reasons, such as privatisation or competing in the open market for a particular mineral. Imagine the challenges of a country as massive and varied as Russia, before reminding yourself about the number of highly important geopolitical factors, and the complexities of Russia’s mining industry become clear.

For example, reports have recently emerged that Russian President Vladimir Putin has approved a proposal to reduce the state's holdings in the PJSC Alrosa diamond mining company from 44% to 33%, a transaction worth US$905 million, according to Russian Economics Minister Alexei Ulyukayev – but not an event of crucial importance.

Contrast this, however, with the effects of Ukraine’s 70% cut in Russian thermal coal imports last year – and a total boycott of such coal for this year. Ukraine is now reopening those of its mines that closed when fighting escalated two years ago, a direct politically-inspired challenge to the Russian coal industry. Russia’s response is currently unclear.

To put Russia into perspective, Robin Young, CEO of Amur Minerals Corporation (AMC) informed Materials World, ‘There are more than 20,000 state-reported mineral projects, ranging from grass roots to production, within Russia. Of these, about one third are reported to be in production and there are no financials available to determine the portion that are profitable.’

Exploiting Russia’s east 

One key development that has long demonstrated the sheer scale of Russian mining is the number of companies operating in the far-eastern regions. This location is not new, but present activity is certainly impressive.

AMC, for example, is a developing mineral exploration company focused on base metal projects in Russia’s Amur Oblast (region). Its principal asset is the Kun-Manie sulphide-nickel-copper project, with JORC resources in excess of 958,000t nickel equivalent. The project also contains by-products of cobalt, platinum, palladium and gold.

In an announcement in April 2016, AMC declared that SRK Consulting Ltd’s independent resource estimate of the Maly Kurumkon/Flangovy (MKFL) deposit was complete. As a result, the global nickel equivalent for the entire Kun-Manie project increased from 831,000t to 958,000t. At MKFL in particular, total contained nickel increased by around 25% from 294,200t to 366,600t. MKFL’s high-grade zones contain 73% of the nickel at a cutoff grade of 0.5%. 

The company holds a 20-year production licence over 36km2, allowing for recovery of 100% of the contained metal. The licence can be extended beyond the current 1 July 2035 expiration date should additional economic mineralisation be discovered – discovery costs per pound of nickel are expected to be US$0.03.

AMC describes the construction and operation of a captive smelter located adjacent to the Baikal-Amur rail line as the most significant component of its blueprint for production. This location provides access to the coal and limestone necessary to smelt the concentrate. It also allows AMC to capture the revenue generated from all metals, whereas toll-smelting revenues are limited to only 70% of the nickel, 50% of the copper and nothing from any of the by-product metals.

The resource is among the 20 largest sulphide-nickel-copper projects in the world and there is potential for expansion from the five current drill-identified deposits. In geographical terms, Kun-Manie is situated adjacent to three of the world’s largest nickel-consuming markets – China, South Korea and Japan.

Gold has long played a significant role in Russia’s economy. A Pravda report from 2016, bluntly called Russia becomes the world’s largest buyer of gold, states that the IMF has had to take notice of the fact that, in January 2016, the Bank of Russia became the world's largest buyer of gold among central banks anywhere – the bank acquired 688,000oz of gold, bringing the value of gold within Russia’s reserves to around US$52 billion.

While the political and economic implications of this trend are not within the remit of this article, the gold mining companies certainly are.

Petropavlovsk

Petropavlovsk is one of Russia’s major gold mining companies in terms of gold output, processing capacity, resource base and exploration potential. Having operated in Russia’s far east since 1994, it has produced around 5.5Moz of gold.

Four hard-rock gold mines make up Petropavlovsk:

Pioneer, one of Russia’s largest gold mines, accounting for 42% of Petropavlovsk’s total production in 2014. Acquired as a greenfield site in 2001 and commissioned in 2008, its resin-in-pulp (RIP) plant has now expanded to achieve current processing capacity of around 6.6Mt/y. By 31 December 2014, Pioneer had produced some 1.9Moz of gold. Pioneer is still being actively explored. Historically, Petropavlovsk has combined open pit mining and heap leach processing. From 2017, however, its flagship Pioneer will move to underground mining to capture and process high-grade bearing ore.

Pokrovskiy, the company’s oldest mine, producing around 1.9Moz of gold since 1999. Its strategic location and infrastructure mean that as it comes towards the end of its life Pokrovskiy will become a hub for processing refractory ore reserves.

Malomir, a greenfield site and now one of the largest gold mines in Russia. By 31 December 2014, resources stood at 6.9Moz of which 3.1Moz were ore reserves. Malomir is still being actively explored, with several promising discoveries made in 2014. As of the end of 2014, Malomir had produced around 426,000oz of gold since commissioning in mid-2010.

Albyn, Petropavlovsk’s newest mine, acquired as a greenfield site in 2005. Its RIP plant was commissioned in 2011 and it has produced around 411,000oz of gold between commissioning and end 2014, when Albyn had 1.4Moz of ore reserves. Geologists consider Albyn to be highly prospective for significant gold discoveries.  

Petropavlovsk has just increased in size by entering an agreement with Alliance Mining Group and Lexor Group to acquire the Amur Zoloto (AZ) gold company, which operates from Khabarovsk in Russia’s far east. AZ has JORC-compliant non-refractory reserves of 1.55Moz and 2.16Moz of resources, including reserves.

The new owners are ambitious. They intend to raise production from 70,000oz to 127,000oz between 2017 and 2020, at an average cash cost of around US$640/oz of gold, while AZ’s current operation of Yubileiny processing plant at 100,000t/y will increase to 200,000t/y in 2019.

James Isola, one of Petropavlovk’s media contacts, answered questions about Petropavlovsk’s recent achievements and strategies. ‘On the basis of full year 2015 gold production, Petropavlovsk is among the top five Russian gold producers and the number one producer in the Amur region […] Gold production for the full year of 2015 was 504,100oz. For the first quarter of 2016, gold production was 92,100oz. For the full year of 2016, our outlook is between 460,000 and 500,000oz and, for the period 2017-2020, a 10-20% annual increase in production, with a sustained increase in profitability at the current gold price.’

Then there are the challenges of Eastern Russia. Isola says, ‘Petropavlovsk’s core assets are based in the Amur region, an area with developed infrastructure that includes railways, roads and access to hydroelectric power. Petropavlovsk is helping fund the development of the power supply infrastructure in the region. In December 2015, the company entered into an investment agreement with the Russian Ministry of Far East Development. The Ministry will provide around US$75 million of funding for the construction of the electricity power line in the north-east of the Amur Region. Upon completion, the Group will gain access to the enhanced capacity of the power supply infrastructure in the region.’

Kinross Gold Corporation

One company deeply involved with mining in one of the most isolated parts of Russia is Kinross Gold Corporation (KGC). KGC, in addition to its Russian commitment, operates a global portfolio of operating mines, taking in West Africa and the Americas. 

Louie Diaz, Director Of Corporate Communications at KGC, points out that the company has operated for over 20 years worldwide. In the case of Russia, ‘Our high-grade Kupol and Dvoinoye mines are models of successful mining operations in a very remote region of the world – the Chukotka Autonomous Region, located in the far east of Russia and above the Arctic Circle. Kupol was built on time and on budget with state-of-the-art mining infrastructure that includes a high-capacity mill, diesel power generation, a 430km winter road, a fully certified airport and excellent camps.

‘Since 2008, KGC has produced 5Moz of gold and 50Moz of silver at the Kupol mill. The Kupol mill’s capacity was expanded to 4,500t/day from 3,500t/day, to process ore from Dvoinoye. The mine has delivered consistent operating results and has the lowest operating cost in KGC’s portfolio. In addition, Kupol was the first mine in Russia to obtain the full-cycle International Cyanide Code Certification.’

The Moroshka project, located around 4km east of Kupol and within the Kupol licence area, continues to advance as KGC has planned. It has completed a pre-feasibility study that defined underground mine potential of proven and probable reserves of around 182,000oz of gold and more than 2Moz of silver. KGC plans to commence mining Moroshka in 2018. Since the ore from Moroshka will be processed at the Kupol mill, the construction of an ore haulage road is now underway.

While the case-studies have so far concentrated on mining in the far east of Russia, the traditionally better-known and more highly developed areas still have a crucial role to play. The second part of this review will look at these regions.