Foreign investors spotlight on the Russian gold mining industry
The Russian gold mining industry continues to be in the spotlight of foreign investors. Following the recent announcement of China National Gold Corporation (CNGC), China’s largest gold producer, to invest up to US$500 million in the development of Russia’s Klyuchevskoye gold field, Fosun Group, the Chinese investment conglomerate, expressed its interest in the acquisition of a stake in Polyus Gold International Ltd., one of Russia’s largest gold mining companies, owned by the Russian billionaire Said Kerimov.
According to some Russian media reports, the Chinese company is interested in the purchase of a blocking stake in Polyus Gold, which is equivalent to 25%. This should help Fosun to get an access to Sukhoi Log, Russia’s largest gold field in terms of reserves, which development could be started already in 2017.
Currently Polyus, together with the Russian state defence corporation Rostec, are considered as the most likely winners of a forthcoming stat tender for the development of Sukhoi Log, the Russian gold field, which reserves are estimated at 130 million gold ounces.
Currently the sides are continuing talks, while the amount of the deal may reach US$2 billion.
According to the current Russian legislation, the deal will be a subject of an approval of a governmental commission on foreign investments.
At present Polyus specializes on the development of fields with gold reserves of over 50 tonnes, which has the status of federal in Russia and are characterized by large reserves. At the same time the overall value of Polyus is currently estimated at US$8.5 billion.
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In the case of Klyuchevskoye project, the majority of funds are expected to be allocated in the expansion of the existing field, building of a mining and processing complex, as well as the construction of related infrastructure. The capacity of the new production will be about 6.5 tonnes (230.000 oz.) of gold per year. The new complex is scheduled for commissioning in 2019.
The overall reserves of Klyuchevskoye are estimated at about 75 tonnes of gold (2.64 million ounces) with the gold content of 2 grams per tonne.
The production of gold at Klyuchevskoye was frozen more than ten years ago, due to the domination of refractory ores, the development of which is associated with the need of the use of new stripping and production technologies. However, due to its high gold content, the field has always attracted an interest of global majors.
CNGC has the needed technologies and experience in the development of the fields with refractory ores. In addition, the field is located near the Chita – Khabarovsk road, one of the busiest highways in the Russian Far East and do not need large investments in energy infrastructure.
Still, the development of Klyuchevskoye could be by almost two times expensive than similar fields with non-refractory ores. That means that due to low gold content, the cost of the development of the field will be higher than US$800 per ounce at current prices, which makes it a low-margin field for the investor.
Eugene Gerden is an international free-lance writer, based in St. Petersburg, who specializes on writing in the field of mining, metals and rare earth metals. ... <Read more about Eugene Gerden>