Tycoons’ competition prevents growth of Russian silver production
Russia significantly increased production of silver in 2012, which was mainly due to an increase in production achieved by leading local producers and more active development of the country’s deposits.
According to the Russian Federal Service of State Statistics, silver production in Russia in 2012 increased by 15%, compared with 2011 and reached 2,100 tonnes.
Polymetal continues to remain Russia’s leading silver producer, which in 2012, the increased its production by 52 percent in volume terms to 20.5 million ounces (637.6 tonnes).
Silver production has always been one of the most developed segments of the Soviet and Russian mining industry. Currently the country in the list of the world’s top 7 silver producers, being only behind such countries as Mexico, Peru, China, Australia. In 2011, Russia accounted for more than 8% of the world’s silver production.
At the same time Russia also accounts for about 13% of the world’s silver reserves, being the third largest country at this terms, following Mexico and Chile. Predicted resources of silver in the country are also large, however the country’s identified resources are by 3.6 times lower its balance reserves and account for only 31,300 tons. The majority of Russian silver fields are located in the Magadan region and Chukotka.
Overall, Russia has 102 silver fields with the average grade of fine silver in ore – 100 grams per ton. Dukatskoy field, which is located in the Magadan region, remains the largest silver field in Russia, with total reserves more than 17,000 tons, with the share of the metall 496 grams per tonne.
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In case of consumption, since 2003 the consumption of silver in Russia has significantly increased, with the average growth rates 10-15% per year, thanks to ever growing demand from high-tech industries, including electrical, chemical and healthcare, as well as jewelery. In 2011, consumption of silver in Russia amounted to about 1000 tonnes.
At the same time, despite the ever growing production and consumption, situation in the local market silver market remains alarming.
In recent years, the Russian silver market has entered into the stage of consolidation with many small local producers being acquired by the mining giants.
Perhaps, the most aggressive expansion policy is implemented by Polymetal, the country’s largest gold and silve producer, which currently owns 36 major fields. The company is owned by Nesis brothers, as well as a well-known Russian banker and billionaire Alexander Mamut, together with Czech investment PPF fund of Peter Kellner.
Currently, Russia’s position in the global silver market is controversial. On the one hand, the country owns one of the world’s largest silver reserves, on the other, the volume of domestic production remains low, one of the reasons of which is the dominance of two oligarchic clans, which prevent free competition in the market.
In addition to Nesis’ Polymetal, which controls the majority of Magadan silver fields, the majority of Chukotka silver deposits (another center of Russia’s silver production) is controlled by Polymetal’s main rival Roman Abramovich, one of Russia’s richest persons.
Currently Abramovich holds licenses on the development of four richest silver deposits in Chukotka, with total reserves of 2,000 tons, which he got at the time when he was a governor of Chukotka, at a token price of 48.4 million rubles (USD $ 1,5 million).
However, even with the joint efforts of Abramovich and Polymetal total silver production in Russia remains low, despite rich reserves, which will be subject of development for many years ahead.
This is contrary to Mexico and Peru, the world’s leading silver producers, which current active silver production may result in exhaustion of their reserves soon.
According to analysts calculations’ Mexican silver mines will be exhausted during the next 10 years, while Peruvian by 2038 year. The global financial crisis negatively impacted the Russian silver industry, as the decline of global silver prices resulted in the decline of profits of Russian mining companies. Currently there are 12 precious metals refineries in Russia, which orders, due to the crisis, fell sharply and speed the consolidation in the industry, also through the rumours of the merge of the country’s large silver producers Oka Non-Ferrous Metals” (Ryazan region) and “Krasnoyarsk Non-Ferrous Metals” (“Krastsvetmet”). At the same time the recession and its consequences have resulted in the suspension of many projects for the development of new silver fields in the country.
For example, it resulted in suspension of development of Sukhoi Log deposit in Irkutsk region, one of the world’s largest gold and silver fields, which, however is characterized by low concentration of precious metals. The needed volume of investments is estimated at 70-80 billion (USD$2,5-2,7 billion). Among the main potential bidders for the development of the field Russian oligarchs Mikhail Prokhorov and Suleiman Kerimov.
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