Latest Perspective on Russia’s Gold Industry

Mr. Valeri N. Braiko is the Chairman of the Union of Gold Producers. The Russian Union of Gold Producers has approximately 50 members, including gold mining companies, commercial banks, processing and refinery mills and other associated companies in precious metals and markets. The group was founded in 1995, and their major role is to lobby for the interests of the Russian gold mining industry with the State Duma of the Federation Council.

Mr. Braiko commented that in the early 1990s, many foreign investors entered the gold producing market, and many licenses were issued. These projects included Omolon, Burliatzoloto and the Pakrovsky mine. The situation now has changed considerably, according to Mr. Braiko. Government funding for projects is close to zero. Gold loans on earlier projects were not paid back for the most part. Funds were transferred from the federal government to the regions. Many times these funds were not spent for their intended purpose. The funds, he states, should have gone to the producing companies, but they went to the local governments, and the companies never saw them.

Here are some quotes from Mr. Braiko:

“There are many negative results in the foreign investment area. These include Star Mining, who started Sukhoi Log in Irkutsk; Echo Bay, and Pan American Silver, in regards to Dukat. Because of the failed foreign investment projects, many Russian gold producers have the opinion that dealing with foreign investors will lead them nowhere. After 1998, after the default and the financial crisis, the gold mining industry began to increase production. For the last three years, the annual increase was 10 tonnes; last year it was 20 tonnes. Many Russian companies began to invest in gold, such as Sibneft and Polymetal, who invested $160mn in Russian gold. Polymetal is a Russian company, who has acquired gold and other metals companies, and it is also involved in construction, research and technical companies. It is a big financial holding out of St. Petersburg.”

“Norilsk Nickel also has a serious gold program. For the last two years, they have wanted to expand their gold holdings, in addition to nickel, copper and other metals. They haven’t invested yet, but they are evaluating various options. Norilsk is considering acquiring Polyus, in Krasnoyarsk, which would add 25 tonnes annually to their production.”

“Russian companies now have enough capital to develop their own funding and Russian commercial banks can provide their own financing. Foreign investors need to know this and become competitive in this framework.”

“Because of the negative experiences Russians experienced in gold projects, local governments believe it is unreasonable for foreign investors to invest in gold projects, for example Sukhoi Log. Some have recommended that foreign investment in gold not be allowed and to limit investment to Russian companies.”

“From my point of view, the right conditions exist now in Russia to develop the gold mining industry. There are promising projects where foreign investors could participate. For example, Darasun in the Chita Region and Kupol and Maiskoye in the Chukohta region.”

“As one example in Kamchatka, there is Aginskoye. This has been conceded by foreign investors, it has changed hands three times but with no results. Now it belongs to a Russian company. It is a negative example. In Kamchatka, there are other foreign companies, issuing and reissuing licenses and not much is happening.”

“It is the impression of many analysts on the Russian side that foreign companies want to buy companies cheaply to increase their share price on the stock market. They argue about licenses and then sell holdings to another company for a profit.”

“There are examples of positive experiences in foreign investment. These include Bema Gold, Julietta, Kinross/Omolon/Kubaka, starting with Cyprus Amax, High River Gold in Buryatzoloto and Pokrovskoye. But the balance sheet is slanted towards the negative experiences.”

“When foreign companies ask me if they should invest in Russia, I say yes. It is relatively cheap and available. Our political environment is no worse that Asia or South America. The total tax burden for Kubaka or Omolon is 22%, or the average cost is $140/oz.”

Please note that nuances in facts or data may have been altered in the translation and transcribing process.