Mining Industry in Russia

                                   Federal Agency of Education

                                         State Educational Institution

                                       of Higher Vocational Education

                                           of the Russian Federation 

                                         Petrozavodsk State University

                                                        Kola Branch 
 

           “Mining Industry in Russia” 
 

                                                       Department: full-time

                                                       Faculty: mining

                                                       Year: second

                                                       Group: 1 (2) 

Discipline: the English              Language

Scientific adviser: Sidorenko V. S.

Made: Sajkina K. I.  
 

  Apatity 2010

Summary:

1. Introduction ……………………………………………………………………………………………………3

2. Legal framework………………………………………………………………………………………………8

3. Structure of the mineral industry………………………………………………………………………8

4. Trade………………………………………………………………………………………………………………..8

5. Mineral resources……………………………………………………………………………………………..9

6. Metals and industrial minerals………………………………………………………………………….9

7. Oil industry of Russia……………………………………………………………………………………...16

8. Uranium………………………………………………………………………………………………………….16

9. Outlook………………………………………………………………………………………………………..…17

10. Russian economy blues………………………………………………………………………………...18

11.The Russian mining industry has returned to the past……………………………………22 
 
 
 
 
 
 
 
 
 

  1. Introduction.

  The Mineral industry of Russia is one of the world’s leading mineral producing countries and accounts for a large percentage of the CIS’s production of a range of mineral products, including metals, industrial minerals, and mineral fuels. In 2005, Russia ranked among the leading world producers or was a significant producer of such mineral commodities as aluminum; arsenic; asbestos; bauxite; boron; cadmium; cement; coal; cobalt; copper; diamond; fluorspar; gold; iron ore; lime; lithium; magnesium compounds and metals; mica, sheet, and flake; natural gas; nickel; nitrogen; oil shale; palladium; peat; petroleum; phosphate; pig iron; potash; rhenium; silicon, steel; sulfur; titanium sponge; tin; tungsten; and vanadium.

  In 2005, the Russian economy benefited significantly from high oil, gas, and metal prices. Oil revenues accounted for about 14% of the GDP. Following the mineral fuel industry, the next leading branch of the mineral industry, in terms of its contribution to the national economy was the metallurgical sector, which contributed 19% of the value of industrial production, accounted for 11.1% of the value of industrial capital stock, and employed 9.3% of the industrial labor force. In 2005, a total of 1,071,000 people were employed in the mineral extraction sector and made up 1.6% of the country’s labor force. Investment in mineral extraction and metallurgy accounted for about 20% of total investment in the Russian economy.

  Russia remains one of the world’s largest mineral producers, accounting for 20% of nickel and cobalt production, 5-7 % of coal and iron ore production, and also a large share of the output of some non-ferrous and rare earth metals, platinum group metals, diamonds, apatite and potassium salts. Russia also contains important reserves of nickel, gold, silver, platinum group metals and diamonds.

  To date, approximately 20,000 mineral deposits have been explored, of which more than one-third are currently being mined or developed. While these deposits account for only five per cent of the country’s explored mineral resources, they contain over 70 percent of Russia’s total natural reserves. Raw metals and aluminum comprise the largest share of Russian exports (65 per cent).

  While this vast resource base has obvious appeal, for many years there was debate about the business stability in Russia’s mining sector. Investors and potential resource developers worried about the absence of clear business rules, the reliability of partners and return on investment. Some companies undoubtedly had their fingers burned, but today the Russian Government and industry are attempting to create a more stable climate to support growth in sales, investment and employment. There are significant opportunities for mining, exploration and investment companies, although obviously some care is required.

  The mining industry is strategically important and is one of the most important industries in the Russian economy. Besides ongoing modernization in the existing mining and refining companies that are active in the mineral sector, a comprehensive effort is currently taking place to prospect for new mineral deposits.

  The latest report 's R'search -Metals and Mining Industry in Russia brings you an entire coverage of the metals and mining industry in Russia. The report covers the major players in these sectors, the recent regulatory changes and how they are affecting the mining industry in Russia, the investment scenario in the industry, and much more. The economics of mining, metal reserves, production of metals and minerals, production techniques, refining techniques, and a lot more technical data is also researched to satisfaction of any investor/researcher looking in to this particular sector.

  The report provides a definition of the Russian Mining Industry with a tabulation of its segments and the overall market overview with the economic contribution of this important industry. The major industry growth drivers and the challenges to growth which are placing a question mark on the future growth speed of this industry are enumerated in the report. The report also indicates the trends running currently in the market and the future projection for growth analysis of the industry.

  The report profiles in detail the major players in the industry along with their financial analysis and company strategies. A future perspective of the Russian Metals & Mining Industry completes the report.

  Russia Mining Report provides industry professionals and strategists, corporate analysts, mining associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Russia's mining industry.

  As commodity prices increased throughout the year, Russia’s vast coal resources have become attractive to foreign investors. Particular interest has been exhibited from companies in South Korea, Japan and China as companies look to secure long term stable supplies of the energy resource. South Korea’s Hyundai Steel signed deals with Mechel and Siberian Anthracite in February and September respectively and South Korea’s Pohang Iron & Steel Co (POSCO) also agreed to purchase coking coal from Russian company Sibuglemet beginning in 2011.

  It has also been rumoured that unnamed Chinese investors are keen to develop infrastructure in the Far East regions of Russia to exploit the rich resources in the area. Though, Russia’s reliance on its natural resources damaged the country as commodity prices crashed, there is still a lot of confidence that investment will return now that the market is recovering. In October 2009, it was reported that the Federal Service for the Financial Markets (FFMS) would be creating a draft amendment that would make it more difficult for Russian companies to raise funds through Initial Public Offerings (IPOs) in international markets. If passed, this will be a blow to companies who have found raising capital difficult domestically, due to high interest rates on hard to find commercial loans.

  The amendment proposes a reduction in the limits of shares allowed to be issued on international markets. Whilst the move comes as a means to strengthen the domestic market and encourage investment within Russia, it does make it more difficult for companies to raise capital at a time when it is most needed. Analysts anticipate that the draft amendment will simply force companies to search for loop holes as a means to circumvent the new regulations.

  Throughout Q309 and Q409, news about the aluminium industry was dominated by the debt restructuring of giant producer UC RUSAL, and its intention to launch an IPO. By September 2009, it was announced that UC RUSAL, would restart its plans for an IPO on the Hong Kong stock exchange in a move that could raise US$2bn for the company. In order to move forward with the listing, the company still has to agree to the restructuring of its debts with domestic and international creditors. UC RUSAL’s debts currently stand in excess of US$16bn. By the end of October, however, UC RUSAL had managed to pay off or agree repayment terms with its Russian creditors. It was estimated that half of its international lenders were in agreement to the current restructuring plans for the US$7.3bn debt. In November 2009, state support for the company was displayed with the announcement that the government might buy up to 3% of shares in the company through the IPO for between RUB14bn-18bn (US$488mn-627mn) which would give the company a valuation of US$20bn.

  Meanwhile, In September 2009, Reuters reported that Atomredmetzoloto Uranium Holding Company (ARMZ) believed a recovery and hike in uranium prices would be seen in early 2010. As environmental concern sees more countries becoming interested in developing clean fuel sources and moving away from fossil fuels, demand for uranium is increasing steadily. The company also reported that it was meeting with French state-controlled nuclear reactor manufacturer Société des Participations du Commissariat à l’Energie Atomique (AREVA) to consider uranium projects together in Namibia where there are extensive resources of uranium. As well as starting to work with AREVA, the following month, ARMZ stated that they were also in talks with Canadian based Cameco Corp about potential uranium projects in Africa and Australia.

  Industry Forecast In the short term, Russia’s mining sector is facing severe difficulties caused by falling commodities prices. In 2008, the authors estimated the mining sector declined by 11.0% in real terms, and we forecast a significant contraction in 2009. By the end of the forecast period, however, the market should have returned to strength as commodity prices recover and new reserves are developed. In 2014, we forecast the mining sector will be worth US$240bn.

  With bountiful and diverse minerals, Russia, the world's largest country in land area, occupying 75% of the former Soviet Union, had a significant percentage of the world's mineral resources and produced 14% of the world's total mineral extraction. Mining was the country's leading industry in 2002, and Russia was the largest producer of palladium and nickel (20% of world output), and ranked second in the production of aluminum and platinum-group metals (PGMs), third in potash, sixth in gold, and seventh in mine copper. Russia also produced a large percentage of the CIS's bauxite, coal, cobalt, diamond, lead, mica, natural gas, oil, tin, zinc, and many other metals, industrial minerals, and mineral fuels. Enterprises considered part of the mineral and raw-material complex contributed 70% of the budget revenues derived from exports; petroleum, petroleum products, and natural gas were Russia's leading export commodities in 2002; metals and chemicals also were leading export commodities.

  More than half of Russia's mineral resources were east of the Urals. The most significant regions for mining were Siberia, particularly East Siberia, for cobalt, columbium (niobium), copper (70% of Russia's reserves), gold, iron ore, lead (76% of the country's reserves), molybdenum, nickel (becoming depleted), PGMs, tin, tungsten, zinc, asbestos, diamond, fluorspar, mica, and talc; the Kola Peninsula, for cobalt, columbium, copper, nickel, rare-earth metals, phosphate (the majority, in the form of apatite), and tantalum; North Caucasus (copper, lead, molybdenum, tungsten, and zinc); the Russian Far East (gold, lead, silver, tin, tungsten, and zinc); the Urals, with bauxite, beryllium, cobalt, copper, iron ore, lead, magnesite, nickel, titanium, vanadium, zinc, asbestos, bismuth, potash (96% of the country's reserves), soda ash, talc, and vermiculite; and the region near the Arctic Circle (cobalt, gold, mercury, nickel, tin, phosphate, and uranium). The Kaliningrad region contained 95% of the world's amber deposits, and Russia possessed 10% of the world's copper reserves. Metallurgical enterprises in Kola, North Caucasus, and the Urals were operating on rapidly depleting resource bases, and were experiencing raw material shortages.

  A large percentage of Russian reserves was in remote northern and eastern regions that lacked transport, were distant from major population and industrial centers, and experienced severe climates, and enterprises built there in the Soviet era had curtailed operations sharply. Efforts to develop new large deposits of nonferrous metals near the eastern Baikal-Amur railroad were not progressing. One researcher proposed the creation of small mining enterprises to develop the rich small deposits of eastern Russia. Reserves of iron ore were sufficient to last 15–20 years; those of nonferrous metals, 10–30 years. Reserves of major minerals included potash, 1.8 billion tons; magnesite, 585 million tons; bauxite, 250 million tons; phosphate rock, 240 million tons; asbestos, 100 million tons; fluorspar, 60 million tons; manganese, 15 million tons; nickel, 6.3 million tons; vanadium, 5 million tons; zinc, 4 million tons; antimony, 3 million tons; and lead, 3 million tons.

  Output of iron ore was 86.63 million tons in 2000, 81.31 million tons in 1999, and 72.34 million tons in 1998; increased demand from the domestic metallurgical sector spurred the rise. Iron ore output was at 77% of the 1990 level (better than other metals), and product quality has been maintained. The largest producer was Kursk Magnetic Anomaly, at Zheleznogorsk and Gubkin, with a 50 million ton per year capacity.

  Output of copper was 570,000 tons in 2000, 530,000 in 1999, and 500,000 in 1998. The Noril'sk complex, in East Siberia, produced 70% of the country's copper, and planned to increase output of cuprous ore from its Oktyabr'skiy underground mine, from 100,000 tons per year to 1.6 million tons, because the cuprous ores were 40% higher in copper content than the nickel-rich ores; the Oktyabr'skiy mine supplied 70% of Noril'sk's copper output, and was planning to decrease production of the nickel-rich ores.

  PGM production included 94,000 tons of palladium (85,000 in 1999, and 80,000 in 1998), and 30,000 tons of platinum (25,000 in 1998). Sixty percent of PGM output came from the Oktyabr'skiy mine, Noril'sk, and a plan to expand output at the mine of cuprous ores by a factor of sixteen was projected to yield more PGMs, as would two new nickel-rich mines, the Glubokiy and the Skalisty, that had a high PGM content; the Skalisty planned to reach a 2 million ton per year capacity by 2002.

  The output of other metals in 2000 was: bauxite, 4.2 million tons (3.75 million tons in 1999, and 3.3 million tons in 1996); nickel, 270,000 tons (230,000 in 1996—40% less than the peak levels of the late 1980s; 96% came from the Kola Peninsula and East Siberia, and 197,300 tons were exported to non-CIS countries); zinc, 136,000 tons (86.7%, from the Urals); lead, 13,300 tons (23,000 in 1996; 62.8% came from the Russian Far East, and the Dalpolymetal mining and benefication complex, in Maritime territory, had a 20,000 ton per year capacity); magnesite, 1 million tons (from the Satka deposit, in Chelyabinskaya Oblast', which had a 3.8 million tons per year capacity); tin, 5,000 tons (7,500 in 1997); titanium sponge, from the Perm region in the Urals, 30,000 tons (24,000 in 1999); molybdenum, 2,400 tons (2,000 in 1998); and cobalt, 3,600 tons. Gold mine output—from Yakut-Sakha, Buryat, Magadan, Krasnoyarsk, Maritime, and Tuva—was 143,000 kg (metal content), up from 125,870 in 1999. Russia also produced the metal minerals alumina, nepheline concentrate, antimony, white arsenic, bismuth, chromium, manganese, mercury, silver, tungsten, and baddeleyite zirconium. Russia, which had the capacity to mine vanadium, stopped mining beryllium in the mid-1990s, and continued producing cobbed beryl.

  Industrial mineral production in 2000 included phosphate rock (apatite concentrate and sedimentary rock), 4.45 million tons (4.04 million tons in 1998, and 3.2 million tons in 1996; 90%, from the Kola Peninsula, where total capacity was 20.7 million tons per year); marketable potash, 3.7 million tons (all from the Verkhne Kamsk deposit, in the Urals, with a capacity of 6.3 million tons per year); mica, 100,000 tons; fluorspar concentrate, 187,600 tons (153,800 in 1999, and 6,200 in 1997); and gem and industrial diamonds, 11.6 million carats each (10.5 million each in 1996; 99.8% was mined from kimberlite deposits near Mirnyy, in the Sakha [Yakutiya] Republic, at a value of $1.623 billion). Russia also produced the industrial minerals amber, asbestos, barite, boron, hydraulic cement, kaolin clay, feldspar, graphite, gypsum, iodine, lime, lithium minerals, nitrogen, salt, sodium compounds, sulfur (including native and pyrites), sulfuric acid, talc, and vermiculite. Russia's only producer of amber, Kaliningrad Amber Works, was the world's largest producer, yielding 441.8 tons in 2000, 364.5 in 1999, and 512.2 in 1998.

  Despite decreased metal output compared with the Soviet period (e.g., 20% as much tin), Russia was producing more aluminum, lead, and zinc in 2000 than during the Soviet era. Ten percent of the technology employed in the nonferrous mining and metallurgy sector was rated as world class, labor productivity was one-third below that of advanced industrialized countries, and energy expenditures were 20%–30% higher. Another problem was that the resource base for metallurgical enterprises was not competitive in terms of quality, with the exception of antimony, copper, nickel, and molybdenum. More than one-half of industrial mineral output was exported, depriving the domestic sector of needed supplies, especially barite, bentonite, crystalline graphite, and kaolin. Russia has not been successful in attracting foreign investment for developing its mineral deposits, because of high and unpredictable taxes, an unreliable legal system, insecure licensing, inequity in the treatment of domestic and foreign partners, a weak banking system, and the inability to directly export commodities.

  2. Legal framework

  A new subsoil law remained under discussion as of 2005. The current law of 1992, as amended, does not impose any special restrictions on companies with foreign participation, with the exception of diamond and radioactive materials, but this appeared likely to change to the disadvantage of foreign companies, especially those interested in investing in large or strategic deposits, such as the Udokan copper deposit or the Sukhoi Log gold deposit.

  As proposed, the new mining law under discussion would include certain restrictions on foreign participation, limiting it to 49% for some commodities. This restriction would apply to deposits with large reserves of more than 150 metric tonnes (t) of oil, 75 billion cubic meters of gas, 10 t of copper, and 700 t of gold; to strategic raw materials, which include diamond, nickel, high-purity quartz, rare earths, and uranium; and to mineral deposits located near defense and military facilities and frontier areas. Also, discussions were underway to lower the quantity of reserves from the above specified quantities for restricted deposits.