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"We came to Chukotka for a long time and seriously"

Top management of Tigers Realm Coal on plans in the Far East

The Australian company Tigers Realm Coal, Ltd. Began production from the reserves of the coal field Fandyushkinsky field. The main assets of Tigers, a coal port and two licensed areas close to the sea coast with coking coal resources over 600 million tons, are located on the Chukchi coast of the Bering Sea. In early April, representatives of the company's management and shareholders intend to visit the Chukotka Autonomous Okrug once again and hold talks with the regional administration on further cooperation, taking into account the opportunities that the foreign investor opens up as a resident of the territory of advanced development (TOP). Chief Executive Officer (CEO) Tigers Realm Coal Peter Balka and CEO Denis Kurochkin told EastRussia of their plans.

"We came to Chukotka for a long time and seriously"
Photo: Tigers Realm Coal CEO Denis Kurochkin and CEO of Peter Balka // photo TASS
- Foreign residents in the Russian Far Eastern TOPs are still rare. Your company is an exception: you not only did not stop the project in connection with "the difficult political situation and the regime of economic sanctions", but also brought it to the first intermediate finish. What business considerations did you follow?

Denis Kurochkin:
- Our tactics and strategy in the work in the Russian Far East are dictated by objective circumstances, and, first of all, the situation on the world market. Sharp, two and a half to three times, the surge in prices for coking coal in the second half of 2016, according to most experts, is a temporary phenomenon. This was due to the limitation of production volumes imposed by China. We understand that prices will inevitably go down, and we hope that their medium-term level will allow us to attract financing for the development of our assets. In the current situation, competitiveness depends on the quality of the extracted raw materials and logistics factors, primarily on the transport availability of the fields. In this regard, the development of deposits in Chukotka, not tied to the railway or foreign ports, is of special interest to us.

Peter Balka:
- At the beginning of the year we began to mine open-pit coal in the western part of the Fandyushkinsky field. In the first half of 2017, it is planned to produce the first 200 thousand tons of high-quality coking coal. As for the prospects, on the flanks of the field prospecting and appraisal work continues, and in the future there is a real opportunity to increase new territories to the Fandyushkinsky field.

Our plans for additional exploration of the Upper Alkatwaam resource base are best explained by the geographic map. Our license area is about 400 sq. km. According to our estimates, the field has the technical capability to produce about 2 million tons of coking coal, which is in demand in industry and energy, annually over the next 15-20 years. It is very important that this coal can be transported through the seaport of Beringovsky, which is located less than 40 km from the mine. During 2017, it is planned to extract up to 400 thousand tons of coal at the Fandyushkinskoye field, and the volume of shipment from the local port will be 200 thousand tons. Of course, this is a minimal, initial plan, we will need some time to gradually increase volumes. In 2018, production is planned to be increased to 600 thousand tons. We expect Tigers Realm Coal shares to rise in price on the Australian Stock Exchange (ASX) in the near future thanks to the development of the Chukotka field. True, according to our legislation, I cannot name specific numbers and profitability indicators, so I will refrain from more detailed comments.

- As a resident of the territory of advanced development (TOP) the company has a number of preferences. How important are these benefits and how is your cooperation now being built with authorities and development institutions in the Far East?

Denis Kurochkin:
- I became almost a native airport "Coal Mine" in Anadyr (it is across the strait from the city itself). Before the port of Beringovsky helicopters fly from there - the journey takes an hour and a half. In Chukotka, we work in close contact with the administration of the region, led by the governor Roman Kopin. We also find complete understanding in the Moscow specialized departments.

Peter Balka:
- Personally, I'm in Chukotka all the time and spend about three weeks there every two months. Only last week I returned from a two-week business trip to this region. Creation of TOP "Beringovsky" significantly facilitated all business processes in the Chukotka Autonomous Okrug. Thanks to this, we quickly obtain all the necessary permits, with the full cooperation of the Ministry of Economic Development of Russia, the highest executive bodies of state power, as well as the executive and administrative bodies of municipal entities in the territory of the Chukotka Autonomous District. To finance construction, as well as for geological exploration, the company uses the means of shareholders. However, we believe that the provision of all necessary documentation is a great help in the development of our project.

- Does the company intend to carry out the reconnaissance further on its own?

Peter Balka:
- Our company performs additional exploration on its own and with the financial support of private investors, without the participation of the Chukotka AO administration. It was not yet about co-financing the work. In the exploration of new deposits, we plan to invest future revenues from coal mining in the Fandyushkinsky field. Thus, in three or four years we will be able to start development and other promising areas - we hope that their capabilities will last for another hundred years. This can also be considered our declaration of intent: we are in Chukotka for a long time and seriously.

- Mr. Balka, as far as we know, you are a certified mining engineer and have been working in this industry for more than a quarter of a century. They began their industrial career in Rio Tinto, designed and built mines, mines and quarries not only in Australia, but also in Africa, Indonesia, Colombia, Laos, New Zealand. You have been in Russia for five years already. What is more - problems or opportunities?

Peter Balka:
- My personal experience of working in different countries and on different mining projects allows us to state with confidence only one fact - there are no ideal conditions for the mining industry in any country in the world. Each country, each jurisdiction has its own advantages and disadvantages, each has its own strengths and weaknesses. And in every country one could find interesting, that is, profitable deposits in the development of.

That's only in which countries new fields will be discovered, reconnoitered and mastered in reality? The methods of reconnaissance, the level of mining equipment, the technology of designing and developing deposits in all countries and on all continents are practically the same today. Differences - in the peculiarities of the legislation of different countries and in what is usually called the investment climate. These differences determine how many projects will attract the attention of investors and, accordingly, how many deposits will be open, explored and developed in the country.

- What attracts foreign investors to the mining industry in Russia?

Peter Balka:
- First of all, the fact that, in comparison with other countries and continents, its subsoil is very poorly explored. It means that there is a huge potential to discover large and rich deposits. But in reality, the new discoveries are extremely small, and neither Russian nor foreign investors are eager to invest in the exploration of Russian mineral resources. In the 2012 year, for example, about the entire vast territory of Russia accounted for about 3% of the global exploration expenditures. The share of smaller and much more geologically explored countries is several times larger: Canada - 18%, Australia - 13%, USA - 8%, South Africa - 8%, Mexico - 6%. Why so, you ask?

"Of course I will."

Peter Balka:
- Because all the relative prospects of the Russian subsoil are crossed out with two major flaws. First, risk-taking in itself, in Russia, geological exploration is artificially burdened with the obligation to incur costs that are absolutely unnecessary for the good of the cause. So, in Russia, unlike the USA, Australia, South Africa or Canada, you need not only to spend money on a multi-page project, but also to pass a state examination and, if it is positive, approve the project at the subsoil use agency. At the same time, the recommendations of the State Commission for reserves, which are mandatory for designers, are formulated in the interests of geological science rather than the efficiency of exploration and prospecting. Government experts are experienced geologists, not economists. As a result, for each such geological project, you can write and defend a thesis, but you will have to spend more money on discovery and exploration of the field than in Australia, the Americas, or South Africa. Naturally, investors prefer to spend their money where there is greater return on them, that is, outside of Russian jurisdiction.

Secondly, licenses for geological study in Russia are issued for five years, whereas in order to locate and search for a deposit, an average of 10-12 years is required. As a rule, licenses are renewed after five years - for two or three years. But the risk that you will spend money, and a license may not extend, there is always. And for many investors, this risk is unacceptable. Likewise, the situation that is losing for the Russian jurisdiction is also in the state regulation of production.

"But without it, not one country in the world can do it. The mining industry is strategically important for any state, it would be strange to give it entirely to the hands of private business without adequate control.

Peter Balka:
- Russian mining enterprises today also depend on the conjuncture of the world market, as well as their competitors in other countries and on other continents. The market dictates prices to producers, and with them both volumes and rates of extraction. Dictates everywhere - but not in Russia. Here, the supervisory authorities keep an eye on the fact that the enterprise should not be in demand of the market, but with the volumes and rates of production prescribed by the technical design of the field development, the indicators of which could be developed and approved in fundamentally different economic conditions, at different prices and other demand levels. In the course of mining, miners are required to approve mining plans every year, for which mining enterprises, as a rule, are subject to sanctions, until the production is stopped. In this senseless struggle against the forces of the market, the most experienced, most qualified specialists are employed on both sides, both at enterprises and supervisory departments. And in the losers are both enterprises whose profits are eaten by unproductive costs, and the state, which carries costs for maintenance of state controllers, and loses tax revenues.

I agree that state supervision is necessary, and in Australia, for example, it is very tough. But they control what is really important for society in Australia. Namely, that development of deposits does not cause damage to nature and does not threaten life and health of people. As those people who live in the zone of potential impact of mining, and employees of the enterprise-subsoil user and its contractors. Where to drill, how, what and when to extract, the companies decide themselves, following the market trends and relying on the professional experience of their specialists.

It seems to me that if the Russian government and lawmakers soberly assess the budget expenditures on controlling the mining business and simplify the administration of geological exploration and mining at least to the level of Australia or Canada - countries where, unlike the United States of America, the subsoil is also in the state, and not private property - for the budget this will result in significant savings, and for the industry - an increase in efficiency and investment growth.

- If we are talking not about the industry as a whole, but about your company - are the investors of Tigers Realm Coal happy with the implementation of the Chukotka project? And who are they, your shareholders?

Denis Kurochkin:
- Tigers Realm Coal is an open joint stock company with about a thousand co-owners. Today, the main shareholders are Baring Vostok, RDIF and private Australian investor Bruce Gray. The rest are about a thousand Australian private investors and small funds. Investors fully support the company's strategic plans for business in Chukotka, which is confirmed by the stable support they provide in raising funds for the company's development, including in the most difficult times.

Peter Balka:
- Over the past year, it has been possible to raise about 23 million Australian dollars of investments from existing shareholders of the company (approximately $ 18 million). We immediately began to invest this money in the construction of infrastructure facilities, not only engineering networks, but also housing for staff. From August to December 2016, we managed to master about $ 4 million, completely finishing the construction of the road for mine operation in winter. However, to make the land "avtozimnik" suitable for summer use, additional work will be required. We plan to make the all-season road the summer of 2017.

In addition, industrial production facilities such as a repair shop at the field and a coal laboratory in the port have been built and put into operation, and from the non-production - an office building for administrative personnel and a residential complex for employees. Now part of the workers lives in 40 km from the mine, in the village of Beringovsky, and every day goes home. The rest prefer to live in close proximity to production and work on a rotational basis.

- Do you plan a massive recruitment? Given the harsh conditions of Chukotka, how can you attract such employees?

Peter Balka:
- At the first stage of development of the field, while the production volume does not exceed 200-500 thousand tons, we intend to employ personnel personnel from 80 to 120. In the future, we plan to increase production volumes and create about 2019 jobs at the field and in the port to 2020-500. We can hire people with both experience and no experience in the coal industry. At present, people from different regions of Russia work for us, but mostly, naturally, from the territory of the Far East and Eastern Siberia.

Denis Kurochkin:
- We provide our employees with a sufficiently high level of salary. So, for example, skilled production personnel working on the extraction and transportation of coal receives about 80-100 thousand rubles a month, key engineering and technical employees - twice as much. We value qualified personnel and try not to lose them.

Peter Balka:
- Currently, about 30 local residents are involved in the field - it is both administrative and maintenance, as well as engineering and technical personnel. Not far from the village of Beringovsky, a local mine closed not long ago, so we had the opportunity to hire people from various professions with experience in the coal industry. In total in Russia the company is represented by about 120 people, including the Moscow office, consisting of 10-12 people. The company's management also often happens in Russia and closely controls business processes. So far no complaints have been voiced by the company, shareholders or employees. I hope that in the future, Chukotka will not give us any reason for disappointment.

- Are there any difficulties in the implementation of the project today?

Denis Kurochkin:
- As such, there are no unsolvable problems associated with the project itself. But, as with any project, there are problems of bureaucratic approvals, the receipt of which is time consuming. For example, in order to start exporting coal in the second half of the year, a checkpoint should be opened at the port of Beringovsky. This requires obtaining a number of approvals from customs, border and sanitary authorities regarding the start of work in the conditions of meeting their minimum requirements. At the present time, we do not have the opportunity to build a checkpoint that meets all the requirements stipulated by the legislation in such a short time. Yes, it is not needed for a port that only works to ship 10-15 ships with coal for export within five months of navigation. We hope that, relying on the already existing support of regional and federal authorities, we will be able to get through this period with the least expenditure of effort and time.
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