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Russian gold: results - 2015, forecasts - 2016
In the outgoing year, one of the main factors influencing the price of gold, apart from the continued uncertainty with the interest rates of the Fed, was the strengthening of the US dollar against other currencies, including the Russian ruble.
However, despite the fact that the strengthening of the dollar contributed to the decline in prices for the precious metal, Russian companies increased their revenues due to a significant decrease in production costs from the depreciation of the ruble, and investors received an increase in profitability from investments in gold.
In Russia, the majority of companies' expenses are denominated in rubles, including large capital expenditures, costs of maintaining facilities, and exploration work, with the exception of the purchase of imported equipment, which is paid in dollars. Thus, as a result of the depreciation of the ruble, as well as due to previously launched optimization programs, the companies managed to achieve a two-fold reduction in production costs, and, as a consequence, a twofold increase in EBITDA.
In the first half of the year, such large companies as Polyus Gold and Polymetal reduced capital expenditures by 67% and 17%, respectively. At the same time, Nordgold's capex rose 52% due to investments in the Bouly project in Burkina Faso. Despite this, the company continues to actively invest in new projects through its own cash flow, which almost doubled in the first half of the year.
At the same time, the rest of the world's companies experienced serious difficulties with liquidity, and with revenues, and with debts. There is no one who has not taken up cost optimization, revising the project portfolio and finding ways to reduce costs. Overseas, companies launched a massive sale of high-cost and non-core assets in order to reduce costs.
Much attention in the outgoing year was focused on the country's main gold miner, Polyus Gold. At the beginning of the year, the company overestimated the reserves of the Natalka field, which was expected to be launched in 2015. The decrease was about 50%, and the launch was postponed. Despite the change in the assessment of mineral resources and reserves, the company assured that Natalka remains one of the largest promising projects in the gold mining industry in Russia.
The second is the transfer of the company to one hand. Wandle Holdings Ltd and its subsidiary Sacturino Ltd (controlled by Said Kerimov, the son of billionaire Suleiman Kerimov) forcibly bought out the last shares of Polyus Gold from minority shareholders. Earlier, they agreed to sell almost 59% of the shares to the Kerimov family, who intends to make the company private.
The third event was a consequence of the second, as the company left the exchanges. Polyus Gold International Ltd announced the delisting and discontinuation of shares on the London Stock Exchange effective December 3. In turn, the Moscow Exchange on December 4 excluded its shares from the "First Level" section of the list of securities admitted to trading. The parent company became OJSC Polyus Gold, whose shares continue to be traded on the Moscow Stock Exchange.
And finally, already in December, Polymetal and Polyus Gold agreed to set up a joint venture to develop the Nezhdaninskoye gold deposit in Yakutia. Previously, one could only tell stories about such an alliance of these companies.
QUESTION OF THE YEAR
The topic of the development of Sukhoi Logo, the last largest gold deposit that remained in the unallocated fund of Russia, again began to be actively discussed in 2015, and now it seemed that the license would soon be put up for auction, but, as before, the matter did not go beyond words. At the same time, the number of those wishing to participate in the auction and in the development of the project continues to grow, although the government has already announced restrictions for foreigners, since the field is of federal importance.
In the middle of the year, the head of the Russian Ministry of Natural Resources, Sergei Donskoy, announced that an auction for Sukhoi Log could be announced at the end of 2015. Further in July, he announced that the starting size of a one-time payment at the auction would be 5 billion rubles.
“The documents have been prepared for the government, and the assessment is in progress. I don't think there is a need for haste in this matter. This is the largest gold deposit in the country. All large companies are interested in participating in this project, ”the minister said in mid-November.
The development of the Dry Log will require an order
Their interest in the deposit was announced by Polyus Gold, Polymetal, Nordgold, Kinross, Vysochaishy. And also the state corporation "Rostec", which is considered as one of the most likely contenders, and sometimes even as the undisputed winner of the auction.
“We will apply for Sukhoi Log on our own. We will make an offer to a wide range of gold mining companies to exchange this asset for a stake in a large manufacturer on market conditions, ”said Andrey Korobov, CEO of RT-Business Development (a Rostec structure), in an interview with Bloomberg in early December.
TRANSACTIONS OF THE YEAR
An unexpected deal for Russian business was concluded by the Swedish Auriant Mining (until mid-2012 - Central Asia Gold), which develops gold deposits in Russia. She received the right to manage and develop the Valunisty deposit and the Kanchalano-Amggemskaya area in the Chukotka Autonomous District, owned by the structures of Millhouse of Roman Abramovich.
In addition, the company received an option to acquire 50% in five Chukotka assets, these are four geological exploration areas: Kanchalano-Amguemskaya, Uteveem, Kayenmyvaam and Mangazey. And also, the active mine Valunisty, which produced 0,5 tons of gold in the first half of the year. Its C1 + C2 reserves amount to 17,5 tons of gold with an average grade of 5,9 grams per ton, 178 tons of silver with an average grade of 59,6 grams per ton.
Auriant Mining General Director Denis Alexandrov said that such an option agreement is a good opportunity for the company's growth.
Earlier, at the end of 2014, Auriant entered into another interesting deal - it bought out a 70% stake from the Canadian company Centerra Gold Inc in a joint venture for the development of the Kara-Beldir gold deposit in Tuva in exchange for 3,5% of royalties from any mining in this field in the future. Auriant gained full control over the project.
Also in 2015, the fate of Sovrudnik OJSC, which develops deposits in the Krasnoyarsk Territory, was decided. At the beginning of the year, OJSC Yuzhuralzoloto GK acquired 51% of the enterprise, and then consolidated all 100%. The company noted that the acquisition is an excellent opportunity to expand its resource base and increase gold production already in 2015 - up to 12 tons and more.
Most banks expect the first quarter to be the weakest for gold in 2016. The price could drop to $ 900 / oz. At the same time, the second half of 2016, as well as the beginning of 2017, for most banks is the time when the recovery in metal prices will begin.
Positive dynamics can begin only in the third-fourth quarter amid a possible rise in inflation in the US, a weakening dollar, as well as an increase in demand during traditional festivals in India with a good harvest.
Among the factors that may support prices are increased demand in Asian markets after low prices, a decline in euro prices, as well as a worsening economic situation in the US and a weakening dollar.
In 2016, Polyus Gold will actively build Natalka, and in 2017 it will receive the first 758 kg of gold at a new plant, which by the end of the year should reach its design capacity - processing up to 10 million tons of ore per year.
The state will announce an auction for Sukhoi Log in 2016, and Rostec will win it.
The material was first published on the website "Vestnik zolotopromyshlennika"