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Tigers not pounded in coal
Australians try on Chukotka projects a flexible framework
The Australian company Tigers Realm Coal Limited, which since 2012 has invested over $ 85 million in a coal project in Chukotka, is not going to abandon plans for the development of the Bering coal basin. As the chief executive of the company, Peter Balka, told the information-analytical agency East Russia, the external conjuncture forced the company to correct plans and start with the so-called low-cost project F for the development of the Fundyushki field. For large fields like Amaama, the time will come, I'm sure a top manager: having such a good project, one cannot rush in a bad situation.
The founder of Tigers Realm Coal Limited is Tigers Realm Group, founded by Australian Owen Hegarty, who has worked in the global mining industry for over 40 years, including almost a quarter of a century in Rio Tinto. On the territory of Chukotka, the company is implementing a project claiming the status of a resident of the priority development area "Beringovsky". It provides for the development of two coal-bearing areas of the Bering Basin - the Zapadny site with the Amaam group of coking coal deposits, and the Levoberezhny site, where the Upper Alkatvaam coking coal deposits are located, conventionally called by the Australians "North Amaam". The resources of both territories are estimated today at 632 million tons: Amaam, where geologists have been working since 2008 - 521,4 million tons, North Amaam, where prospecting and appraisal work began in 2013 - 110,6 million tons.
Opened in April 2014, the field Fandyushkinskoe field is located in North Amama. The previously prepared feasibility study provided for the export of 1 million tonnes of coking coal per year via the nearby (35 km) Beringovsky seaport. Now the company sees a technical opportunity to export up to 2 million tons of coking per year. The total cost of coal exports to FOB terms of the Beringovsky port is about 50 dollars per ton.
The production on Amaam was planned in the volume of 6,5 million tons per year ($ 98 per ton of export in 2013 prices). The cost of developing Amaam, including the construction of a year-round deep-sea port, was previously estimated at $ 1,45 billion.
"We are de facto Russian company"
- Peter, how did it happen that you became a Russian miner?
- I come from Australia, although I have Polish roots. He studied at the University of Melbourne, by education - mining engineer. More than 30 years I specialize in the extraction of gold, copper, iron ore and polymetals. He worked in Colombia, Spain, Laos and New Zealand, Indonesia and even in Kamchatka. Years 5-6 ago I was invited to a new company, Tigers Realm Group. It was founded by top managers from the leading mining corporations.
Tigers raised equity capital for coal projects in Russia and Colombia, acquired gold mining assets in Thailand and Indonesia, started copper projects in Indonesia and Jamaica and uranium projects in Canada. I have never before engaged in coal projects and I was glad to be able to supervise a new direction for myself in Russia.
- Is it difficult to convert from gold and other metals to coal?
"It's difficult for geologists to do, but for miners, by and large, it's just the same as mining - the laws of mining are the same." Of course, to extract coal from the point of view of economics and logistics is not the same as gold - but there are much more in common in the planning and management of mining operations.
- What is the capital structure of the company today? How did it change after the decision to enter the project of the Russian Direct Investment Fund (RFPI) and the Baring Vostok fund at the beginning of 2014?
- The parent company that actually initiated all this is Tigers Realm Group. She, in turn, established Tigers Realm Coal, an Australian-listed coal company. Another subsidiary of Tigers Realm Group, Asiamet Resources, is developing a copper deposit in Indonesia and has listings in London and Toronto. Carube Copper Corp. works in Jamaica, develops a gold-silver-copper deposit. Then there is NextGen - it explores a rich uranium deposit in Canada and is also traded on the Canadian stock exchange.
Currently, the founders of Tigers Realm Coal have about 26% of the capital, Baring Vostok controls 24%, RDIF 11%, and about 13% of Australian investor Bruce Gray. The rest are Asian and Australian private investors and small funds.
- At what stage is your coal project now?
- I would say that this is a very interesting stage from the economic and political point of view. Prices for coal are very low. In addition, Russia is under the influence of Western sanctions. Mining projects are capital-intensive by definition, and, as a rule, they are trying to sell them with borrowed money. But borrowed capital in Western countries, primarily northern Europe - where investors are most willingly invested in Russian projects, is now unavailable. Australian banks are also following the US policy of restricting the capital market for Russian companies.
After all, we are a de facto Russian company, and we need a listing in Australia because there is a traditional interest in the coal industry from investors. As a result, everyone suffered from the sanctions regime - both the parent company and shareholders, including RFPI with Baring Vostok Capital Partners, and, of course, Tigers Realm Coal itself.
Now, perhaps, we do not feel the strong pressure of sanctions, but 18 months ago it was a blow. Only the bank consortium was formed and is ready to invest money for the full launch of the two projects, we were ready to do everything at once ... now we will have to implement the plans gradually, with an eye on the external environment and much more slowly.
In the near future we plan to modernize the existing seaport of Beringovsky: we need a modern coal storage and conveyor systems here, and in addition we will acquire a fleet for the export of coal.
- In your opinion, will the decision to create a territory for advanced development in Chukotka help to increase your profitability, which will be "sharpened" just under the coal mining projects?
- The TOP mode is important and interesting for us, but it will only be useful when we line up and start working. Of course, the very fact of the creation of a priority development area played an important role in the fact that RDIF decided to invest in our project. The benefits provided within the TOP, even according to the most conservative estimates within the framework of the previously developed financial model, gave us about 1,5 billion rubles. savings.
- The Development Fund of the Far East promised to help the project, what are the parameters of this support?
- In September last year, during the Eastern Economic Forum in Vladivostok, we signed a tripartite agreement with the Government of the Chukotka Autonomous Okrug and the Far East Development Fund, according to which the FRDV will finance the construction of a 36 km long road from Fandyushkinskoye field to the port of Beringovsky for 1,5 billion rubles ... Preconditions have been agreed, which in turn must confirm funding for all other phases of the project. The term of this tripartite agreement and the preconditions for the provision of financing agreed with the FEDF is December 2016.
- And what is necessary for this agreement to work?
- As I said, it is necessary to attract funding for the project in full.
- What happened to the shares of the company during the mentioned 18 months after the introduction of sanctions?
- Yes, in general, the same as with the shares of other mining companies. All mining, metallurgical and oil stocks are falling. During the past year, there have already been several bankruptcies of large companies. This, I repeat, is a period of low prices for raw materials, and we are here on equal terms with other colleagues in the market.
"In mining projects, size matters"
- What allows you to stay afloat when such giants as the American Arch Coal, the steelmaking Caparo Industries, Rio Tinto and Glencore are in trouble?
"We have good support from shareholders who see that Tigers has one of the best coal mining projects in the world. And, in addition to the shareholders, there are other interested companies that are ready to put our shoulder in this difficult period of low commodity prices. There is an opportunity to raise capital in China and in Russia.
But the main "buoyancy reserve" is that we have an exceptionally good asset. Well, nowhere in the world is there such that coking coal can be extracted on the seashore, near the port!
We can start with small volumes, this is the so-called project F to develop Fandyushkinsky field. Project F is because Russian names are difficult to pronounce, and for Western investors we cut Fandyushkinsky to the letter F. Then we can move to the second, much larger Chukotka project - the Amaam deposit.
Now all our work is subordinated to one task - to make project F as attractive as possible for investors. If a year ago at the negotiations we saw that the planned production of 10 million tons of coking coal in 10 years is enough to arouse the interest of investors, today we need to show the possibility of producing coal either much more, or much longer. In mining projects, size matters: the larger the volume of production, the lower the unit costs. The 110 million tons already explored by us is enough for one option and for another.
At the same time, it should be understood that with current coal prices and cost of money, a start-up project with a capacity of 4 million tons per year is no longer very attractive for investors. therefore, our current calculations assume production at the Fandyushkinskoye field from 1 to 2,5 million tons per year. Again, low prices dominate the market not for the first and not the last time, so people who have a good project, but a bad situation, in such conditions do the same as they always expect. Today it is possible to plan production volumes in a 15-year time frame with greater confidence than to forecast for the coming years. But in 15 years, when coking coal prices return to historical highs, everyone will be interested in working at large deposits, and assets like our Amaam will always be in demand.
- And if these prices do not return to an acceptable level? After all, solar energy is actively developing in the world, new technologies are being introduced. Will the world industry refuse from coal?
- It looks more like fantasy. Industry has enormous momentum, and the life cycle of the main coke consumers - blast furnaces - is 70 years. Over 70% of iron is currently smelted in blast furnaces, and the largest players in this market - Germany and China - have recently renewed their blast furnace park. This means that they will need coke for another 70 years. All other methods, even the most innovative and high-tech ones, are more expensive. It is not at all easy to give up coking coal, and it is far from justified economically.
In fact, even today, at current prices of about $ 80 per ton, we get a margin of about $ 30. But for investors to happily invest our project, it is necessary that prices were even higher somewhere at $ 20. Then there will be a queue for us.
- Okay, now you decided to do with small expenses and start with 1 million tons per year. How soon are you ready to launch?
- Well, look ... In Australia, from the first exploratory drilling to the production of the deposit takes about eight years ...
"Is it fast?"
- It's very fast! So, except for the time it took to acquire assets, we have had about two and a half years since receiving the first coal samples. Terms of production start, as we already reported - 2017-2020 years.
- How much have you already invested in the Chukchi project?
- About $ 85 million, not counting the purchase price of assets. But in any other country, to get the same result, you could spend significantly less.
Is it because of corruption, or is it just a system and legislation?
- Corruption has nothing to do with it. In Russia, the amount of costs that you must fulfill within the framework of licensing obligations, and the terms of the license themselves, are too strict. With this, the situation is much worse than in any other country. That is, Russian laws and authorities require spending much more on geological exploration than is required in Africa, for example. It is clear that Africa has its own risks - political instability, bandits, terrorists, etc. And, nevertheless, investors will be more willing to work in Congo than here. And if the situation in the coal industry is still relatively bearable, it is much more difficult to invest in the extraction of polymetals.
Russia is a very bureaucratic country, it took me a long time to understand how mining legislation works here. And almost every day one has to hear the word "no" in different combinations, motivated by laws, bylaws, instructions and regulations. If Russia is really interested in the development of deposits that are not included in the list of strategic ones, it is necessary to change the mining legislation, which to a large extent remains Soviet and does not contribute to arousing the interest of investors, in the face of large mining companies in the world.
- How is the mining industry regulated in other countries?
- There are three countries in the world, whose main specialization in the international division of labor is mining. These are Australia, South Africa and Canada. By the way, the world giants of the mining industry have grown in these countries, and none of them, mind you, does not work in Russia. Because big business here is not interesting because of prohibitive, in fact, measures.
So, in Australia, for example, companies are allowed to focus only on making a profit, there is no such as in Russia a load of social obligations, there is no such strict regulation of labor standards. At the same time, labor productivity in Australia is much higher than here, as well as higher wages. Just for the same amount of work in Australia will require far fewer people. At the same time, workers are much more responsible for equipment, and in general, the efficiency of operation and maintenance of equipment exceeds the Russian one at times. While in our global age of technology everywhere in the world uses the same type and technology is not too different. And in Russia, at some deposits, world-class technology operates. But the result is different.
Therefore, such a position of the state - to withdraw part of the capital from the company to ensure social obligations - and it does not matter whether the company is working with profit or with a loss, the amounts of deductions are the same - this position greatly reduces the investor's interest.
Again, in most countries, the main difficulties for miners are not related to the state and its various supervisory bodies, but to the rights of people who live in an area of interest to investors. In order to bring a large field into circulation, you will inevitably encounter the rights of hundreds and sometimes thousands of individuals who inhabit this territory. In Canada and Australia, even if you get as far as possible from the settlements, there is still a chance that you will find yourself in the territories of indigenous peoples. And if, for example, your road to the field passes through the lands of a small indigenous people - often bribes and threats will not help, people will stand on their own, and you never start your mining.
- In Chukotka, too, there live indigenous people, did you have any problems with them?
“We have more bears on Amaam than people. But in general, Chukotka is the best region for investment. We were promised any help and support from the authorities of the Chukotka Autonomous Okrug, and we receive it. Moreover, this is precisely a constructive dialogue. In communication, we are constantly asked: can, how else to help? It is also very important that a federal ministry for the development of the Far East has appeared, which is attentive to the problems and issues related to working with projects and investors in the territories entrusted to it.
- Will the local people have an opportunity to work for you in the company? And what is the need for cadres?
- In order to ensure the extraction and transshipment of 1 million tons of coal per year in Chukotka, about 500 people are needed. If we take into account the current situation with the labor force in Beringovsky, then we will be very pleased if we can find in Chukotka at least half of this number. We strongly doubt that it will be possible to completely cover the needs for labor on the spot. Therefore, we will bring some workers on a rotational basis from other regions.
- Do you often visit Chukotka?
"Not often, four or five times a year." The main work is now concentrated in Moscow - it is interaction with investors, partners, authorities ...
- And just as a person - how do you live in Russia?
- For me, the most difficult part is, first, that my wife and I do not have the opportunity to see often daughters who could not go to Russia, they have their own lives. And secondly - there is no sea. I myself am a sailor, surfer, I have a house in Melbourne near the sea ... However, your Russian snow can also be positive - I learned to skate.
Of course, life in Russia is far from perfect. But there are good restaurants, movies, books. And in general, in my experience of working in different countries, the way of life of people in the modern world differs little, everywhere the same supermarkets, the same goods and equipment. In general, if I wanted it to be the same as in Australia, I would just live in Australia.
The village of Bering administratively refers to the Anadyr district of Chukotka, located approximately 200 km south of Anadyr. Located on a hill in 10 km from the Coal of Coal, on the southwestern shore of the Gulf of Anadyr. Coal is mined here from the 1941 year at the Nagornaya mine, but in recent years Chukotka’s demand for the Nagornaya coal does not exceed 60 kt and is covered by other suppliers, therefore the mine is subject to closure.
The territory of the village is about 6 square. Km, according to the census 2011 year, 1,8 thousand people live here, however according to the latest data the population does not exceed 800 inhabitants, about a third of whom are employed in the mine.
The throughput capacity of the Beringovsky port is 252 thousand tons, but in fact it is processing annually about 50-60 thousand tons. By 2017 year, after modernization, it is planned to increase cargo turnover up to 1,1 million tons.