World gold production volumes stared at the ceiling - this is evidenced by the statistics, and expert opinions. Russia is one of the few countries where by the end of 2016 will be the recorded increase in production, but it is estimated, on a symbolic one percent.
Therefore, the search for new points of growth - a priority for the industry. In General sense we can distinguish two ways of development: "inwards" and "outwards". The first is the transition to underground production and development of refractory ores, the second search or the purchase of new fields.
But any of the initiatives, of course, depends on funding. Every year in the Russian gold mining is the dominant idea: "exchange", "Junior", "China", in 2017, according to experts, the keynote will be fundraising in all possible forms.
Areas big and small
"Globally, there is a deterioration in the quality of deposits, this is a General trend for all natural resources, Polymetal said. - The answer to this can only be one of investment in exploration for the detection of high-quality stocks. Russian gold production in the medium term everything will be bad: it is waiting for the attenuation of existing enterprises and the lack of new discoveries. The situation is thus aggravated by the shortcomings of the licensing system".
Exactly a year ago in the comments for the final review, the head of the Union of gold producers Sergey Kashuba has identified four possible points of growth of domestic mining: development of new large deposits, hubs for processing neuborne ores (that is, in fact, merging several fields into one large project), hub for processing refractory ore and a shift to underground mining.
"These ways of development do not contradict each other, they are separated in time. The transition to the subway, for example, we see now, and the benefits from megaprojects will appear only after 5-10 years, says now Kashuba. - It is possible that some of that "shoot", then the emphasis will shift, but now all four options are earned in parallel."
The most significant event in 2016, undoubtedly, was the announcement of the auction for the Sukhoi Log - one of the world's largest gold deposits and the tidbit in the Russian Unallocated Fund. To license the government for about 20 years. During this time, the promise to hold auction "next year" is no longer perceived by the industry seriously, and when the Agency actually published terms of the auction and assigned it the date - January 26, 2017 - the majority of market participants were taken by surprise. In Sukhoy Log there are obvious candidates, but, in truth, to join its development would not refuse any one gold player.
Also, there are developments on other megaprojects. "Pole" intensified work at the Natalka and plans in 2017 to finally start production. Moved from the dead point the project nezhdaninsk (now SP of Polyus and Polymetal), expanding production at Pavlik (Arlan). Announced and hope for a speedy licensing of Kwcusa is another large-scale field, which you can't find the owner.
Still, the objects of such magnitude, like a Dry Log or Natalka, is rare, and the likelihood of discovering major new deposits every year more and less. Some companies prefer not to chase unfeasible projects, and explore the surrounding areas or to buy a relatively small field within the transport accessibility in order to extend the life of its existing mines.
"Unfortunately, in Russia of investment-attractive projects for the construction of new gold mining companies, large scale today almost didn't remain, - says the head of Nordgold Nikolai Zelensky. Almost all that are explored and fit into these criteria, already belongs to someone. However, this does not mean that in Russia is impossible growth. We aim to increase the service life of our existing businesses through the acquisition of licenses for exploration in the so-called fields-satellites. As an example - we have acquired in the last years of the license, located next to our irokinda mines, Chalbinski, gold and Neryungri. In all of these areas are active work. We hope that in the future they will provide the ore processing capacity of our mines."
Polymetal bought for $100 million Komarovsky gold Deposit in Kazakhstan, which will provide raw materials to the existing factory of the company at Varvara, increased its stake in the tarutinsky Deposit, which also has the potential to increase its resource base Varvara, acquired control in Sumskom polymetallic Deposit, which can be a source of resources for the Vorontsov's factory in the Sverdlovsk region. Also the scope of the Lichkvaz Deposit company in Armenia in 2016, bought the mine and processing plant at the Deposit of Kapan. Polymetal is one of the main instigators of the idea of hubs, he was for many years a practicing transportation of ore, own and purchase in a single processing complexes.
"In the mining of solid minerals all depends on the specific techno-economic parameters of the Deposit: depth, location, content of useful component in ore technological properties. On this basis, the decision how to learn - alone or in partnership, etc. Competence Polymetal help to make virtually any known method, but the priority for us still remain assets that provide synergies with the existing processing centers", - said the representative of Polymetal.
Even the "pole" caught the fancy idea and said in the materials of manufacturing "hub" in the Irkutsk region on the basis of processing capacity Mirninskogo with capture fields Damn Trough and West.
"The synergy between the assets of the company fits in the approach of development in the form of hubs. So, the basis of operations "Pole" is Krasnoyarsk business unit, the assets of which are located practically in the "steps" access from each other, and allow you to develop this group of deposits as a whole. A similar approach, allowing to reduce production costs, we are considering the development of the Irkutsk assets of the company," says senior Vice-President, Finance and strategy "Poles" Michael Stiskin.
The transition to underground mining: an organic and relatively inexpensive way of development for gold mining businesses. At Nordgold, for example, there are already several underground mines, and the company approaches this in Beresite. Capex for underground mining there is estimated at $15 million, with the capacity of 55 thousand ounces of gold per year.
Petropavlovsk decided to make subway one of the key elements of its strategy. As of April the cost of the start-up of underground mining at Pioneer is estimated at only $9 million on Malomir $16-21 million In the future, thought the company underground mining at Pioneer will be able to bring her 130-180 thousand additional ounces of gold per year, Quartzitic plot Kalomira - 53 thousand ounces.
Start of processing refractory ores is more costly and technology-intensive project. At the moment in Russia only two processing complex refractory ores: autoclave Polymetal Amursk and bacterial oxidation of the "Pole" in the Krasnoyarsk territory at the Olympics. Thus, according to the Union of gold, refractory ore already account for 47% of the mineral resource base of gold in Russia, the establishment of processing facilities to expand their potential is a priority for the industry.
The problem is particularly serious for Petropavlovsk, whose portfolio has almost half the resource base is represented in refractory ores. The company has not completed the autoclave in the Amur region, on its completion requires about $120 million in the Spring of Petropavlovsk was willing to go to extreme measures - to give control of the project, a third party company in exchange for funding. However, by the end of the year, Petropavlovsk began to feel freer said that can Finance the autoclave from its own funds and no longer committed to venture.
The first stage autoclave complex Petropavlovsk plans for 2018. The resource base consists of private mines companies Malomir and pioneer. While Petropavlovsk declares its readiness to cooperate with other companies, and as possible sources of raw material for its autoclave sees the refractory ore deposits from the Amur region (for example, bamskoe "Pole") to Krasnoyarsk Krai and even Kazakhstan. As Polymetal, which is your autoclave successfully processes its own raw materials from two different fields to the same plans to transport the concentrate from Kyzyl (Kazakhstan) and, in the future, Nezhdaninskoe and don't mind the load capacity of purchased concentrate.
In 2016 there was also the initiative to create a recycling center slozhnokomponentnymi ores and concentrates ores in Yakutia. This initiative actively supports the "Higher" (about 30% of the project "Higher" on Taryne was in hard parts) and ready to consider a few other investors, Taryn (different areas within Tirenskogo ore field belong to different companies) and GRK "the West". A total of Yakutia has about 1 thousand tons of gold in the refractory ore. And, according to the initiators of the project, there are at least two acceptable logistics options for the location of facilities for processing of refractory concentrate: Nizhniy Bestyakh and Khandyga.
Although Sergei Kashuba, for example, believes that the Yakut cluster is predefined as export-oriented rather than internal processing. There are a few "obvious" clusters, which can be organized hubs for processing of rebellious gold ores, he says: Krasnoyarsk region (potentially the hub can be arranged in Lesosibirsk), Transbaikalia (two hub: Priargunsk and Moscow) and Amur oblast (based on autoclaved project Petropavlovsk). In Yakutia the cluster is too "obvious, but difficult," said Kashuba, from the point of view of energy, logistics and spatial variation of the fields.
"In any case, it is obvious that any initiatives and subway, and processing of ores, and especially megaprojects - Balk at funding - said Kashuba. - The industry itself sees this need, but any enthusiasm on the part of banks, no financial institutions are not willing to take risks".
According to estimates by EY, the volume of financing of large public mining companies of Russia fell by almost 3% in 2013-2015 from $16 billion to $6 billion.
The lack of interest from financial institutions is explained by the lack of M&a activity in gold mining in Russia, I think EY and the Union of gold miners. Banks in General have not yet seen the opportunities in gold mining, and not in a hurry to provide project financing or the financing transactions, said Sergey Kashuba. Although this gap may be filled by other institutions (as an example - partnership "Gold of Kamchatka" Victor Vekselberg with the development Fund of the Far East).
"If in the past our market was characterized by the words "exchange", "Junior", "China", in 2017, I'd say leitmotif in the industry will be fundraising in all possible forms," says the head of the trade Union. The first swallow, he adds, can be considered the creation of "Interros" Vladimir Potanin and unified social tax Grigory Berezkina Foundation for $250 million for investment in projects to develop natural resources.
On the other hand, is an example of Petropavlovsk, refused partnership in the autoclave. Russian miners remain beneficiaries of the devaluation, together with positive dynamics of gold prices gives them more room to maneuver. Those companies that have sufficient cash flow from existing assets tend to Finance projects independently.
"This year we are almost completely funded the construction of the Kyzyl from our own free cash flow, so necessary in project financing from Sberbank are no more, - said the representative of Polymetal. - Continue to consider offers from other banks, including development banks, in 2017 to attract long-term corporate financing on the remaining amount of capital expenditures. Project financing is not considered".
In the market of corporate loans in General, if compared with the beginning of the year, the situation has changed significantly for the better, he adds. "Working with a wide range of lenders, feel very comfortable and lack of funding do not experience", - noted in Polymetal.
"The production cost of "Poles" used to Finance its investment program through operating cash flow without borrowing", - said Mikhail Stiskin. At the same time, the company is working to structure its debt portfolio and, like many other representatives of metallurgical sector, in 2016, appealed to the public debt capital markets, placing Eurobonds with maturity in 2022. "As regards the conditions of financing, then it is possible to say only one thing: the demand for high-quality borrowers from Russia in the market is always there, but now is especially great because of the slow investitionale and a good situation with liquidity in the Russian banking system," explains Stiskin.
The same applies to Nordgold. "We are funding our growth projects from its own funds, - says Nikolay Zelensky. - Nordgold generates free cash flow, we have a strong balance at the end of 9 months of 2016, our "cash cushion" was $312 million This allows us to invest not only in development and modernization of existing mines but also to build new." In 2016 Nordgold launched mine Bouly in Burkina Faso and began the construction of a mine gross in Russia. "The terms of the financing comfortable for us," adds Zelensky.
Price as a factor of growth
"The peculiarity of the market of gold is reduced production in 2017 will be the first year in a long time, when production volumes will begin to decline. The reason is simple: the current price of gold, production costs and the possible investment costs for the development of large fields in most gold mining regions make these large-scale projects economically feasible," - says the Stiskin.
In 2016 continued a certain smoothing of the global cost curve, as the miners fought actively for the profitability of the business, he says. However, a large portion of the world's gold production continues to run negative free cash flow.
"You can expect to maintain the trend of consolidation of the global gold industry. Production growth will only ensure increase in existing prices," - concluded the Stiskin.
Polymetal results of the year from the point of view of the margin evaluates positively, but, in the opinion of the company, the effect of the devaluation in 2016 was, in fact, fully realized and exhausted at the end of the year increase in the price of oil and the ruble strengthened. "In 2017, the devaluation effect is expected, however this will slow down the base of ruble inflation," - said in Polymetal. As for prices, the year 2016 has started with low gold prices - and ends about the same. "Significant variation, so over budget price for 2017 still think (until the elections in the United States pledged $1200)", - told in the company.
In the budget Nordgold 2017 laid down the price of gold at $1270 per ounce.
Witnessing the last few years, the miners focus on cutting costs and efficiency of production processes of existing assets resulted in a decrease in the average cost of the industry, says Zelensky. Together with the price of gold, kept for the 10 months of 2016 at above $1,200 per ounce, this brought a large part of the producers to break-even level. "However, such a trend has its downside, warns the head of Nordgold. - Investment in exploration and advanced projects remain at historically low levels, as miners are afraid to increase their spending. In addition, quite a sharp decline in gold prices in November-December led to a revision of investment plans to suspend the construction of new mines and freezing of programs to increase production on existing assets."
"Therefore, despite the expected slight increase in production of precious metal-mining enterprises in 2016, the depletion of existing mines and the absence of plans and opportunities of launching new capacities will lead to stagnation or even decline in the medium term - says Zelensky. Low current market price of gold also leads to a reduction in the production of gold from secondary raw materials".
If to speak about the real situation in the gold market, it is worth noting some change of expectations of the investment community following the election of Donald trump's US President, continues to head Nordgold. On the one hand, experts predict that under the leadership Trapme the U.S. economy will grow more rapidly and, accordingly, investors will have profitable opportunities for investment in addition to gold. On the other hand, trump promised increases in public spending and structural investments will help increase inflation, so analysts predict a continuation of the monetary authorities of the US policy rate hike in 2017. In addition, after the denomination of the national currency of India, in the market there is some uncertainty in respect of demand for gold in the country, which has always been one of the largest consumers of precious metals. Likely, the decline in gold prices since late November is due to these two factors, which introduces significant uncertainty in the prediction of both physical and investment demand for gold in 2017.
"Despite the mixed forecasts of the market for a short period, I believe that in the long term, gold should go up for the reason that in the world already, few new projects and the old are depleted. Industry can invest in growth projects with long-term price in the range of $1400-1500 per ounce. While physical gold demand from China and India will remain in the long term at a high level, since the population in these countries access to other savings instruments and savings is limited," says Nikolai Zelensky.
If price growth does not happen, then in the coming years we will see a decline in production and, as a consequence, the insufficient supply of the precious metal, he concludes.