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Russia Mining Report Q2 2011
Business Monitor International, April 2011, Pages: 54
Business Monitor International's 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.
Russia's mining sector is set to grow slowly over the forecast period to 2015, marking a reversal of the declining output seen since 2006. We forecast the value of the mining sector to reach US$259bn in 2015 from US$134bn in 2010, marking an annual average growth rate of 2.6%. While we expect Russia to remain the world's largest palladium and nickel producer, we forecast that its share of global output is likely to fall with faster nickel output growth in Canada and the Philippines and larger increases in palladium production in South Africa.
Modest Growth Across The Board We expect Russia's nickel production will reach 302kt (thousand tonnes) in 2015, from 274kt in 2010, marking an annual average growth rate of 1.9%. This growth will be driven by Norilsk Nickel which expects to produce 12ktpa at the Skalisty mine in 2012 and 8ktpa at the Gluboky in 2013. Besides Norilsk Nickel, Amur Minerals has revealed estimated reserves of 171kt at its Maly Krumkon mine. In addition, we forecast palladium output to reach 3.0moz (million ounces) in 2015, marking average growth of 2.2% per annum from 2.7moz in 2010.
BMI expects platinum production to exhibit similar levels of growth, increasing by 2.5% per annum over the forecast period, reaching 917koz in 2015, from 810koz in 2010. The growth in platinum and palladium production will also be driven by Norilsk Nickel, which plans to increase output at its Severny and Oktyabrsky mines. Looking further ahead, Urals Alluvial Platinum is developing the Kluevsky & Volchetundra deposits which could provide a further boon to production.
Regulatory Environment Russia's mining sector is wrought with bureaucratic obstacles which have restricted a number of foreign investors in the sector. At present, there are no indications that the government will ease these restrictions and thus we expect the sector will continue to be dominated by domestic miners. In 2010, the Russian government reintroduced a 6% gross royalty tax and introduced a 5% levy on nickel exports. The levy on nickel exports has had a negative impact on demand for Russian nickel as other nickel producers such as Canada and Indonesia have not implemented a tax hike. In addition, there are restrictions on foreign companies developing large-scale resources in Russia and diamonds, uranium, cobalt, nickel, lithium, the platinum group metals, tantalum and niobium cannot be mined by foreign companies. These legal obstacles, as well as the endemic corruption in Russia, will continue to prevent overseas companies from investing in the mining sector.
Key Players Russia's mining sector is dominated by Norilsk Nickel, the world's largest producer of palladium and nickel. We expect Norilsk's dominance to continue as it possesses some of the largest expansion plans. That said, growth will be restricted by falling grades at the company's Komsomolskiy nickel and the Kaula-Kotselvaara palladium mine. We expect the mining sector to remain consolidated in future as few new companies have stated an interest in developing resources. However, if metal prices remain elevated, there could be substantial exploration projects in Russia, given the country's size and potential reserves.
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