SUMMARY OF THE 7TH MINING AND EXPLORATION FORUM
“MINEX RUSSIA 2011″

The 7th Mining and Exploration forum “MINEX Russia 2011″ was held in Moscow from 4 to 6 October 2011. Main topic of the forum this year – “Russia – Open for Business” – reflected positive trends in the Russian mining industry and opening for business opportunities in exploration, extraction and processing of solid minerals. Forum participants expressed the hope that mining companies and the state can make an effective use of current favourable trends in the commodity markets to push further development of efficient and investor friendly mining industry in Russia.

The Forum reaffirmed its status as the largest and most prestigious international business event for the Russian mining industry. Over 120 speakers and 600 participants from Russia and CIS, Western Europe, Asia and North America took part in the forum. The exhibition almost doubled this year to 44 exhibitor’s stands, presenting advanced technical and management solutions for the mining industry, as well as mineral exploration projects.

The guest of honour at this year’s forum was a well-known CNN host Mr Larry King who also acts as an advisor to the Silver Bear Resources (Lead sponsor of the forum) – a member company of the Canada based Forbes and Manhattan Group of Companies. Mr King believes that thanks to the huge natural resources, Asia and Russia will be determining further development of the global economy. Mr King, who revealed at the forum his “Russian Core” and family ties with the Belarus republic, also spoke of Silver Bear Resources’ ambitious investment plans in Russia.

Presenting later on the day, Mr Mark Trevisiol, President and CEO Silver Bear Resources announced positive preliminary economic assessment of Mangazeyzski project recently completed by the company. Mangazeyzski project is the world’s premier silver deposit in South Yakutia developed by Silver Bear Resources. The company’s management believes that participation of Mr King, whose opinions are valued by many in the position of power, opens up new possibilities for Silver Bear Resources as well as for the Russian mining sector.

The first day of the Forum started on 4 October with the traditional Master classes organised for the Russian mining professionals by Wardell Armstrong International, SRK Consulting, KPMG and Snowden.

Following the last year’s initiative, the Forum also hosted a program of events organised for over 150 graduates of the Russian mining universities and geological departments.

The program of activities included master classes organised by SRK Consulting, American Appraisal, Gemcom, JSC “Severstal”, OAO “Atomredmetzoloto”, as well as HR presentations by ZAO “Polyus” and JSC “Severstal”. Throughout the day mining graduates had an opportunity for the one-on-one consultations and job interviews with personnel managers of several Russian and International mining companies and recruitment agencies including JSC “Severstal”, OAO “Atompredmetzoloto», SRK Consulting, EduPartners (Edueo Ltd) and MBEG mbH.

For the first time, in cooperation with Mining Educational and Methodological Association of Russian Universities and the Moscow State Mining University, MINEX organisers conducted the first all-Russia contest “From Idea to Innovation” designed to stimulate research among mining graduates and young professionals. The competition was sponsored by JSC “Severstal”, OAO “Atomredmetzoloto” and SRK Consulting (Russia) Ltd. At the first stage of the competition mining students from over 30 Russia’s mining universities and departments submitted over 600 research papers which were then evaluated by the members of the Association and the Moscow State Mining University. An independent MINEX committee then selected 18 finalists and 5 winners who received valuable presents and diplomas. The winners also presented their papers which were published in the Forum proceedings.

The mainstream forum program held on 5 and 6 October consisted of 11 session featuring over 80 presentations by Russian and international industry experts.

“The rules have changed in the mining industry”, – declared John Campbell, Partner, Industrial Products Leader for Russia and CEE, PwC at the first plenary session of the Forum. Experts believe that the growth of the mining sector will be primarily supported by emerging economies. The extraction of mineral resources will become more challenging due to declining grades and the need to transfer mining centres to remote locations. Cost base of the industry has changed to a new level, leading to sustained higher commodity prices. Over $300 billion CAPEX was announced by the Top 40 – 1/3 in 2011. This year mining industry attracted special attention from the governments and stakeholders. In general, mining industry in 2010-11 experienced rapid growth and revitalisation. Market capitalisation went up 26% compared to the previous year. Revenue was up 32% – greater than $435 billion. Cash reserves are currently over $100 billion with total assets approaching $1 trillion. Margins have improved, but not at record levels, as cost pressures continue. PwC experts believe that further development will occur through organic growth, innovation and technological advantages.

The price of gold in 2012 and 2013 will increase to $ 1,800 per ounce, but by the end of 2015 will drop to $ 1,400 per ounce, forecasted Jonathan Gay, Director, Equity Research at RBC Capital Markets. In comparison with 2007, when the gold price was about $ 650 per ounce, the Russian gold mining industry is expected in the next three years to enjoy a period of relative stability and growth. Mr Guy suggested that the Russian gold-mining companies should take advantage of this trend by improving productivity and increasing market capitalisation.

Assessing Russia’s role in today’s world market of mineral resources, Dr. Igor Petrov, General Director of InfoMine Research Group (Russia), stated that despite the many years’ efforts by Russia to reduce import-substitution of mineral and metal materials, the tangible results achieved so far have failed. Russia, according to Mr. Petrov, is losing significant amounts of money by exporting raw mineral and metal materials, instead of producing and exporting finished added value metal products. Similar view was shared by the international experts.

Giving the outlook for the world iron ore market, Alexei Mozharov, Economic Affairs Officer, Special Unit on Commodities, UNCTAD, said that the annual benchmarking price system ceased to exist and has been replaced by the broad spot market. The system favours long term contracts from steady suppliers. New model is unlikely to have major effects on price levels however the price volatility will increase. In general, mining and metals industry is experiencing growth, driven by increased demand from China. In particular, UNCTAD experts forecast that the use of steel to the end of 2011 may increase by 6%. Thanks to China, the market for iron ore will also be strengthened, and experts estimate that it will grow to 2 billion tons in 2012. Investment in iron ore production will also increase, said Mr Mozharov. Currently the CIS countries account for only 11% of exports of iron ore. Transport system remains the main factor holding back the growth of Russia’s iron ore exports.

Growth trends were also well confirmed by some of the leading national and international mining companies working in Russia. Noticeably most companies which presented at the forum, expect growth through the use of more efficient technologies and capacity growth rather than via new acquisitions.

Opening plenary session “Mining leaders – driving the change”, Nikolai Zelensky, CEO of “Nordgold” (gold mining segment of “Severstal”) presented the company as an established international gold player positioned for growth. Nordgold manages eight operating mines in Russia, Kazakhstan, Burkina Faso and Guinea (West Africa), as well as a number of exploration projects in these regions. In 2010, Norgold produced 589 000 ounces (18.32 tons) of gold. In 2011, the company plans to produce over 800 million ounces of gold. Robust pipeline of growth to become a 1moz+ producer will be sustained by construction and launch of Gross (Russia) and Bissa (West Africa) as well as debottlenecking of LEFA. Nordgold’s exploration budget will exceed US$120m in 2011. Primary goal of 2011 exploration budget is conversion of inferred resources into P&P reserves. Further exploration budgets will be substantial, as many of Nord Gold mining and exploration permits remain underexplored.

“Polyus Gold” (part of Polyus Gold International), a leading gold producer in Russia, plans to double production of precious metals by 2015 compared to 2010 – to 2.8 million ounces (87 tons), the Chief Operating Officer James Nyuvenheys said at the forum. “In July 2011 the Board of Directors of Polyus approved development strategy until 2020. By 2016 the company is expecting to produce up to 115 tons of gold per year. Also in 2020, after the Natalka mine reaches full production capacity of 40 million tons of ore, the company’s annual gold output will exceed 137 tons. “Polyus Gold is planning USD 8.7 bln of investments in 2011 – 2020, including USD 4.7 bln until 2015 added Mr Nyuvenheys.

Presenting on behalf of MC “Petropavlovsk” Prof. Iakov Shneerson, Director, Gidrometallurgiya Research and Development Centre, said that one of the priorities of “Petropavlovsk” is the development of scientific and technical capabilities and technologies in the field of hydrometallurgy, which in the near future should result in increasing gold production.

One of the largest foreign investors in the gold mining in Russia is Kinross Gold Corporation. Vice-President for Russia Warwick Morley-Jepson presented main projects that the company has today, as well as plans for the future. While working in Russia for 15 years, the company has demonstrated high efficiency. In 2010, the company acquired deposit of strategic importance “Dvoinoe”. Kinross Gold Corporation is also sole owner of exploitation licenses at “Kupol” in the Chukotka Autonomous Region – one of the Top-3 Russia’s Gold producing regions.

Representatives of “ARMZ Uranium Holding”, Deputy General Director for Strategy Marina Liborakina and Adviser to General Director Mikhail Leskov, presented company’s growth plans through innovation and use of new technologies. They were speaking about technology, diversification, efficiency, creating mini-cities, infrastructure that would link various types of deposits of minerals, as well as new technological platform that allows not only to improve the efficiency of uranium extraction, but also to provide an appropriate level of environmental safety.

“Mechel” JSC has extracted 50 thousand tons of coking coal in Elga deposit in Yakutia, said at the forum Yuri Samoletov – General Director of “Mechel-Engineering” (part of the “Mechel”). First production is linked with start of service on the first segment of 209-km railway line Ulak Elga, its completion is scheduled for December 2011. Earlier it was reported that in the current year the company intends to produce about 300 tons of coal at Elga deposit site, next year – 2 million tons and to reach a target of 9 million tons of coal annually by 2015. The commissioning of the facilities at Elga coal mining complex (branch of JSC Holding Company “Yakutugol”), which will produce annually 27 million tons of raw coal in accordance with the license, is scheduled for 2021.

Concluding the session, Kirill Kozenyashev, Head of Strategy and Business Development, “Severstal Resources”, presented plans to develop a diversified coal and iron ore assets of the company, describing investment projects in the republic of Tyva, in Liberia and Brazil. In particular, capital expenditure for the development of a coking coal deposit in Tuyva will be around. 2.3 -2.8 billion. Investments to date: $27.6m. Currently “Severstal Resources” are discussing with EVRAZ and the Russian government establishment of the railway consortium which will become an instrumental part o of the Tyva project development. The company confirms that that core of its business growth strategy will be sustained by increase of operational efficiency in current assets and development of the portfolio of world-class greenfields.

A number of promising mineral exploration projects developed in Yakutia, Buryatia, Magadan, Chita Region and the Komi Republic were also presented at the forum by senior executives of “Silver Bear Resources”, “MBC Corporation”, “GV Gold”, “Polyus Geologorazvedka” JSC “Gold Mining Company Pavlik”, “Amur Minerals Corporation”, “RJC Exploration” and “White Tiger Gold Ltd.”

At the session “Mining in Russia – open for business?” experts almost unanimously agreed that the current regulation in the subsoil inhibits positive growth trends emerging in the mining industry. At the previous forum in 2010, Vitaly Nesis, CEO of JSC “Polymetal”, Pavel Maslovsky, General Director of MC “Petropavlovsk”, Valery Braiko, Chairman of the Union of Gold and Victor Tarakanovsky, Chairman of the Union of Russian miners have warned of an impending reduction of gold mining in Russia, and urged colleagues to join forces to radically improve the investment climate by changing key provisions of the legislation, especially on foreign investments.

Since the last forum, according to Anna Putsykina from Macleod Dixon’s Law offices in Moscow, minor changes have occurred in Russia. On January 1, 2011 fees for geological information on mineral resources have been abolished and restrictions on the production of commonly occurring minerals and groundwater use in the fields of different types of raw materials have been relaxed. On January 1, 2012 miners will be allowed on a fee basis to change the boundaries of subsoil licenses granted for full exploration and management (subject to appropriate government regulations.) It is still unclear when intergovernmental coordination of amendments to the Law “On Subsoil” will be completed. The most important issues relate to changes to the previously granted licenses, the issuance of licenses by an auction, a ban on re-registration of licenses, licence transfer as well as termination of licenses. There is no clarity about the size of so called “strategic deposits”. It is proposed, for gold in particular, to increase the size of a strategic deposit from 50 to 250 tons, for copper from 500 thousand tons to 7 million tons. It is also not yet clear whether the stipulated suggestion of a possible increase of foreign investments in strategic deposits from 10 to 25% will be approved.

Since 2008, Nikolay Matyash, Executive Director of The Mining Advisory Council, has been discussing with authorities potential legislative changes which could improve foreign investment climate in the Russian mineral exploration and mining sector. The Council is hoping for positive results in the foreseeable future.

In a joint report “Impact of a licensing system for the reproduction of mineral resources. View of the subsoil user” Natalia Nikitina, Head of Licensing LLC” MC “Intergeo” and Sergei Nikitin, head of the Department of Licensing LLC “MC” Petropavlovsk “presented stages of evolution of the licensing system in the Russian Federation. According to the comparative figures presented in the report, the number of failed auctions and tenders for subsoil use rights in Russia in 2010 amounted to 58% of total pledges. In 2009 the number of failed auctions exceeded 75% of total pledges. The current stage in the evolution of the licensing system is characterised by almost complete absence of mining licences with proven reserves, as well as attempts by the government to license through auctions poorly researched areas. At the same time the trend of increase of failed auctions and tenders continues.

Anatoly Stavskiy, General Director of Information and Analytical Centre “Mineral“ which enjoys close ties with the Russia’s Ministry of Natural Resources and the Subsoil Use Agency – Rosnedra, was even more critical in his presentation “Current subsoil use law – an impediment to mineral exploration in Russia.” In his opinion, which was shared by majority of the Forum participants, miner deposits with unconfirmed reserves should be licenced to miners directly and not via an auction method.

According to David Cox – leading expert of the Canadian Research Group Metals Economics Group, lack of serious foreign investors in Russia is a consequence of a bad PR. According to comparative studies carried out by Metals Economics Group, legislative problems in Russia are not being solved, bureaucratic hurdles remain, particularly for the creation of small and medium-sized exploration enterprises. The result of this policy is not merely the absence of serious foreign investment, but also a steady decrease in investment by Russian companies in mineral exploration.

According to the statistics presented by Alexey Nekrasov, Head of Solid Minerals Geology Department, Federal Subsoil Use Agency – Rosnedra, the government spending on exploration is being reduced. In particular the proportion of new greenfield and brownfield mineral exploration in Russia accounted in 2011 for mere 11% of total government expenditure in the mining sector. In 2012 the government is planning to further reduce mineral exploration budget to 5% of the total spending.

Taking into consideration present situation, it is not clear how Rosnedra plan to carry out the “strategic development of high performing, innovation-oriented system of geological survey and reproduction of mineral resources “. Also it’s unknown which “various sources of funding” will be involved.

Perhaps the answer to these questions will be presented at a forum in 2012 by the management of the presently established state-owned company JSC “Rosgeologia.” According to the comments that appeared in the Russian press before the Forum (http://ria.ru/arctic_news/20110927/444545316.html) the company hopes to secure the necessary funding from the state “to execute strategy of expanding geological exploration in the Russian Federation until 2030″. It is assumed that until 2012 “Rosgeologia” will consolidate 37 state geological enterprises, which the Russian Ministry of Natural Resources and Environment values at 5 billion rubbles (approx. 162 mln USD).

With great concern this year, the forum organisers have observed a lack of interest amongst the senior Russian officials in having a direct dialogue with the mining companies and foreign investors offered by MINEX – the largest mining industry event in Russia. Representatives from the three key government agencies – the Ministry of Natural Resources & Ecology, Rosnedra and Rostechnadzor took part in the forum merely as observers. Comparing to a similar forum organised by MINEX group in Kazakhstan, which is endorsed by high offices of the Prime Minister and some Key Government agencies, absence of Russia’s senior statesmen from the Moscow forum was perceived as “counterproductive”.

It is obvious that without establishing direct dialogue with the mining companies and investors, Russia will remain on the list of one of the word’s high risk mining jurisdictions. Perhaps, instead of creating new state-funded mega-structures, the Russian leadership should stimulate the development of the market conditions in the mineral exploration sector? This question was widely debated outside the official part of the Forum.

The Forum provided several examples of jurisdictions outside Russia which are favourable for mineral exploration. David Cox spoke about development of the mineral exploration in North Africa. As a result of the government-led reforms from 2000 to 2010 the total global capital investment in the geological exploration in these countries increased from 2% to an astonishing 18%. It should also be noted that the mineral base in North Africa has been well studied and, unlike in Russia, investors do not expect here new major discoveries of global importance.

Another example of successful mineral exploration market is Canada, where mineral exploration is successfully carried out by over a 1000 junior mining companies which raise funding on the local capital markets. Noticeably there are only a few dozen junior mining companies which currently operate in Russia.

Similar examples of successful implementation of a market model in the mineral exploration sector in the BRIC, Mongolia and South America have been repeatedly illustrated by other speakers.

Meanwhile, from the presentations heard at the session it became clear that in the coming years a depletion of mineral resources in Russia will continue. The tendency to reduce state revenue from licenses for exploration and mining that started three years ago will increase. The latter, according to Mr Stavsky is likely to force officials and lawmakers to introduce changes that foreign investors as well Russian miners have been asking for over a decade. However, it is not clear when these changes are likely to happen. In order to speed up this process, David Cox called on the Russian mining companies to organise lobbying to improve current legislation.

The forum organisers have learnt that some of the foreign investors, represented by Kinross Gold Corporation, prepared a special overview of the investment climate in the Russian mining sector in the past ten years. This survey combines experiences of some of the largest foreign mining companies which have worked in Russia. Kinross Gold Corporation, which in itself represents a success story in Russia, was planning to publicise this survey at the 17 October meeting of the Foreign Investment Advisory Council in Moscow and also hoped to present a package of proposals to the Russian Prime Minister Vladimir Putin.

On the bleak background of the poor mining regulation, the Forum participants enthusiastically embraced the report by Gregory Malukhin, the head of the Methodology and Development Department of The State Commission on Mineral Resources (GKZ). The report presents a successful initiative to integrate Russia into CRIRSCO – the international committee which co-ordinates public reporting standards for exploration results, mineral resources, and mineral reserves. Among many, the CRIRSCO codes family includes the CIM standard (Canada, NI 43-101), JORC Code (Australasia), SAMREC Code (South Africa), PERC Code (UK / Europe) and SME (USA). Mr Malukhin also spoke of The Russian national code (the “NAEN Code”) which has been developed by the Society of Experts on Mineral Resources (OERN, a component body of NAEN), in close co-operation with the State Commission on Reserves (GKZ). The NAEN Code is modelled very closely upon the CRIRSCO Public Reporting Template and will be issued as a bilingual document in Russian and English. This reporting standard is intended for use principally by Russian companies for independent estimation of their mineral assets, listing on stock exchanges nationally as well as internationally. Its compatibility with other CRIRSCO-aligned reporting standards should encourage rapid acceptance of the Code around the world. It will also assist Russian mining companies with increasing their transparency and their market capitalisation.

Other “bottleneck” issues which were widely discussed at the MINEX Russia 2011 Forum focused on mining finance, regional development, implementation of health and safety requirements, professional skills development, technical and technological upgrade, and many others.

Also, many interesting technical, scientific and practical solutions for the mining and geological industry were presented at business and academic podiums which were held alongside the mainstream forum.

For the fifth time in the forum’s history the “RUSSIAN MINING EXCELLENCE AWARD” was presented to the top mining companies, investors and academicians. Nominees and winners received certificates “for achievements in the development of the mining business of Russia”. The Russian ‘Mining Oscar “- a bronze sculpture of a miner on a semi-precious stone plinth has been awarded to the five award winners. Surprisingly no worthy candidates could be selected for the award category “Event of the year” as “there were no significant breakthroughs recorded in Russia between two MINEX forums”, – said the Chairman of award committee Alexander Lopatnikov, Moscow Director of American Appraisal. Last year this Award was presented to Rusal for its milestone IPO in Hong Kong.

WINNERS OF “MINEX RUSSIA 2011” FORUM AWARD:

  • Winner in the nomination “Prospector of the year” – Gremyachinskoye deposit of potassium salts (subsoil user – EuroChem-VolgaKaly LLC);
  • Winner in the nomination “Mining Company of the Year” – “Mechel-Mining” OJSC
  • Winner in the category “Investor of the Year” – “Arkhangelskgeoldobycha” JSC
  • Winner in the category “Russia’s Mining Legend” – Peter Hambro;
  • Winner in the nomination “Mining education project of the year” – Pokrovsky Mining College

More information about the awards nominees and winners is available here: http://www.minexrussia.com/2011/award/

The forum organisers express their sincere gratitude to all sponsors, media partners, speakers and members of the technical and award committees for their contribution and support.

By decision of the Organising Committee the 8th Mining and Exploration forum “MINEX Russia 2012″ will be held in Moscow from 2 to 4 October 2012.

Information about the next forum will be published in early 2012 at: http://www.minexrussia.com

Please contact forum’s representative offices in London or Moscow:

London:

Irina Yukhtina
Advantix Ltd (event manager)
Tel: + 44 (0) 207 520 9341
Fax: + 44 (0) 207 520 9342
Email:

Moscow:

Mr Eugeny Tarasov
Head of MINEX representative office in Russia
Tel/fax: +7 (495) 510 8693
Tel: + 7 (499) 503 1873
Email:

3rd MINING FORUM “MINEX CENTRAL ASIA 2012″

Preparations have started for the 3rd Mining and Exploration forum “MINEX Central Asia 2012″, which will be organised in Astana on April 17-19, 2012*.

According to the statement issued by Asset Issekeshev, Kazakhstan’s Vice Prime Minister and the Head of the Ministry of Industry and Trade – MINT, published by Kazakh Today on October 6 2011**, the results of the audit conducted by the Ministry, revealed a number of systemic problems in all segments of the country’s mining industry, including mineral reserves and resources, regulatory framework, infrastructure and personnel policy.

In particular, as noted by MINT, mineral resources near several purpose built “mining towns”, are close to exhaustion and unless Kazakhstan takes prompt action, in 10 – 15 years the resource base of non-ferrous and precious metals will be depleted.

In addition, MINT stated that the current law “On Subsoil and Subsoil Use” does not fully encourage mineral exploration and needs to be amended. The country’s leadership hopes that the new regulatory changes will boost mineral exploration and attract junior and large foreign mining companies to Kazakhstan.

Another matter of concern is the lack of infrastructure. According to the survey, Kazakhstan’s Mining industry lacks technical and technological expertise which cannot be offered by currently operating engineering companies. The government believes that alongside modernisation of existing organisations, it will be crucial to create a mining research and engineering centre.

Furthermore, geological exploration industry experiences acute shortage of qualified staff. To address this problem, several “Geology and Mining” departments should be established at the leading Kazakh universities. Also, specialist training centres must be created and funded by the mining companies operating in Kazakhstan.

Asset Issekeshev also proposed to establish a Mining Advisory Council which would consist of a group of respected experts. The Council should evaluate and determine training needs for the geological industry and in cooperation with the leading mining companies, will be taking part in shaping up new state policies in the mining sector.

The head of MINT also called for creating greater transparency and accountability of the Kazakhstan’s Committee on Geology and Mineral urging it to avoid inefficient and illegal use of budgetary funds.

“The development of geology equals development of the regions, creating new industries and service companies. Therefore, there is an urgent need to solve all these problems. This means that the industry’s major changes have to be systematic. It is necessary to develop a clear action plan, make changes in the current legislation and adjust mining development program presently being reformed within the framework of the presidential industrial growth program. There is a need for coordinated work of all parties: the government agencies, businesses, and non-governmental organizations “, – concluded the Vice Prime Minister.

The organisers of “MINEX Central Asia 2012″ are working in close cooperation with the leading mining companies, government agencies and foreign investors. The next year’s forum’s agenda will address proposed changes in the reorganisation of mining and geological industry of Kazakhstan and will offer an industry-wide discussion platform designed to create new and exciting initiatives to ensure successful development of Kazakhstan’s mining and geological industry.

* The official text of the publication of “Kazakhstan Today”.

** Further information about the forum will be announced on: www.minexasia.com.