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Opinion – What are the expected effects of sanctions against Russian mining companies and pricing in global commodity markets?

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The problem of escalation of sanctions against Russia and estimation of possible consequences for the business is currently one of the most hotly discussed topics. It affects the interests of the Russian companies and their international partners alike. In earlier published statements the US offered strategy of “using scalpel rather than a hammer”, i.e. to use sanctions only in the most vulnerable sectors of Russian business: banking, mining and exploration, energy, defence and other.

The results of embargo imposed by Russia on import of agricultural produce from the countries that introduced sanctions against Russia had an immediate impact – some types of food and groceries immediately disappeared from the shops. However, the damage caused by the sanctions to the Russian economy is not so immediately obvious.

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Point of view. “Mining in Russia – an outlook of the current state and development prospects”

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With ongoing global economic and political pressures, Russia’s mining industry is facing new challenges and frontiers. What role will the mining industry play in Russia’s economic growth and shaping its alliances with country’s international trading partners? What are the main priorities for enhancement of Russia’s competitiveness in the global context? How the economic sanctions imposed on Russia affect the mining companies? When will the Russian mining companies be able to reach the pre-crisis production levels? What incentives are being proposed by the state to enhance the renewal of the mineral resource base, attract new investment and implement innovative technologies in the mining and geological industries? What changes are expected in the mining legislation on the backdrop of Russia’s Government pledge to sustain the Russian economy with developing mineral resources for the next 15 to 20 years?

Answers to these and many other questions are being addressed at various government meetings, parliamentary hearings, regional development programmes, business and academic forums.  The future of over 1 million people directly involved in this economic sector and more than 50% of the country’s budget as well as securing the country’s long term strategic advantages in the global commodity markets depends on finding rapid and effective solutions for problems that have been present in Russia’s extractive industry for over two decades.

On 10 July Russia’s Prime Minister Dmitry Medvedev pledged to spend no less than 320 billion roubles (equivalent of about 1.8 bln USD) per year on exploration and reserves renewal before 2020 surpassing Canada, USA and Australia. Who will benefit from this new investment and will it be sufficient to secure Russia’s ambitious exploration agenda?

 

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Russian Mining internet discussion Club

22 July 2014 I 16:30

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Russian mining industry is currently enjoying unprecedented attention from the Russian Government and the Legislators as Russia’s Mining and Exploration development strategies until 2020 and further are being discussed at the high political levels. MINEX Russia 2014 provides an independent platform enabling wide-scale professional dialogue between senior Government officials with miners, investors and service companies. 

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Russian government meeting on the state and prospects for the development of Russia’s mineral resources and raw materials

10 July 2014 12:30 Gorki, Moscow Region

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Dmitry Medvedev: "The mining industry employs over one million people. Severance tax, export duties and fees for the use of mineral deposits account for about 50% of our federal budget revenues and for most of our export duty revenue….Russia has unique mineral resource and raw materials potential as virtually all types of mineral deposits lie within our borders. Of course, this is a huge competitive advantage, and it’s important that we use this advantage in the most cost-effective and environmentally friendly manner. So far, we lag behind other industrial economies in terms of these parameters. This can be explained by our obsolete extraction, production and processing technologies."

Dmitry Medvedev: "The Government plans to spend no less than 320 billion roubles on exploration and reserve replacement before 2020."

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Report of the Minister of Natural Resources and Environment Sergey Donskoy on the state and prospects of development of mineral resources in Russia

10 July 2014 12:30 Gorki, Moscow Region

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Sergey Donskoy “Russia is not amongst the leaders in terms of investments in the mineral exploration. This, in our opinion, has negative impact and reduces prospects for socio-economic development of the regions”.

Sergey Donskoy “Last year, the public investment in geological exploration exceeded 32 billion rubles. Under the national program state government program plans to invest in exploration (until 2020) about 329 billion rubles. Last year private investments in exploration increased to approximately 240 billion rubles”.

 

 

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Russian State Duma meeting on Geological Exploration strategy 2030

24 June 2014, Moscow I Photo © Russian State Duma

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In 2013 the Russian Government has injected over 32.1 bld roubles (approx. 937 mln USD) in the state run exploration projects – the record amount in the post-Soviet era. Welfare and tax payments received by the State from subsoil users for the same period exceed 160 bln roubles (approx. 4.6 bld USD). 

Before summer holiday recess the Russian statesmen and lawmakers have been busy deciding the plans and setting up the goal posts of the “Russian Geological Exploration strategy 2030”. Concerns of renewal of depleting mineral resources, plans for financing long-term exploration projects and questions of retaining state control over mineral riches were intensely discussed at the Russian Parliamentary hearing held on 24 June 2014 at the Russian State Duma in Moscow. 

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Andrey Varichev, Director General of OOO “UK” Metalloinvest” proposes to stimulate private investment in exploration and reduce import tax on foreign technologies and machinery

10 July 2014 12:30 Gorki, Moscow Region

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A.Varichev "Widening and deepening of the state support in mineral procurement will open up new horizons for the development of geological exploration as independent business."

A. Varichev: "We recommend, if possible, to review some of the provisions of the 57th federal law in terms of increasing the possibility of the presence of foreign investors … from 25 to 49%."

 

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