IRKUTSK REGION – NEW LEADER IN THE RUSSIAN GOLD MINING INDUSTRY. Irkutsk - October 2003. Table of content :. Introduction Section 1. World gold market and prospects for Russia World gold production 1 Gold producers – countries and companies 2
IRKUTSK REGION – NEW LEADER IN THE RUSSIAN GOLD MINING INDUSTRY
Irkutsk - October 2003
Table of content:
World Gold Mining
Proved reserves - totally 50 thous. tons
After ratification of Jamaica Agreement in 1978 gold lost its importance as a world currency. However, being now just an ordinary commodity, it still keeps its position as an international payment tool, featuring the highest liquidity in the periods of political instability and global economical shake-ups.
Gold reserves in state and private funds, together with industrial, technical and other gold products, are estimated at the level of 145,2 thousand tons. U.S. gold reserve is about 8500 tons, in Germany - 3423 tons, France – 3025 tons, Italy – 2452 tons, Switzerland – 2198 tons. The Central Bank of Russia holds 387 tons, or 9% the country total gold reserve (as of November, 2002).
In the end of 1990s an energetic process of consolidation started in the gold mining industry.Today about 50% of the global gold extraction is concentrated in hands of 15 leading companies.
Reserve base - totally 95 thous. tons
Gold Producers – Countries and Companies
Total 2 587 tons
* Including ZAO Polus
Global Gold Market in 1990s
Rehabilitation of Gold as a Valuable Asset
With purpose to restore the role of gold in the global economy and stabilize its price, in September of 1999 fifteen Central Banks of the Western Europe, including European Central Bank, entered into Agreement on the limitation of gold sale on the market (with annual quotas not exceeding 400 tons), and on the allocation of gold deposits until 2004. The Agreement was supported by the U.S. Federal Reserve System, Central Bank of Japan and International Monetary Fund.
These measures, accompanied by global economic decline, especially visible on stock markets, made the investors to change their feelings towards gold.
Current Events on the World Market
1.Gold price has increased by 35,3% from January 2002 till October 2003.
2.Major price-increasing factors.
A. Grown demand from the investors’ side caused by stock market volatility, low yield from other tools, and need to diversify assets.
B. Since 2000 many large gold companies have been reducing their hedging portfolios, which results in buyback of gold futures realized in the past period.
C. Consequences of the Middle East war: geopolitical instability, high energy cost.
D. Bankruptcy of several large corporations; weakening of American economy.
Steep growth of investors’ demand is caused by the following factors:
а) search for a “shelter” in the troubled environment after September 11, 2001;
b) capital spillover from falling stock market to a reliable and capaciousmarket, where price growth is better compared to the majority of other commodities and financial assets;
c) slump in USD exchange rate vs. EUR and Yen; global economic slowdown in 2003;
d) persistent low rates on money markets;
e) replenishment of investment portfolios with longer gold futures (from 3 months to 5 years). Note: the major part of capital responsible for the price growthis owned not by long-term investors who are more loyal to the market, but by institutional investors who saw a quick way to earn money on the price boost.
3.The greatest influence on the general supply/demand picture is currently exerted not by gold production dynamics, but by gold recycling, operations of central banks and producers’ hedging policy.
In 2002 gold extraction fell for the first time since 1995. Production decline was about 2% (60 tons). Future production hedging was decreased by 352 tons. Central Banks’ sales grew by 44% within the last 5 years and reached 549 tons.
Supply and Demand on the World Market (in tons)
Gold as a Revenue Stabilization Tool
Gold prices change in counter-phase to key indices of economic activity and prices for industrial-purpose metals, thus allowing the gold producers to obtain revenues in the periods of industrial cycle downward movement.
Current Gold Production in Russia
Major Gold Fields and Mines
Irkutsk Region – A Leader in Gold Mining
Most important gold fields
Large and unique gold deposits
Deposit names and gold reserves (tons)
Developing Lenzoloto andSukhoy Logas one consolidated companywill allow Irkutsk Region to become a leader in the world’s gold-mining industry
Key Strategy Directions
Creation of A World-class Company
Benefits to the Region
1. Gold still plays its role of “reserve” or “stabilizing”asset in the global economy.
2. Availing of existing competitive advantages, the Russian gold-mining industry restores its almost lost positions and becomes one of the most attractive and rapidly developing industries.
3. New stage of the industry development is marked with consolidation of producers, realization of new big projects, and establishment of large national gold-mining companies of international scale.
4. Irkutsk regional gold reserves comprised of numerous ore deposits and placers, provide us with objective prerequisites for creating a large mining company rated first in Russia and the fifth in the world.
5. Only large national mining corporations will allow Russia to solve new important tasks: geological exploration of underground resources, attraction of foreign investments, introduction of advanced technology, development of scientific, technical and labor potential.
6. Only one Russian company – MMC Norilsk Nickel - has enough capacity to attract significant long-term investments and to develop the largest and the most complicated gold-bearing deposits.