Financing projects & exploration in Russia Scene setting: • What is different about exploring for & developing projects in Russia? • What is changing about the way of developing projects in Russia? • What risks & opportunities exist? • Tips for working in Russia Unlocking Russia’s mineral wealth 2
First, what is happening about exploration? First, what is happening about exploration? Ra#o: ¡Explora#on ¡projects ¡to ¡feasibility ¡studies ¡ 4.0 ¡ 3.5 ¡ 3.0 ¡ 2.5 ¡ 2.0 ¡ 1.5 ¡ 1.0 ¡ 0.5 ¡ 0.0 ¡ Cr ¡ Cu ¡ Fe ¡ Au ¡ Pt ¡ Dia ¡ Mo ¡ Zn ¡ Pb ¡ U ¡ Sb ¡ Ti ¡ V ¡ Ni ¡ Nb ¡ Potash ¡ W ¡ Sn ¡ Co ¡ (Source: ¡MEG) ¡ Global ¡ Russia ¡ (Ra$o ¡of ¡number ¡of ¡projects ¡in ¡the ¡Explora$on ¡and ¡Target ¡Outline ¡Phases ¡to ¡projects ¡in ¡the ¡Reserve ¡Development ¡and ¡Feasibility ¡Phases) ¡ Russia is relying on historical Soviet exploration to sustain its mining industry Petropavlovsk, Polymetal, Kinross and others are lobbying government to change the Mining Tax Code Unlocking Russia’s mineral wealth 3
Why are Companies not exploring in Russia? • Conducting research to identify greenfield targets does not necessarily result in getting an exploration licence • Applications for a licence are published leading to expressions of interest => auction • Lack of co-ordination between departments resulting in contradictory decisions • Departments focused on achieving departmental objectives not best result for Russian State e.g. focus on maximising value of auctions rather than developing projects • Overlapping licences create confusion e.g. mineral licences; forestry and mining licence • Concern about the risk of revoking licences • Whilst actual examples are rare, the risk affects ability to get funds • Need confidence that Discoveries will get mining licences • Current approval step adds doubt • Strategic limits discourages majors and caps opportunity for juniors • Effort only justified for richer, larger deposits • Elsewhere smaller projects can be developed more easily • But perception of risk of losing licence increases doubt Unlocking Russia’s mineral wealth 4
Next, how are projects evaluated? Must comply with Russian systems & standards • Currently based on polygonal methods, moving towards block modelling • Best for lithologically controlled & simple 3D orebodies • Geotechnical analysis quite simplistic and conservative • Metallurgical analysis is generally good • Economic analysis is generally poor • Weak links are geological model and scheduling • Productivity and development rates conservative • Cost estimates based on cost estimation handbooks, factored by inflation • Few options evaluated Projects often developed in parallel • International & Russian approach Unlocking Russia’s mineral wealth 5
What is changing? Greater awareness of a need for exploration • Creation of RosGeology and some review of legislation • Discussing softening strategic limits ; Some flexibility regarding licencing rules • Kinross invited by President Putin to advise on exploration & foreign investment Resource reporting • NAEN Code developed – a CRIRSCO family code • Block modelling – rules are being amended by GKZ to incorporate block modelling Services & Logistics • Several international laboratories • Trans-Siberian Railway still constrained but capacity increases each year • Most international equipment suppliers have dealers & parts network in-country Finance • Russian banks willing to finance studies as well as projects Perspective • More internationally focused management pushing to use modern technology & economic justification • Greater use of international consultants / engineering companies Unlocking Russia’s mineral wealth 6
There are opportunities as well as risks Risks • Corporate governance • Corruption • Project development takes longer • Weak link between technical & economic decision-making • Moscow is not Russia • Skill & labour shortages • Tonnages quoted for Prognostic resources: P1, P2, P3 • Due to lack of exploration, remaining projects often of poor quality Opportunities • Existing operations have potential to improve efficiency • Under-explored by modern methods • Can be easier & cheaper to develop projects • Starting from a low base Unlocking Russia’s mineral wealth 7
How foreign companies thrive in Russia? • Understand you are welcome • Be seen to give • Communicate frequently • Create multiple communication paths • Develop relationships • International specialists must be good • Be consistent yet flexible • Be aware of the history & culture • Be aware of similarities & differences • Be willing to push hard • Have a thick skin & be willing to drink Moscow ¡Times ¡books ¡ Unlocking Russia’s mineral wealth 8
In summary Exploration rules need to evolve further • Likely to take several years Consider partnering with RosGeology Be cautious of any prognostic resources (P1, P2, P3) Ensure international-style projects match Russian project documentation Consider the opportunities as well as the risks Unlocking Russia’s mineral wealth 9
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