Infrastructure projects essential to Russian mining

Often located in some of the world’s most sparsely populated areas, developing mining projects in resource-rich areas more often than not means working in some of the most isolated regions known to man. From Azerbaijan to Zimbabwe, operators face a common challenge: that of ensuring the local infrastructure is able to support the demands placed upon it by a profitable mining operation.

According to a recent PwC report, mining companies saw moderate growth in 2010, and the forecast for 2011 is strong as global demand for base and precious metals continues to climb. Prices for these commodities are expected to rise with the demand increase, and a return to growth has also seen a shift of focus to more non-traditional mining locations.

Global exploration programs in recent years have yielded rich discoveries of mineral deposits, and with commodity prices strong and sustained, mining companies are increasingly opening greenfield operations in remote areas. The current boom has led to new operations in the gold mines of Mali, Tanzania, the CIS and Ghana; the copper belts of Africa and Mongolia; the coalfields of Mozambique and Botswana; and the diamond mines of Angola, Democratic Republic of Congo and CIS.

One such example is Russia’s Far East. With thousands of miles of unexplored forest and tundra, the region represents a potentially lucrative expanse of untapped wilderness containing rich seams of iron ore, rare earth metals, gold and coal. The Russian government has said that it wants to invest $100bn to develop the region over the next five years, and that China will be a key partner in building roads, railways and ports.

Having the right supporting infrastructure in place is key to attracting investment in the mining sector and reducing the significant transportation costs involved in shifting deposits from the point of production to both domestic and foreign markets, and given China’s booming economy – and close proximity to Russian deposits – Beijing is keen to facilitate projects in the Russian Far East by contributing to building and transport projects.

For instance, the Kimkhan mine project at Birobidjan on the Russian side of the Sino-Russian border currently produces about 1.2 million tons of ore that is being exported to China. But project owner IRC plans to increase its Chinese exports to 10 million tons a year once a bridge is built to connect Birobidjan with its largest market just across the Amur River. The new bridge would halve the ore’s transportation costs of $12 a ton, and construction of the bridge is due to start in Q2/3. “This area is a hugely exciting one for companies like us and we would welcome new companies in the region, which would increase investors’ comfort,” executive chairman of IRC Jay Hambro was reported as saying.

Just this month, Vice-President of Russian Railways Salman Babayev called for a supporting transport network to enable the development of new mineral deposits and thus ensure the realization of Russia’s export-import and transit potential using the Trans-Siberian Railway, at a cost of $70bn; meanwhile Mongolia is also set to improve its own transport network in order to expand exports of its own booming minerals market to Russia, China and beyond.

Infrastructure is clearly top of the agenda for Russia, but in addition, mining companies continue to face a number of other challenges to sustainable growth. A rise in demand, particularly from the developing world, has made performance improvements and cost savings key challenges within the industry. The rise of resource nationalism is also of growing concern to global mining companies, with miners are facing a political landscape that has become more intertwined with operations, resulting in a direct hit to bottom lines. Meanwhile, mining companies are also contending with a shortage of skilled workers, particularly in developing markets.

These and other issues are certain to be top of the agenda at the Next Generation Mining Summit CIS 2011, which will be taking place from 18-20 October 2011 at an as-yet to be disclosed location in Russia. The closed-door summit is hosted by GDS International and is set to feature some of the leading voices in the global mining sector, including Nikolai Vlasov, Chief Geologist at Petropavlovsk; Roman Panov, Head of International Assets & Operations at Norilsk Nickel; and Evgeny Charkin, CIO at Severstal.

Next Generation Mining Summit CIS 2011 is an exclusive C-level event reserved for 100 participants that includes expert workshops, facilitated roundtables, peer-to-peer networks and co-ordinated meetings. For more information, visit www.ngminingcis.com