Vladimir Shlyomin

I

ssuing licenses to develop such major deposits of minerals as the Sukhoi Log gold ore field and Udokan copper ore field is postponed for at least several months. However, this time the position of state structures and, above all, of the Russian Ministry of Economy is quite understandable. Taking into account intensive preparation for Russia’s parliamentary and presidential elections that are to take place in December 2003 and March 2004 respectively, the subject of using the nation’s natural riches is being relentlessly exploited and it makes more sense just to wait through this period.
Nevertheless, the licensing procedure that significantly affects results may be determined in the nearest future. Citing prime minister Mikhail Kasyanov, general director of the Ural Mining & Metallurgical Company (UMMC) Andrei Kozitsyn said that the government intended to settle the matter with respect to Udokan (whether it was to be a tender or an auction) before the year’s end.
In his opinion, the starting price for a license may vary from $50M to $70M but, as a result of a tender, it will undoubtedly increase. If it is to be a tender with participation of Russian companies only, then, UMMC chances to win can be considered rather high. As for auctions, foreign companies have the right to take part in bidding as well and in this competition of ‘purses’ it will be much harder for Russian producers to succeed.
The Udokan field contains over 20 million tons of copper or more than 50 % of Russia’s total copper reserves. As a result of supplementary exploration, it has been discovered that, in addition, the field’s ores also include gold, rare and rare-earth metals. By some estimates, minerals at the Udokan field may be worth as much as $1 trillion. However, extracting them will require colossal expenses as well as specific mining and concentrating methods usable for a profitable development of this field, which is located in the difficult-of-access area with harsh climate. In Kozitsyn’s words, the project will begin paying off in 8 or 9 years after the start of its implementation at best.
The interest of UMMC in Udokan is explained by the objective state of its business. Reserves of Ural copper fields, which the company is based on, are running out fast. If it fails to get Udokan, then, in 10 years the company will have to reduce copper production by half. There is no doubt that by having a license UMMC will do everything possible to successfully implement the project. The Ural copper producers already have a plan of developing the first two sections of Udokan, where the output volume is expected to amount to 14 million tons of ore a year.
Kazakhstan’s corporation Kazakhmys is a serious rival of UMMC (in 2002 the corporation produced 431.7 thousand tons of cathode copper). However, there are more questions than answers in its case so far. In the words of Vladimir Kim, the president of Kazakhmys, with current production volumes the corporation’s resources will last from 45 to 50 years. Why, then, to invest funds in developing a remote and not-too-profitable field? According to one of the existing accounts, by obtaining a license and, therefore, large raw material assets the corporation is going to raise this way its own capitalization. By another account, it intends to "freeze" the field’s development for uncertain time so as to undermine positions of the Russian competitor in the long run. And, finally, there is one more scenario that has been publicly stated by the corporation’s officials: Kazakhmys will be mining ore and producing concentrate but it will be selling only 13 % to 20 % of raw materials to Russian copper enterprises because the rest will be exported, above all, to China.
Naturally, each of the competing companies is getting support from different political groups of the highest level. UMMC is backed up by influential governors Edward Rossel, the head of the Sverdlovsk region, where UMMC is based, and Ravil Geniatulin, the head of the Chita region, where Udokan is located. They supported UMMC’s proposal to build a mining and concentrating complex and appealed to Russian president Vladimir Putin asking for his assistance in settling this question as soon as possible.
As Edward Rossel said, the president agreed with governors’ point of view and gave an appropriate order to prime minister Kasyanov. So, chances of Russian companies have increased. But will it be possible to see them come true after the elections?