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e market changes were actually serious. To begin with, the world demand trend for copper has changed radically. The most powerful markets – China and the USA – notably increased their consumption figures. It preconditioned that three years in succession the copper price at LME was not lower than US$2,800 – 2,000 per ton. Secondly, a situation with the usage of the interior of the earth has changed in principle in Russia. Now the Federation’s subjects do not have any relation to licensing. These powers were delegated to the federal bodies, namely, the Ministry of Mineral Resources and the Federal Agency for Usage of the Interior. The control over the way licenses are made use of became closer. All the above presupposes that the relation to what we call mining and processing of metals is qualitatively different from what it has been.
On the whole, steel companies have more opportunities than before. High prices for metals afford an investment of additional profits in the development and technical re-equipping of production operations what we are properly engaged in.
Where UMMC is concerned we set the task of reaching the world level in three or maximum four years in the plane of ecology, economy, cost structure, etc., that is, to become just like any other company similar to us in the world.

ÅÌ: Can Russia actually turn into copper importer? In this case, what should be the efficiency of processing in order to save the competitive power?

– Let me begin with the problem of competitiveness. When we have a cost structure and price level like those in the West the only thing we should take into account is a transport component. It will be more difficult for us to compete in the Western market with our products with due regard to cargo traffic rates. Moreover, constraints for Russian goods are introduced there from time to time. In the meantime, on the contrary, for instance, in China we shall have an advantage against European producers. Here the distance component plays into our hands.
As to the outlook for export/import, the statistical data are an eloquent testimony. Last year Russia made about 900,000 t of cathode copper whereas a little more than 300,000 t were consumed. Naturally it is a ratty figure for such a country as Russia. In this country consumption of copper per capita is not more than 1.5 to 2.0 kg while in industrialized countries it is 7 to 8 kg. When the Russian economy starts to approach the level of industrialized countries it will furthermore mean a substantial growth of copper consumption in heating, ventilation and air-conditioning systems, municipal housing economy. As we are a Northern country even more copper may be required.
We will hardly manage to meet this growth of requirements due to our own production. Besides, not more than 650,000 t of cathode copper is made from virgin raw materials, with the other 250,000 produced from scrap and waste. When Russia enters WTO export scrap duties will be abolished in accordance with the regulations of this organization. It remains to be seen whether the secondary raw material left will be enough for processing.
My conclusion on the probable transformation of this country into an importer of copper is drawn out of these two conditions – an assessment of potential demand and a reduction of the resource potential.

ÅÌ: What is your forecast: how long the high level of world prices for metals will be kept and how it will affect the alignment of forces among the main players? Well-known Outokumpu has already decided to sell its copper business… Who out of today’s players in the copper market have a look-in to establish their positions?

– The producers operating on virgin raw materials of their own have the best chances. Outokumpu virtually had no raw-material base. Its own small-size enterprise made less than one fifth of cathode copper converted to various copper products. Outokumpu basically bought copper at LME. That is why the company was behind its competitors which made similar products but had an adequate ore base. To my mind, it is one of the main reasons which forced Outokumpu to go from copper business to steel industry, namely, stainless steel production. There it can gain higher value and operate more efficiently than in copper business.
Now about prices. Their level will depend on the rate at which China, the USA, Arabic countries, India will be developing. Presently their national economies show fairly high rates of annual runup. Therefore the prices for copper and other exchange metals will remain at the attained level for a long time or even increase.
Note that we as a rule speak about quotations in dollar. But taking into account dollar inflation, the copper price is not so high, I think. When US$3,400 per ton is converted to Euro (taken into account that US dollar was aove Euro) copper producers’ profit seems to be much more moderate. But in any case the today’s price is not US$1,500 four years ago and we think it to be quite objective and fair.

ÅÌ: When lining up its business UMMC rapidly stepped up the technological vertical and is now stationed as a maker of end products. At the same time the other mining-and-metallurgical companies of Russia and CIS, like Norilsk Nickel, Rusal, Kazakhmys, prefer to keep a raw-material specialty. What do you think governs a choice of this or that strategy?

– Virtually any Western company that has developed metallurgical operations incorporates an end process stage, for example, production of wire rod, various finished rolled products. Why do those which are enlisted in your question sell metal instead of re-processing it thus gaining a higher added value? As far as Norilsk Nickel is concerned, generally speaking, it does not give up this line. A part of Norilsk copper is reprocessed at the Transkat plant in St.Petersburg (120,000 tpy of wire rod from Norilsk copper alone), plus a small quantity going to non-ferrous metals processing plants outside the company. But the lion’s share of the copper is naturally sold as cathodes in the market. Copper is not the main corporate business but rather a by-product though made in quantities.
It is hard to say why Kazakhmys does not develop end operations. Evidently each company itself decides what is profitable. Maybe they estimate that quick turnover brings greater effect than higher profit due to end products.
I think that the situation with the other big producers of metals from virgin raw materials is about the same. They prefer to work according to a shortcut flowsheet (ingot – money, pig – money, etc.) because high-level processing calls for different costs, an alternative approach and insight. Here each ton of product runs into money. Say, the set-up of a new 8,000 tpy (only) plant of flat copper products in compliance with European standards requires US$27m.
Moreover, each next process stage implies a narrower and more intensive market. While there are no serious constraints in sales of rough metal – primary aluminum, electrolytic zinc, cathode copper - the situation with end products is the other way round. Here we confront the most severe standards pertaining to quality, package and the whole number of other requirements presupposing large additional expenses.

ÅÌ: Recently UMMC marked its fifth anniversary and the main result of this period is the fulfillment of the tasks staged during the set-up of the company. What program is outlined for the next five years? What will the company be like in 2010 as you suppose?

– It cannot be stated that we have fulfilled all tasks and summed up the results. But the main thing has been done: the management vertical is lined up, all actions required for consolidation are carried out. We came off as a company and the market takes us exactly in this quality.
I have already outlined what near future I foresee. In the next five years we shall have to solve the problem of a reliable raw-material source and shall become like similar Western producers in technical and ecological respects. We have everything what is required for it. We shall solve this problem.

ÅÌ: The reliable raw-material source for UMMC is directly associated with the Udokan copper deposit. Meanwhile new bidders appear, terms and time of sale are clarified what as some analysts think will bring down your company’s chances…

– Our company does not abandon the intention to participate in the Udokan tender but we also examine other variants of developing our raw-material base.
As to the talks on license sale schedule, possible start price, etc., the only thing must be said here: not a single claim of an individual bureaucrat can be valid. There must be a protocol signed by the Prime Minister of the Russian Federation where the Udokan tender date is indicated. As far as I know, the cabinet has not yet defined the date or terms and conditions of the license sale.
In any case the government, bidders and independent analysis must visualize a real-world problem: how difficult it will be to develop this deposit in a distant area under harsh climatic conditions, what investments it will take.

ÅÌ: The Russian Ministry of Mineral Resources submitted a new draft law on mineral resources. In your opinion, to what extent did this document reconcile the interests of national mining companies and the community?

– The law presupposes an open access to the interior of the Russian Federation and a possibility to work in this sphere for any interior user who observes the requirements of the law. A uniform procedure via tender is established, in other words, who offers the highest price will get a license. The Ministry of Mineral Resources and the Federal Agency for Usage of the Interior monitor the application of licenses. That is the main principle the law implies.
The draft law includes the provision that an access to strategic raw-material reserves is limited for foreign companies. This category covers deposits with tens of millions of tons of metals, let alone a large quantity of hydrocarbon material. However, the law does not regulate how to follow this rule. In actual practice a foreign company if its access to a strategic deposit is denied may duly appeal the decision in the court, at that, not only within Russian jurisdiction. Therefore it is very important to introduce a regulation excluding potential legal measures.

ÅÌ: Russia signed the Kyoto Protocol proceeding from politics, as everyone admits. It is time to ponder over the problems awaiting Russian producers. What shall be done in the time period left before the protocol enters into force?

– The requirements of the Protocol have not yet been formalized. A large job shall be fulfilled to convert this political declaration into figures and apply to industrial branches – power engineering, metals industry, gas sector, etc. The regulations will naturally be of concern to powermen, above all, as their proportion in CO2 emissions is the highest. These regulations will touch upon metallurgists but our figures are incommensurable with emissions by RAO EES Rossija.
In UMMC we carry on own calculations so as to clearly understand what our company has in store within the requirements of the Kyoto protocol today, tomorrow and the day after tomorrow. The calculations have not yet been completed but based on pre-estimate we shall be in line with the standard limitations even with due regard to our plans to construct new plants and productions.

ÅÌ: In conclusion please relate how your investment plans are being implemented.

– To start with, let us mention our projects aimed at reliable raw-material sources to be attained. All fields where we operate are involved in such projects. A new open-pit mine is put into operation in the north of the Sverdlovsk Region. A complex ore deposit is under development in the Altai Territory. A mine & concentrator is being constructed there. The expected capacity of mining and processing is not high but the ore is very rich. The Gaisky Mine & Concentrator’s reconstruction is going on. It is the main supplier of copper concentrate for corporate plants, and the mining undertakings in Bashkiria are being developed.
The reconstruction of the copper smelteries is aimed, above all, at the ecological problem to be solved. We want to reduce our scope of emissions to the level of foreign analogs in two years. At the main site of Uralelektromed Plant another copper rod shop will be built and the chemicometallurgical shop will be revamped after which it will comply with any Western plant.
In two or three years, most probably the problem to set up a new electrolysis production will be on the agenda. But although the wear rate of the existing facilities is high no problems, among them, those related to quality, arise. Virtually 100% of our copper conforms to M00K grade. I hope that next year our copper will pass an LME certification. In 2005 we intend to produce 350,000 t of cathode copper. With due regard to some measures already carried out provided a certain raw-material structure and uniform charge are maintained, this electrolysis production will permit 380,000 t of copper (and even more) to be made.


Photoes:
Along with metal production, UMMC is engaged in other business activities, in particular, construction. The company itself built a new office in the town of Verkhnyaya Pyshma according to its own building project.